Trusts & Estates Outline

Transfer of Decedent’s EstateI. Probate & Non-Probate Property

a. Probate = property passes through decedent’s will or intestacyb. Non-probate = property passing through instrument other than will

i. Does not involve a court proceeding (life ins., trust)ii. Can avoid probate if estate is small

II. Probate Procedurea. Appoint personal representative: executor (named by decedent),

administrator (appointed by court)b. Any part can demand formal probate (SOL = 3 years)c. Interested parties may demand supervised administration

Chapter 2: Intestacy: An Estate Plan by DefaultI. UPC §2-102: The intestate share of decedent’s surviving spouse is:

a. The entire intestate estate if:i. No descendent or parent survives decedent, or

ii. All D’s surviving descendents are also descendents of surviving spouse and there is no other descendent of surviving spouse who survives D

b. The first $200k, plus ¾ of any balance of intestate estate, if no descendent of D survives D, but a parent of D survives D

c. The first $150k, plus ½ of any balance of intestate estate, if all D’s surviving descendents are also descendents of surviving spouse and spouse has one or more surviving descendents who are not of the D.

d. The first $100k, plus ½ of any balance of intestate estate, if one or more of D’s surviving descendents are not descendents of surviving spouse

II. Ausness on §2-102a. No descendents or parents = all to spouseb. All descendents are descendents of spouse = everything to spousec. No issue, but parent(s) survives = $200k + ¾ to spouse d. All issue are descendents of spouse but spouse has other issue = $150k +

½ to spousee. D’s issue are not issue of spouse = $100k + ½ to spouse f. Note: Spouse’s shares is always calculated first. g. UPC & KY are parantelic (go down first)h. Children of spouse, if not by D, get nothing

III. §2-103 Share of Heirs Other than Surviving Spousea. Order = D’s descendents, then parents, then descendents of D’s parents,

then grandparentsIV. Uniform Simultaneous Death Act (§2-701, §2-104)

a. The death is deemed simultaneous unless the other survives 120 hoursV. Partial Intestacy

a. May exist if part of will is struck down

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Share of DescendentsI. 3 Basic Schemes

a. English (Strict) Per Stirpes i. Each generational line is treated equally

ii. Division would still be made at children, even if all dead, then grandchildren split out of that

b. Modern Per Stirpes (UPC 2-106(b)) i. If no children survive D, estate is divided equally at first

generation in which there is a living takerii. Each generational line treated equally; Eliminates dead generation

iii. “Equally near, equally dear.”c. Per Capita Without Representation

i. Each taker receives equal share regardless of generationii. Rarely used

d. Per Capita With Representation (KY)i. Equal shares at closest generational level, then descendents of dead

representative split according to that share. ii. Descendents “step into” shoes of dead taker

iii. Sometimes call per stirpes – this is incorrecte. Note: Surviving Spouse’s share will be calculated before any of these

systems are used. f. Problems on p.73-79

II. Negative Disinheritancea. Applies to wills, not defaultsb. Must make an express statement in will to disinherit child and leave the

money to someone elsec. UPC: Disinherit by express statement

III. Shares of Ancestors and Collaterals a. Collateral = relative who is neither ancestor nor descendent. Common

ancestor. b. If no issue, parents normally take under §2-102c. Different heirs at same number: (ex: great-grandkids and niece)

i. Parentillic: To niece – go down before overii. Civil: They split it (only the numbers matter)

d. “Laughing Heirs” – UPC only goes to second line collaterals (grandparents)

IV. Advancementsa. CL: Any lifetime gift to child presumed to be a prepayment of child’s

intestate share (advancement)b. To avoid: child must show transfer was intended as absolute gift to not be

counted against child’s estatec. Hotchpot (when it’s an advancement)

i. A receives $10k advancement, $50k left to A, B, Cii. $50k + $10k = $60k, then $60k / 3 kids

iii. A has $10k already, so gets $10 more; B,C get $20k eachiv. Participation in the hotchpot is voluntary

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d. When advancements exceed estatei. If advancement = $40k, and estate = $50k

ii. A stays out and keeps $40k, B,C split $50kV. UPC §2-109 Advancements

a. Treated as advancement only ifi. Declared/acknowledged in writing, or

ii. In writing to be taken into account for estateb. For (a), property advanced is valued as of the time the heir came into

possession of property, or at time of D’s death, whichever occurs firstc. If recipient does not survive D, property is not taken into account unless in

writingVI. Half-Bloods

a. UPC makes no distinctionb. KY: Half-blood gets ½, whole blood gets double that. c. No distinction if there are only ½ bloods and no whole bloods

VII. Posthumous Childrena. KRS §381.070

VIII. Non-marital Childrena. “The child of no one”b. Uniform Parentage Act: gives limited rights for children if paternity

shown

Bars to SuccessionI. Estate of Mahoney – Homicide

a. Remanded to determine whether spouse willfully killed husband.b. Constructive Trust imposed (Vermont Statute)

i. Equitable remedy imposed against one who inherits by wrongdoing

ii. Used to prevent unjust enrichment, creates no fid. dutyiii. Not a trust at all; beneficiary receives no use of property

II. Murdering Heirs Statutesa. UPC §2-803

i. Distinction between intentional and unintentional conductii. Civil standard of proof; criminal conviction is determinative of

intentiii. Treats slayer as if he predeceased D. (UPC & KY)

b. KRS §381.208i. Requires conviction of felony; forfeits all interest

c. Constructive Trust Statutes (above)d. Note: These are used only when there’s no statute for murdering heirs

III. Expectancya. The expected inheritance of heir apparentb. Child takes this action to release expectancy back to parentsc. Consideration is requiredd. Ex: X has children A, B. A has children C,D. X dies. A releases

expectancy. All goes to B, even though A has 2 kids.

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IV. Transfer of Expectancya. Can only characterize it as a K to transfer to 3rd partyb. But if A (promisor) dies first and has kids, and promisee is 3rd party = not

enforceableV. Renunciation & Disclaimer

a. A taker by either will or intestacy doesn’t want it: Decline to take propertyb. Heirs of disclamer still receive same amount disclaimer would’ve

received, so you can’t increase amount to your heirs. I.e., amount is frozenc. CL: intestate successor cannot prevent property from passing to himd. UPC §2-801

i. Can disclaim prior to D’s death, or 9 months afterwardVI. Drye v. U.S.

a. Cannot disclaim property in order to avoid federal government as a creditor. (Medicaid benefits)

VII. Troy v. Harta. If recipient renounces an inheritance that would cause him to be

financially disqualified from receiving benefits, the renunciation should incur the same penalty that acceptance would have brought about and should render recipient liable for any payment incorrectly paid by Gov.

Chapter 3: WillsMental Capacity

I. Testimental Capacity: Overview:a. To make a will, one must be of sound mind.b. Minority – must be over 18c. Mental incapacityd. Undue Influence – often happens to old peoplee. Fraud or duressf. To have standing to challenge a will, you must have a financial interest

II. Insane Delusiona. Causes particular provision in will – or entire will – to fail for lack of

testamentary capacityb. Legal, not psych, concept. Delusion = false concept of realityc. Delusion is insane if rational person in T’s position could not have drawn

conclusion of T.d. Strittmater: Probate set aside: it was her insane delusions about males that

led her to leave estate to National Women’s Party. (could differ now)e. I.D. v. Mistake: Mistake is susceptible to correction if T is told the truth.

