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Wills, Trusts, & Estates – Fall 2007 – Mendoza

TRANSFER OF DECEDENT’S ESTATE

Probate – property that passes by will or intestacy

Nonprobate – property passing under an instrument other than a will

o Joint Tenancy

o Life Insurance

o Ks w/ P.O.D. provisions (pensions, investments)

o Trusts

Person Dies, probate necessary – personal rep

o Duties:

Inventory assets

Pay creditors & Tax collectors

Clear Titles

Distribute remaining assets

o Will names personal rep = executor

o Will doesn’t = administrator

Must give bond unless waived

Dies Testate

o Devise = real property to devisees

o Bequeath = personal property to legatees

Dies Intestate

o Real Property = descends to heirs

o Personal Property = distributed to next-of-kin

Probate Procedure

o Opening probate

Probate

Provides evidence of transfer of title

Protects creditors

Distributes decedent’s property after creditors are paid

Must be sought in jx where decedent was domiciled at time of

death (Primary or Domicilliary)

Real Property in another jx, ancillary jx

Authorize to act on behalf of estate

Letters testamentary – executor

Letters of admin. – administrator

Ex parte probate & notice probate

Informal & Formal

UPC (Uniform Probate Code)

Any interested party can demand formal probate

Time for contest

o Depends on Jx

Barring Creditors

Nonclaim statutes – time limits

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o Bar claims not filed w/in specified period of time

after probate proceedings are begun; or

o Whether or not probate started, bar claims not filed

w/in longer period after decedent’s death

o Supervising the Representative

Usually by courts

Some states let em do their thing

Interested party can demand supervision

o Closing the Estate

Pay everyone off

Court grants discharge of admin.

You can avoid probate

o Universal succession (Louisiana & Europe)

Heir steps into shoes of decedent & pays everyone

o CA – passes to spouse w/ no administrator

Trusts

o Legal Instruments

o Application in many areas of law

o Great flexibility in Estate Planning

o O X, Trustee A

A has equitable Interest

X holds legal title

A holds beneficial title

X administrator

X has highest obligation in the law (fiduciary duty)

o Trust Bifurcates title

o Can also bifurcate use & enjoyment of property for a time

O A for life, then to B

o Rule Against Perpetuities

Easy to avoid

On bar exam

INTESTACY: AN ESTATE PLAN BY DEFAULT

Basic Scheme

Basic Scheme

o Intestacy is what estate planning lawyers plain around

o 50% dies intestate – Why?

Afraid of death

Costs involved

o Will devises part of probate estate – partial intestacy

o State domiciled at death – personal property

o State decedent’s real property located – real property

o No living person has heirs – they have heirs apparent (expectancy)

Share of Surviving Spouse

o Primary policy of intestacy statute is to carry out the probate intent of the

average intestate decedent

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o Must decide:

What do they want?

Look at probated wills

Ask them

o Spouses share too small?

Surviving spouse gets ½ under intestacy law

UPC – spouse gets all if same descendants

No descendants – half states make spouse share w/decedent’s

parents. No parent, spouse might share with bros and sisses

Simultaneous Death (USDA)

o No ―sufficient evidence‖ as to the order, beneficiary deemed predeceased

the donor. What is ―sufficient evidence‖?

Janus v. Tarasewicz Ill. 1985

H & W died from poisoned Tylenol. H’s life insurance named W as beneficiary

and H’s mother as contingent beneficiary. H’s mother wanted life insurance. Insurance

co. paid to W’s estate. Trial court found W survived H, even though they both were

vegetables at relatively the same time. Affirmed.

Wills

o Wills are code driven

o A will is testamentary

o So is a will substitute

o Will lets you designate guardianship

Court will choose otherwise

Intestacy Statute

o If property is not disposed of in the will – Intestacy Statute

You can only pass property that you own

A=B/A, A dies without will

If A married to B, A doesn’t own all of B/A

A can convey undivided ½ interest in B/A (In common property state)

UPC: Uniform Probate Code

o 2-201(a) – any part not d.o.b. will, passes by intestate succession to heirs

Heirs are prescribed in Code

o 2-102 – Spouse takes first

o 2-103 – others (children and deceased children)

o 2-105 – No takers – then state

o 2-103(1) – Children and deceased children by representation (Child’s

descendants divide share among themselves)

A (widow)

B C D

E F G H I

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C’s children take C’s share by representation

A’s heirs are B(1/3); F(1/6); G(1/6); and D(1/3)

C’s spouse takes nothing it would go to the state b4 it would go to a son-in-law

A

B C

D E F

How is A’s estate distributed? There are 3 systems:

English Per Stirpes: Treats line of descendants equally: D(1/2); E(1/4); F(1/4)

Modern Per Stirpes: Divided into shares at generational level: D(1/3); E(1/3);

F(1/3)

Per capita at each generation: See Below:

A

B C D

E F G

D(1/3); E,F,G(2/9)

Negative Disinheritance – express statement in will disinheriting a child

o Property has to be given to someone else, or it will fall into intestacy

Shares of Ancestors and Collaterals

o All persons related by blood to decedent but who are not descendants or

ancestors are Collateral Kindred

o Descendants of decedent’s parents are First-Line Collaterals

o Descendants of decedent’s grandparents other than decedent’s parents are

Second-line Collaterals

o Not survived by spouse, descendants, or parent –Bros and Sis.

Descendants of decedent’s Bros and Sis take by representation

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o No first-line collaterals, who’s next?

Parantelic System: passes to grandparents and their descendants,

if none, then to great-grandparents and descendants and so on until

an heir is found (UPC says beyond great-grandparents don’t take)

Degree-of-relationship system: passes to the closest of kin,

counting degrees of kinship. Court steps up to nearest common

ancestor and steps down to claimant.

CA allows mothers and fathers-in-law and brothers and sisters-in-

law, but never sons or daughters-in-law

Laughing Heirs: laughing all the way to the bank

Page 79 Table of Consanguinity

Transfers to Children

Meaning of Children

o Adopted Children

Hall v. Vallandingham MD App 1988

Children of deceased brother were adopted by mother’s new husband. Decedent

only had brothers and sisters as heirs. Lower court said kids weren’t entitled because

they were adopted by other guy. 1958 code said adopted kids retained inheritance rights

of natural parents and relatives. Removed in 1963 and now says kids are rebirthed into

adopting families. Kids get nothing.

UPC would let the kids get it – 2-114(b)

Minary v. Citizens Fidelity Bank & Trust KY App 1967

Wife died leaving trust to H and 3 sons. H died, then 1 son, then next son with 2

children, last son adopted and trust terminated when he died. Did Alfred’s adoption of

his wife Myra make her eligible to inherit? The trust said ―then heirs under law‖ so the

adopted Myra is an heir, but also wife! Even though law lets you do it, it is cheating.

Wills are not flexible, so you bring in trusts to gain some flexibility but trusts still

aren’t that flexible

O’Neal v. Wilkes GA 1994

Jury found O’Neal had been adopted by decedent Cook. Judge gave JNOV to

Wilkes, Cook’s administrator on the ground that paternal Aunt did not have legal

authority to contract w/Cook. Affirmed. Relatives of O’Neal had no legal authority to K

for adoption.

Hall = minor

Minary = adult

O’Neal = Equitable

All = Statutory Adoptions

Equitable Adoptions: “Equity regards done that which ought to be done”

Agreement between adoptive and natural parents

Natural parents must fully perform (hand over kid)

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Child must fully perform (moving in)

Fail to complete legally

Adoptive must raise as their own

Adoptive must die intestate

Then equitable adoption kicks in

o Posthumous Children

Conceived before but born after father’s death. Kid in the womb at

the time of parent’s death will be treated as if he is alive.

Rebuttable presumption of 10 months. Kid has burnden if longer.

Uniform Parentage Act says 20 days longer.

Advancements

o Common law: Any gift to a child was advancement of kid’s inheritance.

Kid had burden to show. If advancement, goes into hotchpot.

o UPC 2-109 says only advancement if:

1) decedent declared in contemporaneous writing or heir

acknowledged in writing it is an advancement OR

2) same thing only don’t say ―advancement‖

o Valued at time advanced.

