Descendants Trusts and Estates
1. Class of semester
A. Class: Readings
Class 1: Reading
Introduction: Freedom of Disposition
- Transfer of property at death - succession
- Probate succession by will and intestacy and nonprobate succession by inter
vivos trust, pay on death contract and other will substitutes.
- Probate law is organized around the principle of freedom of disposition.
- Sections:
A. Section A: considering policy of freedom of disposition, its rationale and
extent to which it is a constitutional imperative
B. Section B - consider mechanics of succession, including the basic
organization or probate administration and nonprobate modes of transfer
C. Section C we consider issues of professional responsibility in succession
matters.
Section A. Power to transmit property at death
- The Umbrella term for the transfer of property upon death is called succession.
This includes wills, intestacy, trusts, charitable foundations, death taxes, future
interests, etc…
1. Freedom of disposition and the dead hand
- Facilitation of disposing of property in almost any way that the owner
desires, no regulation on how they do so.
- The main restrictions are spousal rights, creditors, illegal activity, RAP,
etc…
- 77y
Shapira v. Union National bank Ohio 1974
- Wills equally to Ruth,, Daniel, and Mark.
A. Daniel should receive his share only if he is married at the time of death to
a Jewish girl with both parents being Jewish. If not, his shares shall be
kept by the executor for no more than seven years for him to be married
upon such terms or the shares shall go to the state of israel
- This is unenforceable because it is unreasonable and he should be
given his share free of restriction.
- Violation of EPC because it is a choice to marry
- Violation of EPC because discrimination of class of person to who
hee should marry
-
This creates a partial restraint upon marriage which in many states
a condition to a gift that is in violation of public policy is void.
- If it is an unreasonable restraint it is void. Aka must marry members
of the community but there are only four marriable members of the
community is unreasonable.
- Modern-day conclusion: today a conditional bequest such as this
should be done in trust (incentive trust) this way there is no actual
right, but there is an opportunity to access.
B. Class Notes january 19, 2022
Freedom of Disposition - US Law
- Decendent can leave property to whomever they choose
- Do what you want to do with whatever you have
Forced Succession - Mose countries
- Property must go to specified descendants
- Wife and kids gets certain amount
Confiscation by the State - Early soviet Experiment
- Property goes to the government, youve enjoyed it while you were alive and thus
it all reverts to the state - no country does this really.
Need to figure out what the decedents intentions were
- How do you create it
- How do we interpret it
- How do we ensure it was the free choice of the decedent
Default rules
- What do we do when no estate was made, how do we distribute the property for
a person who has not given us express instructions on how to distribute the
property
-
2. Class of semester
B. Class: Readings
1) Probate and Non probate Property
- One court in each county has jurisdiction over administration of a decedent’s
estate (can be called: orphan, surrogate, probate, chancery court, etc…)
a. Inter vivos trust
i.
Passes in accordance with terms of trust avoiding probate administration
because the trustee holds legal title to the trust property.
b. Pay on death POD and Transfer on Death TOD
i.
To collect property under TOB or POD the beneficiary only needs to file
the death certificate with the custodian
c. Life insurance
i.
Policy is paid out to those named as beneficiaries in insurance contract
and company pays upon receipt of death certificate of insured.
ii.
Independent of probate administration
d. Joint tenancy
i.
Decedents interest vanishes at death. Surviving JT owns the whole
property, onlly need to file death cert.
2) Probate Terminology
- Persons dies > appointment of personal representative > PR is the fiduciary who
collects and inventories property of decedent, manages and protects it.
- If DC dies with will she is testate. If testate DC in her will names person to
execute will the administrator is called executor.
- If will doesnt name executor or if person named is unable/unwilling they die
intestate. The court then names an administrator. Which is usually selected via
statutory list of persons usually: surviving spouse, children, parents, siblings,
creditors.
3) Probate Administration
1. Provides evidence of transfer of title to new owners
2. Protects creditors
3. Distributes decedents property to those intended
a. Opening probate and choice of law
i.
The law of state where DC was domiciled at death governs the disposition
of perosnal property
ii.
Law of state where DC real property is located governs disposition of it.
iii.
Main purpose of requiring an ancillary probate proceeding is to prove title
to real property in the situs states recording system and to protect local
creditors
b. Common form and solemn form probate
i.
Common form
1. Ex parte, no notice or process issued.
2. Will execution proved by oath of executor or other witness
3. If no one raised objections this would suffice
ii.
Solemn Form (now called formal probate)
1. Notice to interested parties is given, will was proved by testimony of
attesting witnesses. Greater court participation.
c. Formal and informal probate
i.
Informal probate (ex parte probate) executor swears that to be on their
knowledge that will is valid, proof by witnesses is not required.proof by
witness that it has required signatures, and contains an attestation clause
showing that will requirements of execution have been met.
d.
e.
f.
g.
1. Within 30 days executor must send notice to all interested parties,
including those disinherited and they may file a petition for formal
probate
ii.
Notice probate (notice/formal/solemn all the same): litigated judicial
determination after notice to interested parties.