III. Undue Influence (no exact legal definition)a. Basic Test:

i. 1. T was susceptible to itii. 2. Influencer had the disposition or motive to do it

iii. 3. Influencer had opportunity to do itiv. 4. Disposition is result of the influence

b. Various tests are used. Other tests:i. Confidential relationship: some trust or reliance

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ii. Rest. §8 TEST: Suspicious Circumstances1. Whether T received independent advice2. Extent of weakened condition3. T’s attitude toward others changed4. Discrepancy between new and older will5. Reasonable person would view as unjust, unfair

c. Burden of persuasioni. Will proponent must show will is valid (easy)

ii. Contestant must show substantial evidence of undue influenced. Lakatosh TEST:

i. 1. There was a confidential relationship (*in every test)ii. 2. received bulk of estate

iii. 3. D’s intellect was weakened. e. Lipper TEST

i. 1) Confidential relationship, 2) Motive, 3) Opportunity, 4)Causation

IV. UI & Attorneysa. PR: L shouldn’t let T give him anything, unless related

V. Moses (not assigned)a. Test: 1) Confidential relationship + 2) Suspicious Circumstances

VI. No Contest Clausea. Beneficiary who contests will shall take nothing, or token amount, in lieu

of provision made for them in willb. Majority: Enforce unless there is good cause for the contest. (UI)c. Minority: Strict enforcement

FraudI. Overview

a. T deceived by misrepresentation and does that which she would not have done but for the misrepresentation

b. Usually must have intent and purpose of misleadingc. Remaining portion of will stands unless fraud is entire willd. Remedy: Usually constructive trust

II. Fraud in the Inducementa. One misrepresents facts, causing T to execute will to include provisions in

wrongdoer’s favor, or refrain from executing/revoking will.III. Fraud in the Execution

a. One misrepresents the character or contents of instrument signed by T, which does not carry out T’s intent

b. Test: 1) Intent to deceive T, 2) For purpose of influencing T’s disposition, 3)Causation (succeeds in doing so)

DuressI. Overview

a. When U.I. becomes overly coercive

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b. Wrongdoer performs or threatens to perform wrongful act that coerced T to make donative transfer she otherwise would not have made.

c. Remedy: InvalidatedII. Latham v. Father Divine

a. T planned on redoing her will, cult killed her in surgery.b. Constructive Trust used whenever necessary to satisfy demands of justice

when someone is prevented from making a will.

Chapter 4: Wills: Formalities & FormsI. Overview

a. Basic will formalities: 1) Writing, 2) Signed by T, 3) Attestation by Wsb. Statutes vary on whether W must view T signing willc. Intent may be established by extrinsic evidenced. KRS: “Credible Ws” only – Ws inherit nothing from will

II. Stephens v. Casdorpha. T did not properly execute will when Ws signed outside presence of T

III. Estate of Parsonsa. Ws later disclaimer of interest did not render her “disinterested” at time

of signing. Will invalid. b. CA later adopted UPC (with no interested W provision) and dumped this.

IV. Differing Will Requirementsa. Groffman: No probate, must be 2 or more Ws at same time. (English Wills

Act)b. KRS: Two “credible” (disinterested) witnesses requiredc. UPC: Does not state that Ws must be credible or disinterested

V. Extra Benefit Rule (only some states)a. KY: If you’re interested W, only the “extra benefit” is invalidated. b. Ex: if you would get certain amount under intestacy, you will still receive

this, but not any “extra benefit” provided for in willc. If W would’ve gotten more before the will, W gets what this will says

VI. Purging Statutea. KY: “Interested” extends to close relatives of W

VII. Supernumerary Statutesa. Have more than 1 W so that if 1 is interested, you’ll still have enough for a

valid will. VIII. Direct v. Indirect Interested Ws

a. Ex: T leaves money to church, at which W is pastor. This is ok. b. If nursing home, look for undue influence. c. Compensation v. Gift: Interested W statutes are concerned only with gifts.

If 1% goes to executor, this is ok. Creditors can be Ws because T is paying a debt, not giving a gift.

Presence (Imp!)I. Line of Sight Test

a. W requirement to sign in presence of T satisfied only if T is capable of seeing W sign.

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b. T must be able to see W sign, were he to look.II. Conscious Presence Test

a. W is in presence of T if T, through sight, sound, or general consciousness of events, comprehends that W is in act of signing

III. UPCa. Dispenses altogether with requirement that W sign in T’s presence

IV. Signinga. If you’re illiterate, an X will suffice. Anything you intend to be your

signature is ok.b. If you’re too ill, you may direct someone else to sign for you.

V. Additions to Will Before/After Subscription:a. Determine whether it’s added before or after signatureb. If after, the addition is invalid and will is okc. If before, then may either

i. Claim whole will is invalid, orii. Ignore material below signature.

d. Normally doesn’t apply to holographic willse. To add to existing wills, follow all procedures (Ws, etc) after adding it.f. KY: Ws must be in presence of T.

Executing a WillI. Personal Property

a. The law of D’s domicile at death determines validity of willII. Real Property

a. The law of the state where property is located determines validity of disposition of real property.

III. Comity Statutesa. When you execute valid will where you’re domiciled then you move to

state where will would not be validly executed. b. Allows will to be valid now if it was valid originallyc. To be valid in all states: p. 15 of outline

IV. Safeguarding a Willa. Self-Proved Will

i. UPC: Signed will + affidavit signed by T, W, and notaryii. Ws not required to be present when will is probated

iii. Ausness recommends thisb. Deposit with Clerk

i. L shouldn’t keep will – looks like solicitation V. Mistake in Execution

a. Pavlinko’s Estate: Husband and wife mistakenly signed each other’s willi. Held: Will is invalid because exceptions cannot be made to Wills

Act.b. In re Snide: Same as Pavlinko, but wills were identical

i. Held: Will properly admitted to probate, dispositive provisions in both wills are identical.

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Curative DoctrinesI. Overview

a. Gives court the power to dispense with formalities if there is clear and convincing evidence that D intended document to be his will

b. Harmless Errorc. Attestation Clauses: provide prima facie evidence that T voluntarily

signed will in presence of witnessesd. Self-Proving Affidavits: sworn statements by eyewitnesses that will has

been duly executed. II. Substantial Compliance –

a. When T almost complied whollyb. If there is clear and convincing evidence that purposes of formalities were

served despite a defective execution, will admitted to probatec. Ranney

i. Accidentally signed attestation clause instead of something else. ii. Remanded to determine whether execution of will substantially

complies with statutory requirements. d. A: If T videotapes his will, S.C. will not help because T hasn’t complied at

all.III. Dispensing Power

a. Statute providing for probate of a document that was not properly executed if court is satisfied that there can be no reasonable doubt that deceased intended the document to constitute his will.

b. UPC §2-503: Court is to look not for whether purposes of formalities were served [like substantial compliance], but at whether T intended the document or writing to constitute his will.

c. Estate of Halli. Husband and wife executed joint wills, notarized but no W.

ii. Will probated: evidence that he intended this to be his will, and he had directed that his prior will be destroyed.

iii. Ausness: Joint wills are bad idea.IV. Reciprocal Wills (these are common)

a. Testamentary scheme – reflected in both wills – when 1st spouse dies, remaining property goes to surviving spouse

b. When 2nd spouse dies, gift goes to 3rd person because survivorship clause (to spouse if alive) isn’t met

V. Reformationa. Change language so will reflects actual intent of partiesb. Allows extrinsic evidence to show intent

VI. Integrationa. May have to integrate another document to get the will (may be more than

one)b. Technique of will construction and interpretationc. Try to figure out what is the will and what is not.