Guardianship and Conservatorship of Minors

o Guardian of the Person

Kid’s parents dies – no will providing for a guardian – court

appoints from nearest relatives

G of the P has no right to deal with child’s property

o Property Management Options

Guardianship of the property

Used to have full control

Then had to approve everything with the court and got a

management fee

Conservatorship

Replaced guardian with conservator

Given ―title as trustee‖

Still go to court every year

Custodianship

Custodian given property to hold for minor

Guided by UTMA or UGMA

Devisee or gift made to X as ―custodian for [minor] under

[state] UTMA.‖

Not supervised by the court, and can manage

Trusts

Tailor specifically to family circumstances and testator’s

particular desires

When get money? 18 or 21 or when donor thinks kid is

competent

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Bars to Succession – Involuntary conduct of heirs

Voluntary conduct (disclaimer)

Homicide

o Killing – involuntary?

o Must have intent to kill which leads to profit. Unintentional killing may

not be a bar to succession

o Conviction = killing = res judicata

o Acquittal – might not BARD (civil POTE)

Open civil proceeding to see if person is liable. Then they would

be barred. (so you could get an acquittal but still be barred if by

POTE you’re liable in civil proceeding)

In Re Estate of Mahoney VT 1996

Mahoney died intestate. Wife was tried for murder of Mahoney. Got 12-15.

Court gave estate to mother and father. Wife who kills husband inherit from his estate?

States have followed 3 different decisions: 1) slayer gets it; 2) Slayer doesn’t because

shouldn’t profit from crime; 3) Slayer gets it but equity holds him to be constructive

trustee. Court goes with #3 as probate court had no jx to give to parents. Reversed.

Disclaimer

o When heir refuses to take property

o Common law –couldn’t do this

o Now it passes to heir and then to next heir

o However, must accept

o Almost all states have disclaimer statutes

o Use to avoid creditors, however, don’t fuck with the government

Drye v. US 1999

Creditor is IRS. Disclaimer is beneficiary of 233,000. Allows it to pass to his

daughter. SC said he held the property long enough to subject it to tax lien. If he had

been disinherited by will – then no IRS interest

Troy v. Hart MD 1997

Lettich was in oldies home, on Medicaid. Troy was his lawyer. L’s sis died and

left him $300,000. L disclaimed b/c sis lawyer convinced him to. They were trying to

rescind when L died. Court said valid disclaimer BUT had to deduct Medicaid expenses

for the time he held the money before disclaiming. Court suggested constructing trust –

intended to prevent unjust enrichment.

WILLS: CAPACITY AND CONTESTS

Mental Capacity

The test of Mental Capacity – test is capability

o Testator:

Must be capable of knowing and understanding in a general way

The natural objects of his or her bounty

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The disposition that he or she is making of that property, and must

be capable of

Relating these elements to one another and forming an orderly

desire regarding the disposition of the property

o It’s unethical for lawyer to draft will knowing mentally incapacitated

o Mental Capacity scale:

Contracts (inter vivos) Highest

Testamentary |

Marriage Lowest

In Re Estate of Wright CA 1936

Wright’s will denied probate on the ground of testamentary incapacity – appeals.

W died and left friend his house, daughter another house, granddaughter Utah house.

Gave 1 dollar to each of a lot of people. People testified he was quirky and soaked a fish

in kerosene and sprayed kids with a hose. Court said testamentary capacity can’t be

destroyed by showing few isolated acts, foibles, idiosyncrasies, moral or mental

irregularities. No evidence offered to rebut W’s ability to transact or conduct his

business or care for himself. Will stands.

Why require mental capacity?

o Represents testator’s true desires

o Mentally incompetent man or woman is not defined as a person

o Protects decedent’s family

o Succession to property must be reasoned and responsible act

o Assures a sane person that their desires will be carried out if they later

become insane.

o Protects society at large from irrational acts

o Protects senile person from being taken advantage of

Insane Delusions – part or all of will may be invalid

o Legal concept

o False conception of reality that they hold against all evidence to the

contrary

o MJ: delusion is insane even if factual basis if rational person in position

could not have drawn the conclusion reached

o Mistake is different

Courts don’t invalidate b/c of mistake

In Re Strittmater NJ 1947

D died leaving everything to Women’s party. Probably had split-personality.

Took feminism to the extreme. Enough evidence to prove paranoid – schizophrenia –

probate set aside.

In Re Honigman NY 1960

H died survived by W. Cut off W with will and left her with statutory share for

life with remainder to surviving brothers and sisters per stirpes. Wife objected. Jury said

H wasn’t of sound mind. Suspected wife of cheating and was pretty paranoid about it.

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Issue wasn’t if wife was unfaithful, did he have reason to believe she was unfaithful.

Yes. Reversed.

Living Probate

o While testator is still alive

o Americans don’t have to pay attorney’s fees when losing contested

proceedings

Undue Influence

Generally

o Must have a confidential relationship and something else (varies from

state to state)

o Four prong test:

Testator was susceptible to undue influence

The influencer had the disposition or motive to exercise undue

influence

The influencer had the opportunity to exercise undue influence

The disposition is the result of the influence

Estate of Lakatosh PA 1994

Roger Jacobs befriended Rose Lakatosh. Got power of attorney and drove her

around. Rose was estranged from the family. Roger siphoned money to his friends.

Rose living in filth. Dead cats everywhere. Executed will leaving almost everything to

Roger. Three elements easily met: confidential relationship; roger received bulk of

estate; Rose’s intellect was weakened. SC affirmed order of trial court revoking the

probate of Rose’s will and imposing a constructive trust on Roger for 128k.

Burdens of Proof

o First – proponent of the will to show that it was duly executed

o Then – shifts to one challenging the will (those alleging undue influence)

They must establish confidential relationship + something

o Shifts back tot eh influencer

Act with clean hands

Grantor acted willingly

Restatement §8.3(b) – overcame donor’s free will

o Comment – confidential relationship is not enough

Lipper v. Weslow TX 1963

Sophie has 3 kids by 2 marriages. 1 kid dies. Sophie dies leaving everything to

the other 2 kids. Kids of deceased kid contest. Sophie’s will has clause explaining why

disinheriting grandkids. Will prepared by living son. Undue influence? Might raise

suspicion, but does not supply proof of vital elements of undue influence. Will stands.

Undue Influence – Duress – Fraud = all related

Fraud

o Testator is led to do something that he or she would not otherwise do.

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Cases mainly focus on remedies in case of fraud or duress

Constructive Trust

o Fraud in the Inducement – focuses on when a person misrepresents facts,

thereby causing the testator to execute a will

Is it caused by a fraud?

Puckett v. Krida TN App 1994

Nurses hired to care for Nancy Hooper. Convinced Hooper that her relatives were

wasting her money and wanted to put her in a nursing home. = Fraud. Court set aside

will.

Undue Influence and fraud, related, but separate causes of action. Courts might

fuse

Undue influence – influencer has to replace the will of testator

Fraud – misrepresent fact on testator with the sole purpose to get new will in

favor

Latham v. Father Divine NY 1949

Mary died testate and left her property to father divine. Burden of Proof is on

proponents – Father D. Then to challengers alleging duress. Challengers were first

cousins of Mary. Testified that M wanted to change will but was prevented by Ds dudes

and they killed her through an operation. Case was settled giving Father D small fraction

after appeal’s court reversed.

Constructive Trust – ―fraud rectifying‖ equitable remedy that employes the

language of trusteeship. Not itself a trust in which property is managed by a

trustee for a beneficiary subject to a fiduciary obligation.

WILLS: FORMALITIES AND FORMS

Execution of Wills

Attested Wills

o Formalities – strict compliance with statutes

Why require formalities?

Formalities serve the ritual function

Evidentiary function

Protective function

Channeling function

These are hijacked by strict compliance

o To have a will:

Mental Capacity

Testamentary Intent

Writing

TOR – Sign

Witnesses Sign

o Formalities relate to the elements of a will

Execution

o Mechanical Process

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Line of sight rule – must be able to see the witnesses sign

Conscious Presence – sight, hearing, or general consequences of

events let Testator know

Attestation Clause – Recites facts supporting due execution

Self-Proving Affidavit – swearing the attestation clause

****Know the general rules—not what other states hold****

o Qualitative Analysis (of witnesses)

Witness must be competent (credible, disinterested)

Depends on statute

Stakes are high here

Stevens v. Casdorph WV 1998

Miller went to bank with Casdorphs. Asked employee to witness execution of his

will. After employee signed, took to two more employees to sign. Other employee

didn’t see Miller sign will. Stevens (neice) would have taken intestate. Miller left

everything to Casdorphs. Stevens want will set aside. Trial court gave SJ for Casdorphs.

Stevens say all evidence says will not properly executed. App said not validly executed.

Will set aside.

Estate of Parsons Cal App 1980

Subscribing witness to will named in will as beneficiary ―disinterested‖ within

Probate Code by filing disclaimer. PC §51 says gift to subscribing witness void unless

two other and disinterested witnesses. Court holds subsequent disclaimer ineffective to

render witness disinterested, will set aside.