VII. Dependent Relative Revocation (explained later)

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a. When revocation of will is based on a misunderstanding as to the legal effect or factual questions, the revocation is conditional upon those facts being correct.

Holographic WillsI. Overview

a. To be valid, entire will must be handwritten and signed by T. b. KY does not require Ws if will is entirely in T’s handwriting

II. UPC §2-502(b)a. A will that is not executed is valid as a holographic will, whether or not

witnessed, if the signature and material portions of document are in T’s handwriting.

b. Material portions = parts that dispose of property and reflect testamentary intent.

c. §2-502(c): Intent that the document constitutes T’s will can be established by extrinsic evidence, including, for holographic wills, printed portions in the will.

d. Can’t use printed part to provide essential language to will being testamentary

III. Kimmel’s Estatea. Signed “father” at end and said “If anything happens to me.”b. Probated, testamentary intent to execute will is apparent.

IV. Conditional Willsa. “If I don’t return…”b. Condition is a statement of inducement for execution of will.c. Does not mean will is to be probated only if condition occurs.

V. Casesa. Kuralt

i. Use of term “inherit” in letter shows testamentary intentb. Mulkins

i. Eliminate pre-printed language as “mere surplasage,” look at what is in T’s handwriting to see whether there’s enough for holographic will

VI. Codicila. Addition to previous will changing some, but not all, of the provisions of

previous will.

Revocation of WillsRevocation by Writing or Physical Act

I. All states permit revocation of will bya. 1. Subsequent writing executed with testamentary formalities, or b. 2. Physical act such as destroying, burning will, etc.c. Oral declaration that will is revoked, without more, is insufficient.d. If a duly executed will is not revoked in a manner permitted by statute,

the will is admitted to probate.

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II. UPC §2-507 Revocation by Writing or Acta. A will or any part thereof is revoked

i. By executing subsequent will that revokes previous will or part expressly or by inconsistency, or

ii. By performing a revocatory act on the will, if performed act with intent and for purpose of revoking will or part or if another person performed act with T’s conscious presence and at his direction.

III. Lost Willsa. Can still be probated if accidentally lost or unintentionally destroyedb. No revocatory intent

IV. Codicila. Supplements will, does not replace it.b. If subsequent will does not make a complete disposition of T’s estate, it

is not presumed to revoke the prior will but is viewed as a codicil.c. If a codicil is revoked, return to original will without codicil.

V. Duplicate willsa. Not a good ideab. If you do, write “Copy” on it.

VI. Presumption of Revocationa. If no one can find will, presumption is that T intentionally revoked it by

act. b. Courts vary on strength of this presumption

VII. Casesa. Harrison v. Bird

i. T wants to revoke, L rips into 4 pieces and sends to her. ii. If evidence shows T had possession of will before death, but will

is not found, rebuttable presumption that T destroyed will.b. Thompson v. Royall

i. T intended to revoke will, judge wrote “void” on back of it.ii. The attempted revocation is ineffectual because T intended to

revoke will by subsequent writings not executed , and because it was not physically defaced in any way.

iii. Intent, but no revocatory act.iv. If T had written the revocation, and this was holographic will,

revocation would probably be ok. VIII. Canceling

a. Cancel through clause 1 and not the others. b. Construed as partial revocation that revokes clause 1.

Dependent Relative Revocation and RevivalI. DRR Elements

a. 1. Valid willb. 2. Purported Revocation

i. By physical act, or ii. By subsequent testamentary instrument

c. 3. Mistake of law or fact

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d. 4. Which frustrates T’s alternative plan of distributionII. Overview

a. If T mistakenly believes new will is valid and destroys old will, old will will be probated.

b. DRR Applies ONLY:i. 1. When there is an alternative plan of disposition that fails, or

ii. 2. Where the mistake is recited in the terms of the revoking instrument or, possibly, is established by clear and convincing evidence

III. LaCroxa. T left will and codicil clarifying a name. Codicil was void because of

interested W. b. Held: T’s intention to revoke will was conditioned upon execution of

codicil that had same disposition as estate. No intestacy.

Revival I. Requirements:

a. 1. Valid Willb. 2. Revocation by subsequent testamentary instrument (usu. another

will)c. 3. Revocation (by any method) of covering willd. Note: If you tear will #1 up, there is no revival. Revival occurs only when

will #1 is replaced by will #2, then #2 is revoked in any way. IV. Revival Approaches

a. CL: Automatic revivalb. Majority (old UPC):

i. Will revived if T so intendsii. A likes this.

iii. §2-804 Revocation upon Divorce: Revokes any revocable (i) disposition of property made by divorced individual to his former spouse in governing instrument and any disposition created by law/instrument to relative of divorced one’s former spouse, and 2) Severs the interests of former spouses in property held by them at time of divorce/annulment as JT, transforming interests of former spouses into equal tenancies in common.

c. Minority (KY)i. Will must be re-executed or republished by codicil.

V. Estate of Alburna. T executed will M, then will K, and tore up K will mistakenly believing it

would revive M. b. K will probated under doctrine of relevant revocation because it was

revoked by mistaken understanding that M would then be valid.

Components of a WillI. Integration of Wills

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a. All papers present at time of execution, intended to be part of the will, are integrated into the will.

b. Preventable by fastening all pages together. II. Republication by Codicil

a. Works like a re-execution of the will.b. Ex: Will #2 revokes #1. T adds codicil to #1. Will #1 is republished and

#2 is squeezed out.c. Difference between Republication and Inc. by Reference: Republication

applies only to a prior validly executed will, whereas incorporation by reference can apply to incorporate into a will language/instruments that have never been validly executed.

III. Incorporation by Referencea. Non-testamentary things are incorporated into will.b. UPC §2-510: Any writing in existence when a will is executed may be

incorporated by reference if language of will manifests this intent and describes the writing sufficiently to permit its identification.

c. To apply: 1) Incorporated document in existence, 2) Will manifests an intent to incorporate, and 3) Will sufficiently describes writing to be Inc.

d. Clark v. Greenhalgei. T stated in will she had designated items in notebook memo.

ii. Notebook incorporated by reference into T’s will.iii. Notebook existed when she executed her codicil, which

republished her will.e. Simon v. Grayson

i. T’s will left $ to be paid as directed in letter. Letter’s date differed than will’s description.

ii. Held: This was the letter, despite discrepancy in date.iii. Letter was dated prior to codicil, which republished will, so was in

existence at time will executed.IV. Acts of Independent Significance

a. If beneficiary/property designations are identified by acts/events that have a lifetime motive and significance apart from effect on will, gift upheld

b. UPC §2-512: Events of Independent Significancei. Will may dispose of property by reference to acts/events that have

significance apart from their effect on the dispositions made by will, whether they occur before or after execution of will or T’s death. The execution or revocation of another’s will is such an event.

c. Differs from incorporation because here, it can occur before or after execution of will or T’s death.

Power of Appointment: 2 typesI. General Power

a. Gives holder of power (donee) power to choose anyone, including himself, as beneficiary.

b. (Ex’s on page 44 notes, imp)

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II. Special Powera. Can only choose among a limited class. (Ex: charitable trust only)

III. Johnsona. T left typed will, no Ws, no signature or date. T later added codicil in his

own handwriting on bottom of page.b. Admitted to probate; The handwritten portion was a valid holographic

codicil that republished and validated the prior will. c. Codicil incorporated prior will by reference and republished, validated.d. A disagrees with outcome because will was not validly executed.

Contracts Relating to WillsI. Overview

a. One may enter into K to make a will or to not revoke a willb. Remedies: 1) Receive its value or 2) Specific performance

II. Will Contractsa. 1. Contracts to make a will

i. Consideration requiredii. Statute of Frauds applies

b. 2. Contracts not to make a willi. Die intestate

c. 3. Contract not to revoke existing willi. Breach of K if they do.

III. Notea. Usually applies to

i. Joint Will: one instrument executed by two persons as will of both. Probated at each death.

ii. Mutual wills: Separate wills of two or more persons that contain similar or reciprocal provisions.

iii. Joint and Mutual Will: Joint will in which respective Ts make similar or reciprocal provisions.

1. A mutual will with an underlying K. IV. UPC §3-514 Contracts Concerning Succession

a. Requirements for K to make a willi. Provisions of will stating material provisions of K

ii. Express reference in will to a K and extrinsic evidence proving terms of K

iii. Writing signed by T evidencing K (independent of will)iv. Note: Doesn’t require K to be in writing, but easier to prove if it is

V. Via v. Putnama. H, W executed mutual wills to give children estate after deaths. H

remarries after W death. H dies, children want creditor status before W2.b. Pretermitted Spouse Statute: (FL) Surviving spouse shall receive share

at/equal to what he/she would receive under intestacy. c. Held: Children, as 3rd party beneficiaries, should not be given creditor

status when interests contravene spouse interests under PSS. d. Children will get out of residuary estate, but spouse takes first

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e. Note: Ks do not apply to property surviving spouse acquires after death of spouse.

Chapter 6: Will ConstructionMistaken or Ambiguous Language in Wills

I. Overviewa. JDs: Bar admission of evidence to vary terms of will.b. Plain Meaning Rule: extrinsic evidence admitted to resolve some

ambiguities, but plain meaning of words not disturbedc. No Reformation Rule: Reformation would correct a mistaken term in

will to reflect T’s intention. II. Mahoney v. Grainger

a. It is only where testamentary language is unclear in its application to facts that evidence may be introduced as circumstances under which T used language to help its meaning.

b. Where no doubt exists as to the property or identity, no extrinsic evidence is allowed.

III. Notea. Personal usage exception: If extrinsic evidence shows that T always

referred to one by a nickname, evidence is admissible to show T meant someone other than person with that legal name.

b. Patent ambiguity: ambiguity appears on face of will. JDs vary.c. Latent ambiguity: ambiguity manifests itself when will terms are applied.

i. Equivocation: Fits two or more people or thingsii. Fits nothing

IV. Anheiter (wrong house #)a. Where description of thing/person consists of several particulars and all

of them do not fit any one person/thing, less essential particulars may be rejected provided the remainder of description clearly fits.

b. Gibbs: Middle initials, house #s will normally be taken out if inconsistent

Openly Reforming Wills for MistakeI. Mistake in Execution

a. Courts usually won’t help you with thisII. Mistake in the Inducement

a. T makes/revokes will because of some mistakeb. Courts are reluctant to allow extrinsic evidence to reform willc. Sometimes use Dependent Relative Revocation

III. MisdescriptionIV. Scrivenor’s Errors

a. L makes mistake by writing/leaving out the wrong thingb. Traditional Approach: No reliefc. Modern Approach: Reform will so it reflects T’s intentd. Erickson: If scrivenor’s error has misled T into executing will on belief

that will be valid notwithstanding T’s subsequent marriage, extrinsic evidence of that error is admissible to show intent of T.

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V. Rest. §12.1a. A donative document, though unambiguous, may be reformed to conform

text to donor’s intention if, by clear and convincing evidencei. Mistake of fact or law affected specified terms, and

ii. Donor’s intention is known

Death of Beneficiary Before Death of TestatorI. Anti-Lapse Statutes

a. Lapse = If devisee does not survive T, gift lapsesb. Some states have anti-lapse statutes, which substitute another beneficiary

for predeceased devisee in certain circumstances. c. UPC §2-605 (Old UPC) Antilapse; Deceased Devisee, Class Gifts

i. If devisee who is grandparent/lineal descendent of grandparent of T is dead at time of execution of will, fails to survive T, or is treated as if he predeceased T, the issue of deceased devisee who survives at least 120 hours takes in place of deceased devisee.

ii. If all of same degree of kinship to devisee, they take equally. If unequal degree, then those of more remote degree take by representation.

iii. One who would have been a devisee under a class gift if he had survived T is treated as devisee under this § whether his death occurred before or after execution of will

iv. Note: This applies only when will does not specify what should happen next.

v. Note: UPC Applies only to devisees to grandparent or lineal descendent of grandparent.

d. To avoid anti-lapse statute, say, “To A if he survives me,” or state that antilapse should not apply.

e. Does not prevent a lapse, merely substitutes other beneficiaries (usu. issue) for dead beneficiary if certain requirements are met.

f. Be sure to determine whether will language indicates T had a “contrary intention” to the application of antilapse statute.

II. Estate of Russella. Left ½ estate to dog.b. Intended gift to dog is invalid b/c he can’t be beneficiary. Through

intestate succession, the heir was entitled to receive the ½ interest intended for dog.

III. Allen v. Talleya. “To living brothers and sisters, to share and share alike.”b. Will contained words of survivorship, precluding application of

antilapse statute.

Class GiftsI. Overview

a. If class member predeceases T, surviving class members divide total giftb. TEST for whether it’s a class = Whether T is “group-minded”

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i. If T uses class label in describing beneficiariesii. If individual names: court admits extrinsic evidence to determine if

T would want survivors to divide propertyII. Rest. §13.1: Class Gift Defined

a. Class gift is a disposition to beneficiaries who are described by a group label and are intended to take as a group. Taking as a group mean:

i. Membership of class is typically not static, but subject to fluctuation by increase/decrease until time when class member is entitled to distribution, and

ii. Upon distribution, property is divided among then-entitled class members on fractional basis

b. If terms of disposition identify beneficiaries only by a group label, disposition creates a class gift, unless language or circumstances indicate that transferor intended beneficiaries to take as individuals

III. Rest. §13.2: Class Gifts Distinguished from Individualsa. If terms of disposition identify beneficiaries only by name, without any

reference to group label, the disposition does not create a class gift, but is to the beneficiaries taking as individuals.

b. If the terms of disposition identify beneficiaries 1) by group label and 2)Either by name or by number of beneficiaries who then fit the group label, the disposition is presumed not to create a class gift, but is to the beneficiaries taking as individuals. The presumption is rebutted if language or circumstances indicate that the transferor intended the beneficiaries to take as a group.

IV. Dawson v. Yucusa. T left ½ gift to one nephew 1, and ½ to other (left one out). 1 died.b. Held: T’s will did not create class gift and 1’s gift will pass to 1’s heirs.

No language to indicate T wanted class gift. V. Sullivan

a. Court admitted extrinsic evidence to prove class gift to because T didn’t want to pass by intestacy.

VI. In re Moss (A likes)a. T intended class gift because property is to be shared equally.

Changes in Property after Execution of Will I. Types of Devises

a. Specifici. Some identifiable type of property. (house, car)

b. Demonstrativei. Hybrid; Bequest of certain amount of money to come from a

specific source.c. General

i. Something fungible; usu. moneyd. Residuary

i. Everything that has not been disposed of under the categories. II. 1. Ademption by Extinction

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a. Applies to specific devises of property only. b. Two Theories

i. Identity Theory: if specifically devised item is not in T’s estate, gift is extinguished (Traditional Rule)

ii. Intent Theory: Beneficiary may get cash value of the item if he can show that this is what T would have wanted.

c. Applies only when there is a change to specific devise after will executed and before death

d. UPC §2-606 (Intent-based approach)i. A specific devise has a right to the specifically devised property in

T’s estate at death and 1. Any balance of purchase price2. Any amount of condemnation award for taking property3. Any proceeds unpaid at death on fire/casualty insurance4. Property acquired as a result of foreclosure5. *Real or tangible personal property owned by T at death

which T acquired as a replacement for specifically devised real or tangible personal property.