In Re Pavlinko’s Estate PA 1959

H died ’57, W died ’51. Ws will ’49, signed by husband, offered for probate by

W’s brother, denied. W and H signed each other’s wills. Law says must be signed by

testator. Will set aside. Affirmed.

Malpractice of Lawyers (sign wrong will) remedies:

o Constructive Trust

o Unjust Enrichment

o Malpractice Insurance

In Re Snide NY 1981

Snide, decedent, and W intended to execute wills at the same time, signed each

other’s. Lower court admitted, appellate reversed, High Court said will valid, wills are

identical, no evidence of fraud. Will stands.

Mutual wills – one dies, the other will becomes a contract – can’t rescind

Holographic Wills

o Not recognized in majority of states

o Those that do require precise compliance with specified formalities

o Elements:

Mental Capacity

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Testamentary Intent

Testator’s Signature

Writing

Witness

o How can you distinguish dispositive intent from testamentary intent?

Channeling and Protective function—very poor in holographic will

Kimmel’s Estate PA 1924

Dad sends letter stating who money goes to to his 2 kids and dies. Two questions:

1) Is the paper testamentary in character? 2) Is the signature to it a sufficient compliance

with PA wills act? (signed it ―father‖) Yes Yes. Clear intent to execute. Holographic

will stands.

o Conditional Wills: Condition doesn’t happen? = will retains its validity

o Most problems arise with writing requirement. Writing sufficient to be a

holographic will, how much must be in Testator’s handwriting?

1st Generation: ―entirely written, signed, and dated‖

2nd

Generation: ―Material Provisions‖ (1969 UPC)

3rd

Generation: ―Material portions‖ and extrinsic evidence

allowed (1990 UPC)

Estate of Mulkins AZ 1972

1st Generation holograph. Had some printed text, but handwritten portion was

testamentary portion. Will upheld

Estate of Johnson AZ 1981

Testator filled in blanks, but didn’t get the witnesses. 1969 UPC adopted

―material provisions‖ in testator’s handwriting? No. Will Denied

Estate of Muder AZ 1988

Will handwritten on a printed will form, but signed by only one witness. ―I give

to‖ filled in name and possessions. Will upheld. Court held testator who uses preprinted

form, and in his own handwriting fills in the blanks by designating beneficiaries and

apportioning his estate and signing it has created a valid holographic will.

In Re Estate of Kuralt MT 2000

Kuralt wrote holographic will to Shannon, then executed formal will. Was going

to transfer title to all of MT cabin, but got ill. Wrote letter to Shannon saying inherit the

MT place. Died. Shannon attempts to probate letter as a valid holographic codicil. DC

said letter expressed intent to transfer posthumous. Affirmed.

Wong

Testamentary Capacity but no Testamentary Intent arrows are not writings they

are symbols (she was also cheating on him) –extrinsic evidence.

Smith

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Attorney error – no probate of holographic will…Clear and convincing

evidence—would be admitted, but court focused on attorney error.

Revocation Of Wills

Revocation by Writing or Physical Act

o Can Revoke by:

Subsequent writing executed with testamentary formalities

By physical act – destroying the will

No Oral (revocation)

o Subsequent will

Presumed revoked if disposes of entire estate

May be codicil if not full disposition

o Intent to revoke + physical act = revocation

o Will not revokes – goes into probate

o Most of the time – wills say ―I revoke all previous wills‖

*****Each state has its own revocation statute*****

Harrison v. Bird AL 1993

Daisy executed will devising Crapps everything. Told attorney to revoke.

Attorney sent pieces. Lower court held no revocation—attorney didn’t tear in her

presence; no ratification; but arose a presumption that Daisy revoked b/c pieces couldn’t

be found. Copy couldn’t be found. Burden shifts to Crapps—not enough evidence—will

denied.

Lost Will—can be proved (contents)—may be admitted with clear and convincing

evidence

Thompson v. Royall

Kroll signed a will. Then signed codicil. Then wanted to revoke, but judge wrote

null and void – keep as memo. Dies – will admitted to probate by jury. Attempted

revocation ineffectual – written words to revoke must affect the written portion of will.

Will Stands.

Dependent Relative Revocation and Revival

o Testator revokes under mistake of law or fact and wouldn’t have if he had

known the truth – ineffective revocation.

LaCroix v. Senecal CT 1953

Dupre wrote codicil revoking language but including same language, just adding

nickname and real name. Would she have done it if she knew Senecal got nothing b/c her

husband witnessed codicil? Doctrine of dependent relative revocation – original will

stands.

P. 262 #1

o DRR saves nephews bequest

o May revoke bequest entirely

o May bequest 1,000

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o Depends on holographic requirement

Must all be in T’s writing = $0

Provisions = $1500

o Partial revocation – only applies to crossing out 1,000 – gets 0

o Testamentary validity

o Only keep 1500 if you can show the writing by the T constitutes a valid

holographic will

Dependent Relative Revocation applies only:

o There is an alternative plan of disposition that fails

o The mistake is recited in the terms of the revoking instrument or is

established by clear and convincing evidence.

Revocation by Operation of Law: Change in Family Circumstances

o D = revocation of provisions for spouse

o Will and then Marry – some states allow for intestate share unless omitted

or provided for otherwise

o May take forced share

o Some states – kids = no premarital will

Components of a Will Integration of Wills

o Doctrine of integration – all papers at time of execution, intended to be

part of will – are integrated into the will

o What constitutes testating instrument

o All papers present at time of execution and intended to be part of will are

integrated into will

o How is a will published?

When it is signed and witnesses sign (executed)

Republication by Codicil

o Will is treated as re-executed as of the date of codicil

First will revoked by second – codicil can re-execute (republish) 1st

and thereby revoke second.

o Affirms previous will

Clark v. Greenhalge 1991

Valid will 1971 – codicil 1980. Doctrin of republication by codicil essentially

brings the 1971 will to 1980. (As if it was published in 1980).

o Doctrine of republication only applies if you have a valid will (prior).

o Incorporation by reference – any writing in existence when will is executed

Johnson v. Johnson OK 1954

Looked at typewritten part and announced it to be a valid will. Then said

holographic codicil to validated will. It saved the will through doctrine of republication

by codicil. Typed will, no witnesses. Added handwriting at bottom that gave 10 bucks to

brother and signed. Complete or holographic codicil to writing? Former not valid (no

witnesses). Codicil would make the whole thing valid. Intention to add codicil is

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controlling. Republishes even if document incomplete. Valid holographic codicil

incorporated prior will be reference and republished and validated prior will as of date

of codicil.

NONPROBATE TRANSFERS AND PLANNING FOR INCAPACITY

An Introduction to Will Substitutes

Will Substitutes

o Non probate wills

o Four main will subs:

Life Insurance

Beneficiary can be changed until death

Pension Accounts

Bank, Brokerage, and mutual fund accounts

Revocable inter vivos trust

o Imperfect Will Substitutes:

Joint Tenancy

o Differences

Most are asset specific

Avoids probate—significant advantage

No formal requirements

Life Insurance, Pension Accounts, Bank Accounts, And Other P.O.D. Arrangements

Life Insurance

o Death Insurance

o Financial risk of dying young

o Whole

Ordinary or Straight

Life Insurance and Savings plan

Forced savings feature

Universal or Variable

More investment options

o Term

No savings

Term expires – no dice

May provide for renewal or conversion with no regard for

insured’s health

o Settlement Options

Lump-sum payment

Annuity (ben. Life)

Interest for years followed by payment of principal

Periodic payments of interest and principal

Wilhoit v. Peoples Life Ins. Co. 7th

App 1955

Dude died and W had ins. Settlement kept in revocable trust with Insurance Co.

Named beneficiary was stepson. Stepson died. W died and will named Robert Wilhoit

as beneficiary of trust. Insurance co. refused to pay Wilhoit. DC gave SJ to Wilhoit.

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Insurance Co. says K governed by insurance law not law of wills and irrevocably named

stepson so beneficiary is stepson’s heirs. App says agreement between W and Insurance

Co. not insurance K. Like bank account. Affirmed. Wilhoit gets it.

Estate of Hillowitz NY 1968

H partner in investment club. Club paid W $2800 on H’s death. Ex say invalid

testamentary disposition and should be subject to will. W says valid K. 3rd

party

beneficiary K, performed on death not invalid. W gets it.

Cook v. Equitable Life Ass. Ind App 1981

H purchased whole life insurance policy, naming W beneficiary. H and W

divorced. H married Margaret and had a son. H made holographic leaving all worldly

possessions to M and son 11 years later. Died 3 years later. Change beneficiary by will?

No. Repercussions overrule equity.

Most states, statute that revokes will provision for divorced spouse does not apply to

insurance policy or P.O.D. naming spouse as beneficiary.

Superwill – only if trust provides

Pension Accounts

o Enhancement of Life Expectancy

Made pensions more reasonable

Surviving way beyond years of productivity

o Pension wealth

People are expected to foresee need for retirement income

Fed has intervened – irresistible tax benefits

Contributions are tax-deferred

Earnings accrue and compound on tax-deferred basis.

o Retirement—pays tax on sums distributed

Distributions from pension accounts usually taxed on lower

marginal fees (than income)

o Become less significant (tax has abated)

Annuitization Eliminates Succession

Only negligible fraction of pension savings =

intergenerational transfer

Annuitization insures against living too long

Requires assets that can be liquidated predictably

Accoutns disappear at death of annuitants

Those who dies young pay for those who die old (opposite

of life insurance

Egelhoff v. Egelhoff US 2001

WA statute says beneficiary of nonprobate revoked automatically on divorce.

ERISA pre-empts statute? Yes. H employed by Boeing, W beneficiary of life insurance

and pension plan (both governed by ERISA). Divorce, and H died 2 months later

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(intestate). Life insurance paid to W. Kids from previous marriage want life insurance

proceeds. SC said statute directly conflicts with ERISA’s requirements that plans be

administered, and benefits paid in accordance with plan documents. If will sub falls

under ERISA – you look to ERISA, not State statute.

Multiple Party Bank Account

o Three types

JT with right of survivorship

Survivor takes balance

Will Substitute

P.O.D. designation

No right to withdraw, but survivor takes

W/S

Agency/Convenience

Both have right to draw

Survivor does not take

Not W/S

Balance distributed through will (or intestacy)

Franklin v. Anna National Bank Ill App 1986

F put sister in law on account in JT with right of survivorship. Trial court said sis

gets it. App reversed saying it’s the estate’s. 9 months after adding sis to account, F tried

to remove her name (wrote letters to the bank). The attempt to change shows his

consistent view of the account as his own. Money would have been found to be the

property of the estate.

JT in realty

o Take property in JT or T by the E. Will doesn’t devise interest in JT.

CONSTRUCTION OF WILLS

Mistaken or Ambiguous Language In Wills

Traditional approach – no extrinsic evidence, no reformation

o Plain meaning or not extrinsic evidence

Only admit extrinsic evidence to resolve some ambiguities

Words can’t be disturbed

o No Reformation Rule

Words actually used, not words T purportedly intended to use

Mahoney v. Grainger MA 1933

Helen gave heirs at law ―…to share and share alike.‖ Problem: deceased had

several cousins who thought they were included. Evidence that she told attorney she

wanted the 25 cousins to be included. Court did not allow this conversation—gave it all

to the aunt (the only heir at law). Said clause not ambiguous so no extrinsic evidence.

Note p. 368 #2 – PerryManor, Inc. – even though they sold the nursing home

―PerryManor‖ they still get the money

18

Patent Ambiguities

o Ambiguity that appears on the face of the will

o Extrinsic evidence not used

Latent Ambiguities

o Dies not appear on face of will but manifests itself when the terms of the

will are applied to T’s property or beneficiaries.

o Extrinsic evidence has been used

Two types of latent

Equivocation – description fits 2 or more people

Description does not exactly fit any person or thing – more

common

Slouching toward reformation: Correcting Mistakes Without the Power To

Reform Wills

o Relief Granted

Undue Influence, Duress

Fraud

Lack of capacity, wisdom

o No relief

Mistake

Arnheiter v. Arnheiter NJ 1956

Gurtel will said 304 Harrison sell and establish trust for each niece. Wrong

address. Deed was 317 not 304. Court couldn’t allow extrinsic evidence, so the deleted

the number 304 and let the paragraph say ―my property on Harrison‖ sot he nieces got it.

Estate of Gibbs WI 1961

Robert J beneficiary, but name is Robert W. Will said Robert J living at

xxx…Robert W lived there. Court allowed extrinsic evidence and dropped middle initial.

App affirmed b/c middle initials susceptible to mistake.

Death Of Beneficiary Before Death Of Testator

Review of Intestacy

o Who takes?

Heirs

o How determine?

At time of death – refer to table of consanguinity

o Person hasn’t died

Heir apparent

o Heir apparent predeceases

Goes to issue or takes through representation through table of

consanguinity

English per stirpes

Modern Per stirpes

Per Capita at each generation

Will

o Specific/General

19

o Residuary – usually takes more

Residuary Dies before T

o All goes – intestacy

o Same applies if 2 residuaries die

o 1 survives 1 dies – 2 rules:

General Rule – other takes all

Minority Rule – No residue of a residue 1 takes half and the other

half falls into intestacy

Estate of Russel CA 1968

Thelma left holographic will – all to Chester and Roxy – gold and diamonds to

Georgia. Roxy is a dog and predeceases Thelma. TC gave all to Chester. P argues no

ambiguity so no parol evidence (that Roxy is a dog) (P is niece). P would get under

intestacy. SC held extrinsic evidence allowed but Chester does not take all. ½ to C and

½ to dog, but gift to dog is void. So passes to heirs at law. Niece gets half.

Antilapse Statutes

o Substitute other beneficiaries for dead beneficiaries

o Usually an issue of deceased beneficiaries

o Applies only if devisee bears the particular relationship to testator

specified in the statute

Some only descendants, some broader

Allen v. Talley TX App 1997

Decedent’s will contains words of survivorship which preclude application of

antilaps statute? TC said it did. App affirmed. Mary bequeathed unto living brothers

and sisters. At time executed, had 3 bros and 2 sis. At death, 1 bro and 1 sis, and lots of

nieces and nephews. Primary concern is testator’s intent. Court looks at actual words of

will, not what T should have written, or meant to write, when unambiguous. 2 living

siblings split.

***Make sure you always provide for what happens if devisee predeceases***

Nonprobate transfers

o P.O.D.: 3rd

party beneficiary may pass to heirs

UPC requires POD bank accounts and transfer on death brokerage

account beneficiaries to survive (Most K’s say ―to A if she is

living‖)

Antilapse applies to bank accounts in POD form, Ks with POD

beneficiary, ins., etc.

o Revocable trusts:

Law of future interests applies

Trad., no requirement of survivorship

o JT

Vanishes

Jackson v. Schultz DE 1959

20

Dude dies leaving everything to wife and her heirs. W predeceases. Do stepkids

get it? ―And‖ substituted for ―or‖? Yes.

Class Gifts

o Treated differently from gift to individuals

o Class member predeceases—class members divide the whole

o ―group Minded‖

o Group label – not individual names only

Dawson v. Yucus IL 1968

W devised her 1/5 interest in family farm ½ to one nephew, ½ to other. One

nephew predeceased. Class gift? TC held class gift not intended. Affirmed. Did not

label class ―nephews,‖ lapsed and residue went into remaining estate.

o Class gifts and antilapse statutes

Almost all states apply

Average Testator prefer deceased beneficiary heirs take

Changes in Property After Execution of Will

Ademption by Extinction

o Adeemed—taken away

o Applies only to specific devises

o Traditional Identity Theory

Gift extinguished (if not in estate)

o Intent Theory

Cash value (if shown Testator’s intent)

Wasserman v. Cohen MA 1993

F created revocable inter vivos trust. On death, trustee was to distribute to E. F

sold prior to death. Never assigned interest to trust. Will left to trust. Court said

adeemed.

o Escape routes to avoid ademption

Classify devise as general or demonstrative

Classify inter vivos as change in form, not substance

Construe meaning of will as of time of death rather than time of

execution

Create exceptions

UPC exceptions

Remaining balance on property sold

Unpaid amount on property

Unpaid fire or casualty insurance proceeds after property

destroyed

Property obtained by Testator by foreclosure

Sale price of specific devised property sold by conservator

Stock Splits

21

o Testator executes will to A of 100 shares. Shares split 3 for 1. A gets 100

or 300? Many Modern courts discarded old approach – find A gets 300

o Dividends

Treated differently by some courts

UPC and Restatement – treated same as splits

Doctrine of Satisfaction

o AKA ademption by satisfaction

o Applies when T makes transfer to devisee after executing will

o Rebuttable presumption gift is in satisfaction of gift made by will

o Like advancements under intestacy

o Some states require intent in writing

Exoneration of Liens

o Land devised subject to mortgage

o Some states – free of mortgage (debt paid by residuary)

o Most states and UPC say you get mortgage too

Abatement

o Turns on classification of devise as specific, general, or residuary

o Arises when debts and devises > assets

o Operates like bankruptcy

o Order:

Residuary devises reduced

General devises reduced

Specific and demonstrative devises reduced last and pro rata

o UPC 3-902 takes intent of T into deciding abatement

RESTRICTIONS ON THE POWER OF DISTRIBUTION

Rights of Surviving Spouse in Community Property

Putting survivor to an election

o Widow’s election

Will by H devising all C.P. in trust to pay income to W for life

with remainder to others on W’s death

Requires W to elect b/t surrendering her half of C.P. and taking

under husbands will

Migrating Couples and Multistate Property Holdings

o Conflict of law rules:

Law of situs controls problems relating to land

Law of marital domicile at time that personal property is acquired

controls characterization of the property (separate or community)

Law of marital domicile at death of one spouse controls survivor’s

marital rights

Moving from a Separate Property State to a Community Property State

o Ownership of moveable property determined by laws of State where

couple is domiciled when property acquired.

o Separate Property to Community Property and H dies – W may get

nothing

o Quasi-Community Property rectifies this

22

D/N/A to stuff outside state as law of situs applies and W gets

forced share

Analogous to elective share

Moving from Community Property State to Separate Property State

o Generally, change in domicile from CP to SP – no change pre-existing

property rights

o Uniform Disposition of Community Property Rights at Death Act, enacted

in 14 SP states, provides that CP brought into the state (an all property –

including land in the state – traceable to CP) remains CP for purposes of

testamentary disposition, unless the spouses have agreed to convert it into

SP.

o Tax benefits

H & W CP 100k. H dies when worth 300k. Estate tax is on ½

(150k) unless devised to W, then no tax. Income tax: W sells, for

325k, taxed on only 25k. (increase from 300k)

H & W move to SP and change title to JT (at 100k). H dies

property worth 300k. Estate tax same. Income tax: Ws new basis

is 50k (1/2) plus 150k, or 200k. W sells property for 325k, taxed

on 125k.

o CP by right of survivorship

H can’t devise his ½ - option when taking in CP – offered in 5

states.

CA says no administration unless surviving spouse elects

administration.

Estate of Shannon Cal App 1990

R makes will in ’74 intentionally omitting everybody but daughter. ’86 marries

L. ’88 R dies. L filed petition for family allowance and determination of entitlement as

an omitted surviving spouse. Court denied L petition to determine heirship. L dies and

estate appeals. App reversed, saying issue is whether will shows specific intent to

exclude L. Other side failed to prove intent to disinherit L and rebut presumption of

revocation.

Rights of Issues Omitted From the Will

Protection from Intentional Omission

o Domestic Approach

All states but LA, kid is SOL if disinherited

However, courts may use doctrines flexibly to provide for

disinherited children (lack of capacity, undue influence, etc.)

Protection from Unintentional Omission

Azcunce v. Estate of Azcunce FL 1991

Child born after execution of father’s will and before execution of codicil takes

under statute (will and codicil fail to provide for child). Held that where the codicil

expressly republishes will, kid is not permitted child under statute. Kid is SOL.

23

Pretermitted child statutes – enacted in almost all states – follow one of two

patters:

o Protect only children born (or adopted) after execution of the will

o Operate in favor of children alive when the will was executed as well as

afterborns

Failure to name all of the testator’s living children in the will

invites a challenge under the pretermitted child statute

TRUSTS: CREATION AND CHARACTERISTICS

Introduction

Background

o A trust is a device whereby a trustee manages property as a fiduciary for

one or more beneficiaries. The trustee holds legal title to the property, can

sell property, and can replace with property thought more desirable.

Beneficiaries hold equitable title and are entitled to payments from trust

income and sometimes trust corpus too.

o Many uses for trust

Estate plans

Commercial Use

o A trust provides managerial intermediation

o Estate Planning

Revocable trust

Testamentary marital trust

Trust for incompetent person

Trust for minor

Parties to a Trust

o Settlor, Trustee, beneficiary(ies)

o Settlor:

Creates trust

Aka trustor

During life (inter vivos trust) – declaration or deed

Upon death (testamentary trust)

o Trustee:

May be one or several

May be settlor or beneficiary

Court will appoint if not named or named refuses or dies

3 distinct functions:

Investment

Administration

Distribution

o Beneficiary(ies)

Hold equitable interests

Have a personal claim against trustee for breach of trust

Most have successive beneficial interests

Most life estates and future interests are trusts

Trust compared with a Legal Life Estate

24

o Legal life tenant has possession and control of property

o Trustee has legal title to trust property

o Legal life tenant – no right to sell

o LLT – can’t mortgage it

o LLT – general power of appointment

o LLT – creditor can reach

Commercial uses of the trust

o Before corporations – big trusts

Why we call it antitrust law

Allowed for pooling passive investment with big managers

Creation of a Trust

Intent to Create a trust

o Sole question is whether the grantor manifested an intention to create a

trust guardianship

o ―for the use and benefit of‖

Jimenez v. Lee OR 1976

P brought suit against father alleging he was trustee for her. Lower court

dismissed. 2 gifts: Grandma purchased $1000 bond; $500 gift from client in account.

Bond = D and/or P and/or mom. Account = D & P & 2 siblings. D cashed bond –

invested in stock ―custodian for P.‖ Part of account also invested ―Custodian.‖ TC held

D didn’t hold trust in either. SC says ―it is enough if the transfer of property is made with

the intent to vest the beneficial ownership in a 3rd

person.‖ Doesn’t matter that D

purchased stock as ―custodian‖ b/c trust was already created. Rev’d.

Precatory Language

o Moral obligation unenforceable in court

o ―precatory trusts‖

o ―recommendation‖ ―wish‖ ―hope‖

o Do not put recitals in testamentary instruments

o Be specific ―not legally require‖

Equitable charge

o Devise property to a person subject to a payment to a certain person

o Creates a security interest in the property

o More of relationship of debtor and secured creditor

Gift

o Donor must deliver property to donee, and donee must accept

o May be constructive or symbolic

o Fail to perfect = trust law

Can failed gift be saved by recharactirizing it as a declaration of

trust?

Declaration of Trust

o Does not require delivery

o Can be made orally (SoF)

o Must have intention

25

The Hebrew University v. Nye CT 1961

Nice library of Prof and Wife. Prof died and then Wife died. Executor is D and

Hebrew institutions are P. Controversy is between 1 charitable trust and other Hebrew

organization. Wife said she was giving to organization in Israel. Spent the rest of her life

packing and cataloguing books for shipment. TC held trust was created by declaration of

trust made by wife (for organization in Israel). SC says orally made herself trustee at

luncheon in Israel. But, problem with intent. Declaration of trust can’t be made for sole

reason that gift failed. No Trust. Remanded.

The Hebrew University v. Nye CT 1966

P now claims gift inter vivos by constructive or symbolic delivery. Court finds

delivery of memorandum coupled with decedent’s acts and declarations sufficient to

complete gift. Constructive Delivery. Held for P. Magic words???

Necessity of Trust property

o Trust: three elements

Trustee

Beneficiary

Trust Property

o Trust cannot exist without trust property (res)

o Trust res may be 1 dollar or 1 cent or any interest in property that can be

transferred.

Unthank v. Rippstein TX 1964

Dude wrote letter to Rippstein 3 days before his death. Wanted to give her 200

bucks a month for 5 years. Crossed out ―if I live that long‖ and wrote in margin that he

wanted to bind his estate to it. R unsuccessfully tried to probate as codicil. Tried again

and denied by TC. App rev’d, holding voluntary trust. Margin note created declaration

of trust? Court says no. Not sufficient certainty in language. Most of what he did was

express an intention to make monthly gifts followed by ineffectual attempt to bind his

estate in futuro.

Trusts v. Debts

o Decide whether recipient of funds is entitled to use them as his own and

commingle them with his own monies

Resulting Trusts

o Equitable reversionary interest

o Arises in 2 situations

Express trust fails or makes an incomplete disposition

1 person pays purchase price for property and causes title to the

property to be taken in the name of another person who is not a

natural object of the bounty of the purchaser.