6. If not covered under 1-5, a pecuniary devise equal to value as of its date of disposition of other specifically devised property disposed of T’s life as long as intent

ii. If specifically devised property is sold/mortgaged by conservator or by agent acting within authority…or if condemnation award, insurance, or recovery for injury to property are paid to conservator or agent…the specific devisee has right to a general pecuniary devise equal to net sale price, amount of unpaid loan, condemnation award, insurance proceeds, or the recovery

iii. Right of specific devisee under (b) is reduced by any right devisee has under (a)

III. Waserman (Identity theory)a. T left building to A, but sold property before death.b. Held: Specific devise was adeemed by act of T. (Same rule for wills &

trust)c. Focus is on actual existence/nonexistence of property, and not on intent of

T with respect to it. To be effective, a specific devise must be in existence and owned by T at time of death.

IV. 2. Stock Splits and Problem of Increasea. Absent contrary showing of intent, devisee of stock is entitled to

additional shares received by T as result of stock split.V. 3. Satisfaction of General Pecuniary Bequests

a. Ademption by Satisfaction b. Applies to general pecuniary bequests only. If specific property is given to

beneficiary, gift is adeemed by extinction, not satisfactionc. When T makes transfer to devisee (while living) after executing will.d. Rebuttable presumption that gift is in satisfaction of will gift. e. Some states consider T’s intent.

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VI. 4. Exoneration of Liensa. When will makes specific devise of land, on which there is a mortgageb. Some states apply this doctrine, so presumed that T wanted debt to be paid

out of residuary estate. VII. Abatement (Imp!) – Matt has fractions

a. Arises only when estate has insufficient assets to pay debts and devises.b. In absence of any indication in will as to how devises should abate/be

reduced, devises ordinarily abate in this order:i. 1. Residuary devises reduced first

ii. 2. General devises reducediii. 3. Specific and demonstrative are last and reduced pro rata

Chapter 7: Restrictions on the Power of Disposition: Protection of Spouse & KidsI. Rights of Surviving Spouse

a. Two Different Marital Property Systemsi. Separate Property

1. Gives surviving spouse, by statute, an elective share (aka forced share) in estate of deceased spouse

2. Enforceable against all property of decedentii. Community Property

1. These states give ½ interest to spouseII. Devices to Protect Family of Decedent

a. *These are ahead of the claims of creditors.i. Order: These allowances, creditors, beneficiaries

b. Homestead Allowancei. Fixed-sum allowance

ii. UPC §2-408 recommends $15,000c. Personal Property Set-Aside

i. Family members may set aside a some personal propertyii. UPC recommends $10,000

d. Family Allowancei. Maintenance while will is being probated

ii. UPC allows probate court to set aside reasonable allowanceiii. Usually based on estate size and lifestyleiv. Cutoff is at 1 year.

e. Dower and Curtesy:i. Applies only to intestacy situations and inheritable property only

ii. Inchoate dower: if D owned property at any time during marriage, and then sold it, spouse had a “lesser right” (life estate) to 1/3 of it.

iii. If spouse ever bought property during marriage, spouse gets 1/3iv. Exception: If D mortgaged property prior to marriage, no dower

rightsf. Also includes: Social security, ERISA

Rights of Surviving Spouse to Share of Decedent’s PropertyI. The Elective Share

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a. Spouse can either take under D’s will or renounce will and take fractional share of D’s estate

b. UPC: Share determined by % based on length of marriagec. Estate of Cross – Incompetent wife. Judge elected for her to take intestate

share. i. In Wife’s best interest. Otherwise, she would receive no money and

be deemed ineligible for benefits for failing to avail herself to potential income.

d. Cooperi. Homosexual relationship does not give rise to any spousal rights

under elective share.II. Property Subject to Elective Share

a. Trusts: i. Assets of inter vivos trust created during marriage to D spouse

over which he alone had general power of appointment is treated as part of the D’s estate.(Sullivan)

ii. No consideration of motive or intent of D is needed.iii. Note: Elective share statutes ignore inter vivos trusts and focus on

entire estate (includes this trust) - ?b. UPC (1990): How augmented estate is computer

i. Calculate elective share % (usu. 50%)ii. Determine value of augmented estate

iii. Determine elective share amountc. Example

i. H and W married 25 years. Under §2-202, W entitled to elective share of 50%. H’s augmented estate consists of:

1. $100k probate estate, to A2. $150k nonprobate transfers to other than W3. .$25k life insurance to W4. $50k H’s ½ interest in JT with W5. $75k W’s property6. $50k W’s ½ JT interest

ii. W has elective share of 50% of whole ($225k). Since W owns $75 in own name, that amount is credited against her elective share, reducing it to $150k. Also credited are $25k life ins., $50k H/s ½ JT share, $50k W’s ½ JT share. So, W entitled to $25k elective share.

III. Waivera. Premarital agreements enforcing waiver of right to elective share are

valid. b. UPC §2-213c. Estate of Garbade

i. Premarital waiver of elective share is validii. The party attacking the validity of the waiver has burden of

showing evidence of fraud. IV. Rights of Surviving Spouse in Community Property

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a. After marriage, all property that comes into marriage (except inheritance), belongs to married couple jointly, regardless of title.

b. Becomes community property immediately absent agreement to contraryc. Widow’s Election

i. H executes will devising all community property in trust for W income for life. Requires W to elect between surrendering her ½ of community property and taking under H’s will.

V. Migrating Couples and Property Holdingsa. From Separate Property State to Community Property State

i. Ownership of movable property is determined by law of state where couple is domiciled when property acquired.

ii. Real property is subject to state where it’s located.b. From Community Property State to Separate

i. Does not change the preexisting property rights of spouse. ii. Can always voluntarily change character of property (JT, etc)

Pretermitted ChildrenI. Old UPC (KY)

a. Child receives intestate share when D fails to provide for child born or adopted after will executed, unless appears that omission was intentional.

b. Prevent this by giving child $1. II. Azcunce

a. Child born after will executed, but before codicil. No provision for him.b. Held: Child was not pretermitted child under statute because codicil

republished will and child was alive at this time.

Chapter 8: Trusts: Creation & CharacteristicsI. Express trusts

a. Normally in writingII. Inter vivos trusts (aka living trust)

a. Trust created during lifetime of settlorb. Can be revocable (flexible) or irrevocable (tax break)c. Created either by declaration of trust or deed of trust

III. Declaration of Trusta. Settlor is trustee and there’s no actual transfer.b. “I hold my assets in trust for benefit of A.”c. Equitable title goes to beneficiary and legal title to settlor/trustee.

IV. Deed of Trusta. Transfer of both legal and equitable titleb. “X transfers property of Y (trustee) for benefit of Z.”c. Requires delivery of deed/property.

V. Trust Corpus or PrincipalVI. Testamentary Trust

a. Created by willb. Irrevocable since you’ll be dead

VII. 3 Groups

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a. Settlorb. Trustee

i. Holds legal title, has fiduciary duties, can have more than one.c. Beneficiary

i. May be settlor, trustee, and beneficiary, as long as there’s another beneficiary as well.

VIII. Overviewa. If settlor creates trust but fails to name trustee, court appoints one. b. Trust will not fail for want of a trustee.c. Applies only to testamentary, not inter vivos, because of delivery

IX. Intent to Create Trusta. Sole question is whether S manifested an intention to create trustb. Unless contrary intention appears in will or appointment is deemed

improper or undesirable, executor will be trustee.X. Jimnez

a. Father used trust money intended for children’s education for stocks.b. Father violated duty to beneficiary to administer trust solely for

beneficiary’s interest. c. Violated fiduciary duty; he’s responsible for paying for it.

XI. Hebrew Universitya. D told university she intended to make gift of library to them. b. Held: Had D delivered library, would have been a valid gift. c. Nothing evidence indicates D intended to create a trust.

XII. Hebrew University IIa. Delivery of the memorandum with D’s acts and declarations shows an

intention to give ownership of library and is sufficient to create a gift.

Necessity of Trust PropertyI. Unthank v. Rippstein

a. D wrote letter to R and said he’d send her monthly payments for 5 years, even in event of death.

b. Writing is insufficient to establish a trust; The writing was merely a promise to make a series of gifts in the future and is unenforceable.

II. Brainarda. B orally declared a trust of his expected profits. No stock existed at time.b. Did not create a valid trust for future profits. c. If B actually had stock/profits at time of declaration, trust would be

created.III. Speelman

a. P made K with beneficiary to assign shares in future royalties from play.b. This is a gift case, not trust, but same question: Was any property capable

of delivery?c. Held: Beneficiaries entitled to receive %s in K because assignment to of

future interest not present at time of assignment created irrevocable transfer to .

IV. Note

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a. One may assign future profits from an existing thing.b. One may assign future earnings from existing K.

V. Power of Appointmenta. Right to say who receives property

Necessity of Trust BeneficiariesI. Clark v. Campbell

a. D’s will instructed “friends” to distribute his property.b. Not a trust because there are no identifiable beneficiaries and no

sufficient criterion to govern selection of individual “friends.”II. In re Searight’s Estate

a. D’s will provided $ for the care of his dog. $1,000: .75/day, will last under 21 years

b. Held: Trust does not violate the Rule Against Perpetuities he provided a time limit under RAP.

c. This is not a charitable trust because benefit is for only one dog. d. Honorary Trust: Binds the conscious of the trustee, since there is no

beneficiary capable of enforcing the trusti. Not recognized in all states.

Oral Trusts for Disposition at DeathI. Oliliffe v. Wells

a. D left will devising will to A to distribute in manner D expressed during life (charity)

b. Held: Trust not sufficiently declared on face of will and cannot therefore be set up by extrinsic evidence to defeat rights of heirs.

c. Trust is too indefinite on its face to be carried out.II. Semi-Secret Trust

a. We know there is a trust, but not the terms of the trust. (Oliffe)b. Not enforced!

III. Secret Trusta. We don’t even know a trusts existsb. Extrinsic evidence is allowed to establish that a trust exists and its termsc. Enforceable. (Secret are better than Semi)

Chapter 5: Non-probate Transfers & Planning for IncapacityRevocable Trusts

I. Inter-vivos trustsa. Can be irrevocable or revocableb. Revocable = S may change terms of trust, so functions like a will.

II. Farkasa. F created inter vivos trust for W with stock certificates, and retained right

to vote, terminate, etc.b. As settlor, F can revoke/amend trust. F can receive dividends, so he and W

are beneficiaries.

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c. Held: Trust valid because beneficiary acquired immediate, though undefined, interest in trust at creation, and F had fid. duties.

III. Pour-Over Willsa. A will giving money or property to an existing trust (Black’s)b. Pilafas

i. No presumption of revocation if trust instrument is not found.ii. Rest: To revoke, may use any means as long as intent to revoke.

c. Reiseri. Where person places property in trust and reserves right to

amend and revoke, settlor’s creditors may, following death, reach in satisfaction to debts owed, to extent not satisfied by S’s estate.

d. Notei. Life insurance usually exempt from creditors’ claims.

IV. Uniform Testamentary Additions to Trust Act (UTATA)V. §2-511 Testamentary Additions to Trusts

a. p. 311 [write this]VI. Clymer

a. W created inter vivos trust for H while married. Divorced, W died. b. Divorced spouse should not take under revocable trust in these

circumstances because divorce implies an intent.

Right of Beneficiaries to Distributions from the TrustI. Overview (most trusts are hybrid)

a. Mandatory Trusti. Trustee must distribute all income.

ii. No discretionb. Discretionary Trust

i. Trustee has discretion over payment of income and/or principalii. Complete Discretion: Spray Trust

1. Trustee has discretion to determine who and what amount2. Trustee must distribute all the income.

iii. Support Trust1. Discretion limited by ascertainable support standard.2. Trustee determines amount of money beneficiary requires

to maintain current lifestyleiv. Discretionary Support Trust

1. Trustee gives beneficiary amount he deems necessary to support

II. Trustee Standard of Care –2 Standardsa. 1. Reasonable Judgment Standard

i. Objective due care standardb. 2. Good Faith Standard

i. Subjective standardIII. Marsman

a. Will created support trust with F to support C.

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b. Will imposed a duty of inquiry on trustee, and therefore a constructive trust imposed on amounts that should have been distributed to C.

c. Exculpatory clause is effective. IV. Exculpatory Clauses

a. UPCi. An exculpatory term drafted or caused to be drafted by trustee is

invalid unless trustee proves that the term is fair under circumstances and its existence and contents were adequately communicated to settlor.

b. Exculpatory Clause will not be enforced if it covers bad faith, reckless indifference, or intentional or willful neglect.

V. Mandatory Arbitration Clausesa. Not enforceable.

Rights of Beneficiaries Creditors I. Self-Settled Rights

a. Debtor creates trust for himself b. Creditors can generally reach this, even if discretionary interest.

II. Third Party Trustsa. Discretionary

i. Create merely an expectancy, not a real interest, so nothing for creditors to reach.

ii. Creditors cannot reach until money is actually giveniii. Courts cannot force trustee to exercise discretion in particular wayiv. Since beneficiary has no right to payment, creditor also cannot

compel trustee to pay him.b. Support Trusts

i. Purpose is to provide support for beneficiaryii. Free from general creditor’s claims because trust purpose is very

specificiii. Exception: Providers of “necessaries” can get money directly from

the trustee. c. Spendthrift Trusts

i. Trust where beneficiary is prohibited from alienating his own interest in the trust.

ii. Must expressly restrict power of alienation.iii. Since beneficiary has no power to alienate trust, neither do

creditorsiv. Exceptions:

1. Beneficiary is also the settlor, or2. Assets were fraudulently transferred to the trust3. Maintenance, child support, necessary goods/services, taxes

d. Asset Protection Trustse. Note: Once money is in debtor’s hands, creditors can reach it. To get

around this, redirect money to Swiss account, etc.III. Uniform Trust Code §504

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a. Except as in (c), creditor of beneficiary may not compel distribution that is subject to trustee’s discretion.

b. (c) To extent trustee has not complied with standard of distribution or has abused a discretion

i. Distribution may be ordered by court to satisfy judgment to pay child, spouse, or former spouse, and

ii. Pay such amount as is equitable for this, but not more than amount trustee would have been required to distribute to beneficiary had trustee complied.