Brainard v. Commissioner 7th

Cir. 1937

26

Dude said he would create trust on next year’s stock profits. Did so and reported

it on taxes. Trust arise before profits? No. Trust arose after profits. So first statement of

declaration is out because no res. (has to renew his intent when he gets the res)

Speelman v. Pascal NY 1961

Pascal wrote to secretary saying he was going to give her his shares of profits of

musical and movie not yet produced. Died after. Did this constitute valid, complete, and

present gift by way of assignment? Yes.

Clark v. Campbell NH 1926

Had no beneficiaries – main problem. Dude said ―friends‖ that the trustee should

select. Trustees argued this was a power for them to appoint. Also argued Dude intended

trustees to get property outright. Court said no. Position of trustee made by clear

wording – can never get property outright. (Ambiguous wording might have worked for

trustees.)

In Re Searight’s Estate OH 1950

George made testamentary disposition to dog Trixie to Florence with 1,000 in

bank of 75 cents a day to take care of dog. But dog has no legal right (can’t sue) so can’t

be beneficiary in a trust. General rule – no ben, no trust. But court said it is an honorary

trust – trustee has burden of caring for dog – no legal trust – court said when you have a

trustee willing to accept duty of care – trust does not fade. Probably would not survive

rule against perpetuities (covered later)

Necessity of a written instrument

o Writing required if you have inter vivos gift of land

o Also required if you have a testamentary trust (trust only valid if will is

valid)

o O X (to pay income for life to A) then to B

Not writing but oral declaration

Statute of Frauds prevents—what happens

Courts are split

o X takes = some

o X takes but with constructive trust to prevent unjust

enrichment

Heible v. Heible CN 1972

P transferred title from herself to herself and son and daughter in JT. Later

daughter conveys back, son does not. Mom sues son (they had agreed to convey it back).

Court found constructive trust on son based on oral agreement and confidential

relationship of parties.

Pappas v. Pappas CN 1973

Dude 67 marries 23 year old. Dude conveys property to son (knows divorce is

coming). Dude orally says son has to reconvey after divorce. Dad sues. Court allows

son to reneg. Gotta have clean hands to get a constructive trust!

27

Oral Trusts For Disposition at Death

Olliffe v. Wells MA 1881

Ellen assigned her estate to Wells to distribute to what he thinks is best. Wells

says she wanted it to be used for charitable purposes. St. Stevens Mission – also Well’s

Mission. If trust setup unlawful, goes to heirs. Court said should go to heirs b/c it is a

failed trust.

o Secret trusts – conveyance to trustee with no language of trust.

Constructive Trusts

o Semi-Secret Trusts – language that creates intent to create trust. But

beneficiaries not stated

No constructive Trusts

o Many courts still continue to apply distinction between ST and SST

Rights of the Beneficiaries to Distributions From the Trust

Trusts – Mandatory and Discretionary

o Mandatory: Trustee must distribute all income

o Discretionary: Trustee has discretion over payment of either income or

principle or both

o May be limited to an ascertainable support standard (support trust)

o Discretionary Support Trust

Marsman v. Nasca MA app 1991

Trustee of discretionary support trust have a duty to inquire into financial

resources? If so, remedy for failure? S died ’71, survived by 2nd

H and daughter.

Lawyer trustee. Give H reasonable care and maintenance in lawyer’s discretion.

Remainder to daughter and family. H remarried, drew up will leaving everything to

Marge. H needed funds, Lawyer wanted request and reason in writing. H into nursing

home, can’t pay bills, daughter takes over and gets house at Hs death. What about

Marge? Daughter dies. Daughter’s husband kicks out Marge. App says he keeps house.

But H should have gotten help from trust and he didn’t. Exculpatory clause is effective,

so Lawyer not personally liable, but payments that would have allowed H to keep house

and pay bills will be paid from trust to Hs estate

Duty to inquire – ―deem advisable for his comfortable support and maintenance‖

Limitations on Trustee?

o Absolute – reasonable test

o UTC – Good faith

o Restatement (3rd

) – ―absolute‖ not interpreted literally, must act honestly

Rights of Beneficiary’s Creditors

Discretionary Trust

o Trad – Creditors can’t reach trust

o Some – Creditors can get paid before beneficiary

o Pure Discretionary – beneficiary rights?

28

Trustee no give money, remedy? Court will compel if it finds

abuse of discretion (breach of fiduciary duty)

o Exculpatory trust purporting to insulate trustee from judicial review

altogether is unenforceable

Spendthrift Trusts

o Settlor controls what beneficiary can do with beneficiary’s interest

o Normally beneficiary’s interest is freely transferable

ST prevents assigning or selling

o Spendthrift – beneficiary can’t voluntarily alienate interest

o Not ST unless settlor expressly inserts spendthrift clause

o Settlor – transferring trust res to X as trustee for benefit of A

Who owns res?

US – settlor – STT allowed

UK – beneficiary – STT not allowed

o NY – all are ST unless expressly otherwise

o CREDITORS CAN’T REACH!

Can reach after receiving income

Dude files for Ch 7 bankruptcy, then gets 30 M from ST – free and

clear

Scheffel v. Krueger NH 2001

Dude beneficiary to spendthrift trust. Gets a judgment against him for molesting.

P wanted to attack trust to satisfy judgment. Trial Court held spendthrift provision

enforceable and dismissed. SC affirmed, saying law says creditors can’t reach, and no

public policy exception exists.

o Focus: determine rights of creditors of beneficiaries when STT provision

o Great value given to settlor’s wishes

Shelley v. Shelley OR 1960

Beneficiary of ST trust married 2x divorced 2x, 2 children by each marriage.

Both D’s had child support and 1 had alimony. Beneficiary disappeared. ST provision

given effect to bar claims of beneficiary’s childred? Court said it could decide on

exceptions to general rule, and Public Policy clearly demands the support payments.

Beneficiary’s duty to support former W and children should override ST provision. Not

on corpus, however, but children could invade as beneficiaries and in ―emergency.‖

Judgment for child or spousal support can be enforced against the debtor’s interest

in spendthrift trusts in the majority of states

o Min – can’t

o Some – granted this power by statute.

Discretionary Trust – ben asks for money, T says no

o Can ben sue?

Yes, abuse of discretion

o Can creditor of ben sue for abuse of discretion?

No – ben has legal interest, creditor does not (generally)

UTC – codifies – unless type of creditor (like Shelly) §504(c)

29

ERISA – pension plans may not be assigned or alienated

Modification & Termination of Trusts

Introduction

o If the settlor and all beneficiaries consent, an irrevocable trust may be

modified or terminated

o What if settlor is dead?

US – no, even if all beneficiaries consent, if it would be contrary to

a material purpose of the settlor

Claflin Doctrine – settlor owns property – settlor must agree to termination or

modification. Even if beneficiaries agree – can’t be against material purpose of

settlor.

o What is a settlor material purpose?

Must control the dead man’s hand

Modification

In Re Trust of Stuchell OR App 1990

Life beneficiaries to trust want to modify b/c retarded kid will get it on their

deaths and won’t qualify for public assistance. Rule: can modify, unless sole reason is

would be more advantageous to beneficiaries. Affirmed – no modification. Retard SOL.

Courts apply dead hand control practically.

o Some states have statutes that allow mod for impecunious beneficiaries

(Court’s discretion)

o Restatement 3rd

creates liberalizing trend (UTC as well) – moving in the

direction of UK law (ben control)

o Admin. Directions – easier to get changed for changed circs

o Should changes in circs justify modification of terms?

Cal Probate Code: Yes (circumstances not known or anticipated by

settlor) and would impair or defeat purposes of trust

UTC: same

Admin: impractical or wasteful

Upon term – distribute in a manner consistent with

purposes of trust

o Reformation: equitable remedy that conforms an instrument to what it was

intended to say

o Modification: under equitable deviation principles changes the terms of

the instrument to reflect not what the settlor meant to say, but what the

court believes the settlor would have said had the settlor anticipated the

changed circumstances

o Trust Protector: has the ability to alter trust and hire or fire trustees

(usually bank institutions.) Can increase or decrease payouts, etc

Codified in handful of states

Ratified by UTC

Termination

o Generally, can’t be terminated if:

30

ST trust

Beneficiary not to receive the principal until attaining a specific

age

Discretionary trust

Trust for the support of beneficiary

o These provisions usually deemed to state a material purpose of the settlor

In Re Estate of Brown VT 1987

Dude died, created trust for educations of nephew’s kids. When education

complete, pay income to nephew and wife for life, remainder to then living kids.