IV. Protective Trusta. Trustee is directed to pay income to B, but if B’s creditors attach B’s

interest, B’s mandatory income interest ceases, and discretionary trust automatically arises.

b. Creditors of B cannot demand any part of it.V. Scheffel – Tort Claims

a. has tort claim against who abused ’s daughter. ’s trust has spendthrift provision. (Hybrid: Spendthrift + support)

b. The spendthrift provision bars ’s claim against the trust.VI. Shelly v. Shelly

a. Beneficiary’s (spendthrift trust) 2 ex-wives demanded child support and alimony.

b. Children and ex-wives may reach trust income, but spouses cannot invade corpus and force it to be paid to them. Children may reach corpus money because of “emergency provision” in trust, since beneficiary (father) had disappeared.

c. If there had been no “emergency” provision, no one could invade trust corpus.

d. Court cannot order trustee to pay; Court will review trustee’s discretion in paying children under reasonableness standard.

Self-Settled Asset Protection TrustsI. Overview

a. U.S. courts usually successful only if settlor has some type of control over trust.

b. Settlor must argue he has no control over trust.II. Foreign Asset Protection Trusts

a. Trust Protector Clausei. Mechanism that allows protector to oversee and sometimes

override trusteeii. Should not be the settlor

iii. Best if protector is not under U.S. JDb. Anti-Duress Clause

i. Directs trustee not to honor any order from U.S. Court or from settlor if he’s under U.S. court order

c. Flight Clause

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i. If things deteriorate politically in country in which trust is located, authorizes trustee or protector to move situs of trust from one place to another

d. Non-binding letter of intenti. Settlor instructs on what to do in certain situations

ii. Non-binding, but settlor can remove trustee if trustee does not carry out settlor’s intentions.

III. Federal Trade v. Affordable Mediaa. Ponzi scheme, settlers refuse to comply with order to repay using trust. b. Held in contempt; Trust is operating as settlers intended.c. s were protectors, and reserved right to determine whether event was

duress. IV. In re Lawrence

a. Where person charged with contempt is responsible for his inability to comply, impossibility is not a defense to contempt proceedings.

Modification and Termination of TrustsI. Claffin Doctrine

a. Trust cannot be modified or terminated prior to fixed time even if all beneficiaries consent, if it would be contrary to material purpose/intent of settlor!

b. Note: Claffin does not apply if settlor is still alive (consent of all needed)!II. Modification

a. *Settlor can give beneficiary or independent 3rd party (protector) the power to modify or terminate the trust.

b. Stucheli. B seek modification for mentally retarded B.

ii. Held: Modification denied – no CL or statutory exception for this situation.

III. Reformationa. Court will correct lawyer’s error in drafting the instrumentb. Equitable remedy will conform to settlor’s intention at time of execution

IV. Equitable Deviationa. Modification to achieve settlor’s probable intent in light of changed

circumstancesV. Virtual Representation

a. Where class is composed of living and potential members, living and identifiable members can represent unborn/unidentifiable members.

VI. Uniform Trust Code §412a. Court may modify or terminate the trust if, because of circumstances not

anticipated by settlor, it will further the purposes of the trust. To extent practicable, the modification must be made in accordance with settler’s probable intent.

b. Court may modify terms of trust if continuation of trust on its existing terms would be impracticable or wasteful or impair its administration.

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c. Upon termination, trustee shall distribute trust property consistent with purposes of trust.

VII. Terminationa. Brown

i. Termination of trust denied.ii. Settlor’s intention to assure a life-long income for the beneficiaries

would have been defeated if termination of trust were allowed.

Chapter 12: Charitable TrustsI. Overview

a. Must be for the benefit of an indefinite number of persons. b. Can be a limited number of persons. c. Exempt from Rule Against Perpetuities.

i. Unlike private trust, need not have ascertainable beneficiary or specific number of years.

d. If T’s intent is merely benevolent, trust is invalid because it violates RAPe. Rule Against Unreasonable Accumulations

i. Charitable trusts must distribute the money, can’t accumulate money without doing anything for public.

II. Charitable Purposesa. The relief of povertyb. The advancement of educationc. The advancement of religiond. The promotion of healthe. Governmental of municipal purposes, andf. Other purposes the accomplishment of which is beneficial to the

communityIII. Shenandoah Valley

a. T left $ to school children for holidays for “education.”b. Held: The trust is merely benevolent, not a charitable, trust because it

accomplishes no educational purpose.c. Doesn’t satisfy “beneficial to community” because doesn’t target needy

children. d. This could have been valid private trust, but needs time limit so as to not

violate RAP.

Modification of Charitable Trusts: Cy PresI. Cy Pres

a. “As nearly as possible.”b. Requirements for Application

i. 1. Settlor has shown general charitable intent, andii. 2. Impossible, impracticable, or illegal to do what specified.

c. If settlor’s exact charitable purpose cannot be carried out, court may direct trust property to another charitable purpose that approximates settlor’s intention.

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d. Cannot leave charitable trust for specific political party, but may for social issues, etc. they stand for. “Advance the interests of socialism.”

e. UTC & Rest.i. Court must show donor had a general charitable intent.

II. In Re Nehera. Settlor intended trust to be used for town hospital. Hospital not needed.b. When compliance is altogether impracticable, gift may be executed cy

pres through general charitable purposeIII. The Buck Trust

a. Settlor left funds for one county, but had much more money. s want to spend on other counties as well.

b. Cy Pres does not authorize court to vary terms of bequest merely because it will accommodate the desire of trustee.

IV. The Barnes Foundationa. Settlor left art collection with very strict rules.b. Court granted s motion to move gallery to more practical place.

Supervision of Charitable TrustsI. Herzog

a. T left money for nursing scholarships for studentsb. Only attorney general has standing to challenge the use of funds,

foundation representing donor has no standing.II. Smithers

a. W of donor discovered hospital misappropriated H’s funds.b. W has standing to sue because NY statute does not name attorney general

as exclusive person with standing to sue. c. Donor’s expressed intent is entitled to protection.

III. The Bishop Estate (Hawaii corruption)a. Misappropriation; IRS revoked estate’s charitable purpose tax exemption

retroactively and they must repay government.

Chapter 13: Trust Administration: The Fiduciary ObligationI. Overview

a. Fiduciary duties of trustees: loyalty, prudence, and other subsidiary rulesb. Note: You can waive these duties, but courts are suspiciousc. Most standards have relaxed

II. Loyaltya. Self Dealingb. TEST: Conflict of interest

i. 1. Must act in good faith, andii. 2. Price must be a fair price.

III. Management of Assetsa. Collect and protectb. Earmark

i. Trust property should be different from yours and identified. c. Not to compromise

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IV. Duty not to Delegatea. Trustees are to act together. b. Some states require unanimity, others majority. c. Do not delegate tasks to person with most experience.

V. ImpartialityVI. Prudent Investor Standard:

a. 1. Distribute risk by reasonable diversification of investments, unless it’s not prudent to do so.

b. 2. 2nd mortgages are not proper trust instruments, unless it’s reasonable method of settling a claim or making possible the sale of property.

c. 3. Trustee shall give careful attention to valuation of trust property, to make sure margin of security is adequate

d. Uniform Prudent Investor Act (p.797)e. Estate of Collins

i. Trustees failed to follow prudent investor standard by making improper investments, investing 2/3 principal in single investment, and made investment without investigating borrowers.

VII. Duty to Accounta. Keep good records

VIII. Rothcoa. Breach of duty to estate because conflict of interest since trustee worked

for gallery.b. 3rd trustee breached duty to exercise ordinary prudence by failing to

oversee other trustees.c. The appreciated value of the paintings at time of trial was measure of

damages for unreturned paintings. IX. Co-trustees

a. If there is more than one trustee of a private, non-charitable trust, the trustees must act as a group and with unanimity, unless trust instrument provides to contrary.

b. Co-trustee is liable for wrongful acts of a co-trustee. X. Rest. §258: Contribution or Indemnity from Co-Trustee

a. Except as (2), where two trstuees are liable to beneficiary for breach of trust, each is entitled to contribution from the other, except

b. If one is substantially more at fault than the other, he’s not entitled to contribution from other but other is entitled to indemnity from him, or

c. If one receives a benefit from breach of trust, the other is entitled to indemnity from him to extent of benefit; and for any further liability, if neither is more at fault than other, each entitled to contribution

d. (2) Trustee who commits breach of trust in bad faith is not entitled to contribution or indemnity from his co-trustee.

XI. Surchargesa. Trustees can be ordered to pay this when they breach fiduciary duty. b. Pay out of pocket.

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Subrules Relating to Trust PropertyI. Duties

a. Collect and Protect Trust Propertyb. Earmark Trust Propertyc. Not to Mingle trust funds with trustee’s ownd. Inform and account to beneficiaries

II. Fletchera. Trustee has duty to disclose to beneficiary all information in his

possession. b. In other situations, trustee can be directed to disclose only particular

information to beneficiaries.c. Courts normally favor beneficiaries.

III. National Academy (not assigned)a. Wife’s receipt of trust conditioned on unmarried. Didn’t report marriage.b. Constructive Fraud

i. Imposes liability when one has duty to disclose information ii. When truth of the fact is objectively determinative

c. Trust company had obligation to make an inquiry into whether beneficiary was still unmarried since it was a condition on the trust.

Chapter 14: Wealth Transfer Taxation: Tax PlanningI. Overview

a. Estate Taxi. Tax on estate of decedent and paid by estate

b. Gift Taxi. Tax on inter vivos transfers

ii. Tax base is the value of property transferredc. Inheritance Tax

i. Tax imposed upon beneficiary for receiving money from deadd. Annual Exclusion

i. $11,000 is excluded per person, per yearii. Doubled for married couples

iii. Ex: Married couple could give tax free gift of $22,000 child/yeariv. Must be a present interest!

e. Unified Crediti. $1 million base credit for whole life, which is $345,800 tax credit

ii. Value of tax is based on value of property at the timef. *Problems on p. 59 of my notesg. Qualified Disclaimer

i. Disclaimer results in taxable gift unless §2518 applies. ii. §2518:No taxable gift is made if it’s qualified disclaimer.

iii. Qualified Disclaimer 1. Disclaimer is in writing and made within 9 months after

interest created or 9 months after disclaimer is 21. 2. Disclaimer has accepted no interest in property, and

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3. Transfer is to persons under local law and not designated by disclaimant.

Federal Gift TaxI. Overview

a. Gift = owner gives up complete dominion and controlb. If owner retains some ownership, there is no tax because no gift.

i. Ex: Revocable trustII. Holtz’s Estate

a. Trust for himself, $ for welfare, etc., then to wife if she survived. b. H: No gift tax. As long as the possibility that the entire corpus might be

distributed during S’s lifetime and no one else would receive anything, S did not abandon complete dominion and control to make the gift.

c. Placing discretionary power in the trustee to invade corpus makes the gift incomplete here.

III. The Annual Exclusiona. §2503(b): Taxpayer permitted to exclude from taxable gifts $11,000

person/year.b. Unlimited exclusion for medical and tuition expenses.c. Not available for gifts of future interests.d. §2503(c) Transfer for benefit of minor:

i. No part of gift to one under 21 on date of transfer shall be considered a gift of future interest if property/income therefrom:

1. May be expended by, or benefit of, donee before 21, and2. Will to the extent not so expended,

a. Pass to donee when 21, andb. If dies before 21, payable to estate of donee or as he

may appoint. e. No person other than the minor can have beneficial interest in property

IV. Cristofania. S created trust and 7 annual exclusions of $10k each, they could draw this

amount within 15 days each year. b. Pressent interest because they had a” right to enjoy” immediate

possession of corpus c. H: Credit given; Amount did not exceed $11k and was present interest.d. If B has the legal right to withdraw the money, it’s a present interest.

V. Gifts Between Spousesa. Spouse may take unlimited marital deductions for gift to other spouse. b. Does not apply to terminable interests (ex: life estate)

i. Exceptions:1. Life estate followed by general power of appointment

a. Regarded as full ownership2. Q-Tip

a. (Not sure what this is)c. Note: Married couple could use $22k per year annual gift + $1 million

each unified gift tax credit

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The Federal Estate Tax (Exam question) p. 63 bottom on my notes is goodI. §2033: Property Owned at Death

a. All property owned at death that passes by will or intestacyb. Would not include a life estate

II. §2034 Dower or Curtesya. Included in gross estate b. May be marital deduction, since it goes to spouse.

III. §2039 Annuities & Employee Death Benefitsa. In gross estate if decedent possessed right to receive benefits during life.b. Ex: Annuity or pension payments. c. When decedent dies, these payments are made to surviving spouse. d. Not included if it’s by state (ex: SSI)

IV. §2042 Life Insurancea. Where one takes policy on own life and names family member as

beneficiary, proceeds are taxed in insured’s estate if he holds any incidents of ownership over policy.

b. Main point: It matters who owns the policy. V. §2036: Lifetime Transfers

a. Value of gross estate includes value of all property of which decedent has at any time made a transfer, unless bona fide sale for full consideration, by trust or otherwise

b. Note: Although you pay gift tax on part of it, you still may have pay estate tax on the value now. Gift tax you paid on prior value will be credited.

VI. Estate of Maxwella. Transfer was not a bona fide sale because decedent’s “rent” payments

cancelled out mortgage interest, and no evidence she intended to collect $b. Property is taxable as part of D’s estate because not bona fide sale.

VII. Old Colonya. Trust taxed because settlor named himself trustee and determined the

standard and amount of payment for beneficiary. VIII. §2038 Revocable Transfers (on p. 68 my notes)

a. IX. §2035 Transfers Within 3 Years of Death

a. Transfers made within 3 years of death included in D’s gross estate ifi. Gift tax paid by D or estate within 3 years of death

ii. Any transfer or release of interest in property if would have been in §2036, §2037, §2038, §2042

b. *Must be when otherwise would’ve been included in gross estate:i. Retained power in trust

ii. **Life insurance (Ausness focuses on this!)

The Gross Estate: Powers of Appointment: §2041I. §2041

a. Gross estate includes value of property over which D held a general power of appointment:

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i. Decedentii. His creditors

iii. Decedent’s estateiv. Creditors of decedent’s estatev. Regardless of whether decedent exercised the power

vi. Exceptions1. Ascertainable Standard

a. Standard that relates to health, education, support or maintenance (Vissering)

2. 5 and 5a. Donee given 5% or $5k (Hertz)

b. Right to determine who receives it is an incident of ownership II. Special Power of Appointment

a. Decedent cannot appoint power to himself.III. Vissering

a. Invasion allowed for “continued comfort, maintenance” etc of D.b. Assets not includable in taxable estatec. D did not have general power of appointment because ability to invade

trust was limited to ascertainable standard IV. Kurtz

a. D could take 5% of F trust per year, only if M trust was exhausted. b. 5% of F trust includable in estate because she could have withdrawn this.c. Having a 2-step process does not protect D when D controls.

Taxable Estate: Last DayI. Marital Deduction

a. If D leaves all money to spouse, D owes no estate taxes. II. Q-Tip Trust

a. Terminable interestIII. Charitable Trust

a. Fully deductible, so long as it meets requirements of actual charity b. If you give to spouse, then remainder to charity: p. 917

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