Educations complete, paying income to nephew and wife –N and W petitioned for term,

arguing sole purpose of trust completed. Kids agreed. LC agreed. SC rev’d, saying

there was a second purpose: to insure life-long income for N and W at discretion of

trustee. Settlor’s intention would be defeated if trust were allowed. NO

TERMINATION

o Most states – trust irrevocable unless express or implied provision that

settlor reserves power to revoke

o Handful – opposite (CA, TX, OK)

UTC as well

o Revoked by will? – Trad: no; UTC: yes

Trustee Removal

o Remedy for breach of trust, not mod.

o Must set threshold high as to allow trustee to carry out settlor’s wishes, but

not too high as to allow mismanagement.

TRAD: Courts remove for serious breach, but not disagreement or

simple breach

UTC: serious breach, lack or cooperation impairs administration of

trust, unfit, unwilling trustee, and substantial change of

circumstances.

TRUST ADMINISTRATION: THE FIDUCIARY OBLIGATION

Introduction

Trustee: fiduciary obligations trustee owes to trust

o Investment

o Admin

o Distribution

Not only by trustee

o Executor burdened w/ financial obligation as well

o Directors to shareholders

o Etc.

Financial Obligation

o Duty of loyalty

o Duty of prudence

o Duty to subsidiary rules that apply to 1 and 2

Relate to trust administration

31

o Loyalty – imposes on T obligation to refrain from self dealing and conflict

of interest transactions

o Prudence – reasonable person

o Subs – invest, enforce and defend, diversify investments – minimize costs,

etc.

Compliance with rules of loyalty and prudence adduced after the fact!

Source of trustee power

o Trust instrument

o Statutes – state law

Hartman v. Hartle NJ 1923

Dorothea died ’21 testate. Named 2 sons in law executors. Sell and divide

equally (5 children). Sold farm to a son (3000) who bought for sister (wife of one of the

executors). She sold to Mike (D) for 5000. Got sued for improper and fraudulent sale.

Can’t sell to self or W of trustee. Daughter gets 1/5 of profits.

Duty of Loyalty

Estate of Collins Cal App 1977

Ps beneficiaries under testamentary trust of deceased. Ds were deceased biz

partner and lawyer – trustees. Ts filed for termination. Ps objected – improper investing

– wanted surcharge. TC found for Ds. App says evidence d/n support finding that Ds

properly invested – rev’d.

Purchaser – obligation to trust?

o Y wants to buy BA from trust

o Prob #1 p 778

X sells BA to B, who has notice of trust (no notice, no obligation)

B believes sale is necessary for support of A (ben) but it isn’t

Can B purchase w/ no problem?

CL standard very strict – not then no

UTC – B reasonably believes – okay

Y loses – may be required to re-convey

Can’t self deal regardless of value! Even if you bid more – absolute duty of loyalty

Hartman

Executor had to disgorge profits

In Re Gleeson’s Will Ill App 1955

Trustee was tenant. Near end of lease term LL dies and names tenant trustee.

Can’t be both – should choose one or the other. Profits made on crop had to be paid to

children.

Beneficiary consent?

32

o Can after full disclosure, Trustee acted in good faith, transaction must be

objectively fair and reasonable

Seek advance judicial approval? Yes

Settlor Consent? Always

o Bank allowed to deposit in own institution when trustee

Duty of Prudence

Imposes objective standard of care

Particularly hard on trustee when it comes to investments

o Basic relationship b/t Risk v. Reward(return)

o What balance does trustee have to strike?

Courts have given lists that are conclusively prudent (strong bias

towards corpus protection)

Prudent Man Rule – intended to have trustees strike a balance (risk

v. reward) ―observe how men of prudence manage their own

affairs‖

Codified in UPIA

o Widely adopted

o 3 core concepts

Increased sensitivity b/t risk and reward

Diversification imperative

Experts allowed

o Applies to total portfolio, not 1 specific asset

o Takes bens income into account

Collins

80,000 trustees received. High risk not smart – widow and children. Invest 50 of

80 into second mortgage. Lawyer represented dev who received 2nd

mortgage – violates

loyalty—self dealing. Violated PMR and UPIA.

ERISA

o Prudent Investor Rule is standard. Duty of Loyalty = exclusive benefit

rule

Diversification

Uniform Prudent Investor Act (1994)

o §3 Diversification

Trustee shall diversify unless reasonably determines purposes of

trust better served w/out diversifying

Trustees owe duty (fiduciary) (UPIA)

o Loyalty – sensitivity to Risk/Return

o Prudence - diversification

o Subsidiary – delegation

3 different risks

o Market

o Industry

33

o Firm

Last two are subject to diversification

In Re Estate of Janes NY 1997

Janes dies ’73, survived by W. Janes’ 3.5M estate – 2.5M stock – 71% Kodak –

1.7M. Janes’ ’63 will and ’69 codicil made 3 trusts: 1)Marital deduction trust of 50%

Estate’s assets to W for life – gave W invasion of principal and testamentary power over

remaining principal. 2)Charitable trust – 25% of Estate – annual distributions to selected

charities. 3) Rest paid to W for life then went into Charitable trust. By ’78, shares had

fallen from 135 to around 40. W sued to surcharge petitioner for losses due to imprudent

retention of high concentration of Kodak stock. Court found for W’s estate (W died ’86)

and imposed 6M surcharge on Petitioner. Cour adopted ―lost profits‖ or ―market index‖

measure – what proceeds would have yielded had they been diversified in ’73. Appellate

Division modified damages, but upheld LC finding that petitioner liable for negligent

failure to diversify…Proper measure was value of the capital that was lost – difference b/t

value of stock at time should have been sold and value when ultimately sold = 4M.

Highest court affirms

What if Settlor says don’t sell and ben wants to sell?

o Retention Authorized

Older cases

By express language in the trust instrument – settlor can relieve the

trustee of the duty to diversify so that the trustee may retain the

trust’s inception assets

If authorization to retain is discretionary or permissive, may be

abuse if trustee retains

Courts give narrow interp to these provisos

o Retention Required

Trustee must retain

Undiversification almost always bad for ben

Changed circs usually allow you to get around – have to petition

the court

Delegation

Traditional Nondelegation Rule: ―Trustee under a duty to ben not to delegate‖

Can’t delegate fiduciary obligation to an expert

Shriners Hospitals v. Gardiner AZ 1987

G made trust pay income to daughter, Mary Jane and 2 grandchildren, Charles

and Robert, remainder to Shriners. MJ trustee, Charles 1st alt, Robert 2

nd alt. MJ let

Charles do investing. Charles embezzled. Shriners sued MJ for surcharge – improper

delegation. Court said she could delegate, but question of causation.

Impartiality and the Pricipal and Income Problem

Duty of Impartiality

o Balance

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Trustee must strike a balance b/t beneficiaries and their respective

interests

Dennis v. Rhode Island Hospital Trust Co. 1st Cir. 1984

Great-grandchildren of Alice Sullivan claimed the Bank trustee breached

fiduciary obligations owed to them as bens of trust created in 1920. Trust will cease to

exist in ’91. (21 years after death of last child). After that distributes all income for

benefit of living issue, principal to issue surviving in ’91. 2 GG kids are entitled to

income until ’91, and then principal. DC ordered surcharge of 365,000, b/c it found that

trustee should have sold the buildings (principal asset of trust) in 1950 – this apparently

restored trust to it’s 1950 level. App affirms w/ one exception –

BUILDING FLEXIBILITY INTO TRUSTS: POWERS OF APPOINTMENT

Introduction

Types of Powers

o Powers of appointment in bens

Powers that give bens ability to choose who next will take the

beneficial interest in the property subject to the power

Allow settlor to postpone and delegate

o Terminology

Donor – person who creates power of appointment

Donee – person who holds power

Objects of the Power – persons in whose favor power may be

exercised

Appointee – person in whose favor power has been exercised

Takers in default of appointment – if donee fails to exercise power

General Power – power which is exercisable in favor of the

decedent, his estate, his creditors, or the creditors of his estate.

Special Power – power not exercisable in favor of the donee, his

estate, etc.

Does the appointive property belong to donor or donee?

o CL – viewed as donor’s – donee merely does an act for donor.

Relation back doctrine.

o Some situations – Donee of general power treated as owner – Fed Tax

laws

Irwin union Bank v. Long IN 1974

V got judgment from P of 15k from divorce decree. This action = V trying to get

paid from P’s trust. P allowed to w/draw 4% of trust corpus per year. TC gave this 4%

to V. P contends general power, and that if power not exercised, creditors can’t reach (P

never has W/drawn). V argues P has absolute control and use of 4% corpus. App

reversed, saying P has no control until it is exercised, therefore creditors can’t reach.

CONSTRUCTION OF TRUSTS: FUTURE INTERESTS

Introduction

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You must be able to identify, so that you can avoid, intent-defeating technical

rules of future interests law still with us, as well as commonly encountered

examples of ambiguous language

Classification of Future Interests

Determined by arbitrary rules of CL not by certainty of possession

Interest in the Transferor

o Reversion

o Possibility of reverter

o Right of entry (power of termination)

Interests in a transferee

o Vested remainder

o Contingent remainder

o Executory interest

Rule Against Perpetuities (RAP)

o No interest in real or personal property is good unless it must vest if at all

not later than 21 years after some life

Reversion

o Interest remaining in the grantor, or in the successor in interest of a

testator, who transfers a vested estate of a lesser quantum than that of the

vested estate which he has

o Never created; retained interest that arises by operation of law when the

transferor has conveyed away a lesser estate than the transferor had.

o Would not violate RAP b/c it is a retained interest

Possibility of Reverter; Right of Entry

o Possibility of reverter is the future interest that remains in the grantor who

conveys a fee simple determinable.

O conveys ―to School Board so long as used for a school‖ The

School Board has a fee simple determinable; O has a possibility of

reverter, which becomes possessory automatically upon expiration

of the determinable fee.

o Right of entry for condition broken is the future interest that is retained by

the grantor who conveys a fee simple subject to a condition subsequent.

O conveys ―to School Board, but if the land ceases to be used for

school purposes, O has a right to reenter.‖ School Board has a fee

simple subject to a condition subsequent; O has a right of entry,

which O has the option to exercise or not.

o These are usually not found in Trusts

Remainders

o Future interest in a transferee that will become possessory, if at all, upon

the expiration of all prior interests simultaneously created.

o Must only be possible, not certain

o Take value of property and subtract value of life estate = value of

remainder

o Either vested or contingent

Vested if

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1) it is given to a presently ascertained person and

2) is not subject to a condition precedent (other than the

termination of the preceding estates)

Contingent if

1) it is not given to a presently ascertained person or

2) it is subject to a condition precedent

Executory Interests

o Differs from remainder in that it is a divesting interest

o Springing and Shifting

Shifting – an executory interest that may divest another transferee

if a specified event happens (shifts the property from one

transferee to another)

Springing – an executory interest that may divest the transferor in

the future if a specified event happens

Don’t see springing today (to my daughter when she gets

married)

Problems

o O conveys a fund in trust ―for A for life, then to A’s children, but if at A’s

death A is not survived by any children, then to B.‖ At the time the trust

is created, A has not children. What interests are created?

A = Life Estate; A children Contingent Remainder; B Alternative

Contingent Remainder

o Same as above, but 2 years later, two children, C and D, are born to A. C

dies, devising his property to his wife, W. A dies. To whom should the

trust assets be distributed?

C and D = Vested Remainder Subject to Open; B has shifting

Executory Interest.

W takes half, D takes half

o O conveys a fund in trust ―for A for life, then to such of A’s children as

survive A, but if none of A’s children survive A, then to B.‖ At the time

the trust is created, A has two children, C and D. Then C dies, devising

his property to his wife, W. A dies. To whom should the trust assets be

distributed?

A = Life Estate; children condition precedent = Contingent

Remainder; B = Alternate Contingent Remainder

D gets all (difference is ―any children‖ v. ―such as survive‖)

Construction of Trust Instruments

Court construes an instrument in order to construct an estate plan

Preference for vested instruments

o CL had strong preference – ambiguous instruments as creating vested

rather than contingent remainders

o Consequences:

Vested remainder was not subject to the doctrine of destructibility

of contingent remainders that defeated the grantor’s intent

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Vested remainder accelerated into possession upon termination of

the life estate, solving vexing problems of possession and

undisposed income

Vested remainder was transferable inter vivos, making land more

alienable

Vested remainder was not subject to the RAP, rule that defeats

grantor’s intent

Acceleration into possession

o CL – vested remainder accelerated into possession whenever and however

preceding estate ends. CR d/n accelerate b/c remaindermen are not

entitled until ascertained and condition precedent has occurred.

In Re Estate of Gilbert NY 1992

Dude dies leaving 40B estate. W and 4 children. Trust for W and 4 for kids. W

dies and her Trust added to 4 kids’ trusts. Lester – religious nut – disclaims. Executor

argues trust not created yet – wholly discretionary – if allowed to disclaim, then no trust

can ever be created and protect someone who might need it in the future. Court held

renunciation valid and Lester treated as if he had died without issues.

Transferability

o At common law, Vested Remainders, including defeasibly vested ones,

were transferable inter vivos

o Contingent Remainders and executory interests were not

o Today – only 9 states

o Future interest contingent upon surviving to the time of possession not

transferable at death.

Requiring survival to time of possession

o General rule: no requirement remaindermen live to time of possession

o If vested remainder subject to divestment, courts read divestment language

strictly

TRUST DURATION AND THE RULE AGAINST PERPETUITIES

Introduction

Development of the Rule Against Perpetuities

o People wanted to control their land forever

o Courts were like, no way, dawg

Summary of the Rule

o Restriction on the remote vesting of interests, but does not apply to

charitable trusts.

o Vested interests are not objectionable, but contingent interests are.

If O conveys a fund in trust ―for A for life, then to B‖ B has a

vested remainder, but

If O conveys a fund in trust ―for A for life, then to B if B survives

A,‖ then B has a contingent remainder

o Limits the time during which property can be made subject to contingent

interests to ―lives in being plus 21 years‖

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o Two basic purpose:

Keep property marketable and available for productive

development in accordance with market demands

Limit ―dead hand‖ control over the property, which prevents the

current owners from using the property to respond to present needs

o All legal and equitable contingent future interests created in transferees are

subject to the Rule Against Perpetuities.

Why lives in being?

o Allows the settlor to deduce who is capable of controlling the land now—

persons he knows and sees.

o Draws the line b/t those people and people he cannot know and see

It is a rule of proof

o Contingent future interest is void from the outset, if it is not certain that

the interest will either vest or fail—that one or the other must happen—

within 21 years after the death of ―some life in being at the creation of the

interest.‖

o O ―to pay the income to A for life, then to A’s children for their lives, then

to pay the principal to B.‖ A has no children. A’s life estate is vested in

possession upon creation. The remainder to A’s children for their

lives will vest in possession or, if there are no children, fail upon A’s

death. B’s remainder is vested in interest upon creation. Thus, all

interests created by the transfer are valid.

Example

2005 – interest created – AB&C are alive – they are lives in being

2006 – AB&C die

+ 21 years

2027 – ends RAP

Under what conditions can interest vest remotely?

o Condition precedent occurs after

o CP is linked to after-born person

After-born person does not extend (lives in being +21)

After born can arise in:

o Fertile octogenarian

o Unborn widow

P. 677 2b

o To A for life, then to B if any person goes to the planet Saturn

2027 RAP ends – Saturn in 2030

Interest vests, but void as an issue from the beginning

Look out for CP that can occur outside the RAP period

After-born person (see example)

o 2006 – D is born

o 2007 – AB&C die

o + 21

o 2028 RAP runs

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o ―then living‖ – 2030 vests in D, but entire conveyance is void

Dickerson v. Union National Bank of Little Rock AR 1980

Unborn Widow Case

Real problem is ambiguous language

o N—Cecil and Martin

o Cecil—A,B

o Martin—C,D,E,F,G

o Martin marries X later

Failure to ID Martin’s Widow

Bodily heirs – means issue

Using issue=multi-generational class (p640 n 3)

Relevant lives = ABCDEFG – 2005

2006 – X is born

2026 – martin marries X

2027 – Cecil, Martin, ABCDEFG all die

+21

2048 end RAP

2068 – X dies

Bodily heirs of M & C interest’s vest

Void at issue

Court didn’t talk about unborn child turning 25 past the perpetuities period

P. 684 #2

o To my son = valid

o Widow if any = valid b/c it is for life—it will either vest or fail at death of

son

o Principal to son’s children = vested (b/c no condition precedent) subject to

total divestment

o Red Cross = shifting executory interest. It can divest children of their

interest.

Does conveyance to red cross violate RAP?

YES

Why?

B/c of unborn widow – interest could occur beyond perpetuities

period. Conveyance to Red Cross = invalid (void at issue)

Ambiguous Language = bad!!!

Just understand these exercises; you’ll be fine on the final

Application of the Rule to Class Gifts

In order for class gift to be valid

o CP must be met

o All or nothing rule

All class members must satisfy CP (p. 686)

Class must Close

All CP for every member must be satisfied before

perpetuities period ends