Supervised and unsupervised administration
i.
Supervised administration
1. Personal representative (PR) is subject to continuing authority of
probate court while administaering the estate. Can be long and
expensive.
ii.
Unsupervised administration (Default under UPC)
1. PR administers the estate without going back into court
2. Can always petition to move up to supervised administration.
Barring creditors
i.
Time period in which creditors can file claims thereafter they are barred.
Probate administration can help if it is important to fix a date after which
property can be distributed to beneficiaries without concern of subsequent
creditor.
Closing the estate
i.
PR must complete administration and distribute all assets as quickly as
possible. They must:
1. Identified creditors must be paid
2. Titles cleared
3. Taxes paid and Tax returns returns accepted by tax authorities
a. PR is personally liable for this
4. Real estate of business benign sold
5. For supervised administration judicial approval is required to relieve
a representative from liability.
Avoiding probate
i.
Can avoid providing that during life client arranges to transfer all property
via will or substitutes.
ii.
Probate is for overlooked matters
Chapter 2: Intestacy: An estate plan by Default
- Person who dies with a will is to die testate
- Half US population dies without a will (Intestate)
1. Heirship and the expectancy of an heir apparent
a. A person with no heroes is (nemo est haeres viventis)
2. Applicable law and UPC
a. Law of intestacy varies considerably from state to state
2-102 share of spouse
- Entire estate to surviving spouse if: no kids or parent is still alive.
- All of the dead persons' kids are also kids of surviving spouse and there is no
other kid of surviving spouse who survived the dead.
2-103 - share of Heirs other than surviving spouse
C. Class: Notes
Probate
- Property being passed via will or Intestacy
- Not transferred by any probate means
- Potentially will need the intervention of the court
- Complete and finalize the transfer
Non- Probate
- POD - Pay on death
- TOD - Transfer on death
-
These will say who the beneficiary will be and they take care of it
If problems arise here then it will go probate
Far more property passes through non-probate in the USA than probate.
Terminology
1. Heir - Intestacy
a. Only applies to intestacy, inherits intestacy.
2. Descendant 3. Heir-apparent 4. Devisee - WILL
a. The usual term for a person who inherits property via a will. Maker of will
devises.
5. Executor Summary Administration
- Open and close estate in a single court appearance if estate is less than
$100,000
Functions of probate
- Provide formal final evidence that title can been transferred to new owners. Big in
real estate
- Many things people do not care about the title (Sofa). Formal evidence of title is
not practical
- Protecting creditors for payment of debts but cut off late claims so we can finalize
estate.
Real vs personal property
- Real property: where property is located (governed by the state where it is at)
- Land or something attached to the land = real property = Real Estate
- Personal property: Where decedent is domiciled at death
- Boat that is docked in Michigan but owned by dead person domiciled in
illinois.
Intestact as Defauly Rules
- Testacy
- DC leaves a will that provides for disposition of her probate property at
death
- Intestacy
- No will, probate estate passes by intestacy
- Partial intestacy
- Not everything is accounted for, the will can dispose of some but not all.
If all descendants are descendants of the dead’s and their spouse, it all goes to
spouse. It takes care of mutual decedents.
- If either spouses has descendants that do not belong to the other one. Not all
goes to surviving spouse. (second box above)
- If spouse has other descendants
- If surviving spouse has kids that were not descendants then less likely to
give them more money because those kids are not theirs.
- If no surviving spouse, the descendants get all. No S but D (4th row)
Intestate succession rules
- PROPERTY THAT IS NOT PASSED THROUGH ANY OTHER MEANS,
probate property.
Simultaneous Death
- Sufficient evidence of survivorship the beneficiary is deemed to have
predeceased the donor.
- Survivorship = surviving by 120 hours or more (hours), we assume they are
equally dead.
-
3. Class of semester: January 26, 2022
A. Class: Readings: pages 82-92
Descendents
a. Representation
Dad’s estate before he dies: - jacob, alex, liz, greg. All have two kids.
Greg dies, his kids get his share split and his wife gets nothing.
b. English per stirpes (⅓ of states use this)
i.
Vertical equality - each line of descent treated equally
ii.
Root generation = decedent’s children
iii.
A> Children (B & C) > B has D child | C has E & F children.
1. We treat each descent equally, D gets 50%, where as E & F split
the 50% of C, they get 25% of the total.
c. Modern per stirpes (50% of states use this)
i.
Root generation = first one with LIVING taker
ii.
Vertical equality beginning at root generation
iii.
A> Children (B & C) > B has D child | C has E & F children.
1. Here: D, E, F, would each get an equal ⅓ share of estate because
they are equal decedents and no living heir.
d. Per capita at each generation (1990 UPC) (roughly 12 states do this).
i.
Same root generation as Modern Per Stirpes but different treatment of
deceased decendants’ shares
ii.
Horizontal equality - each taker at each generation treated equally (equally
near is equally dear). IF YOU GET ANY. if your parent is still alive, you
won’t get anything.
iii.
Surviving descendants the estate or part is divided into as many equal
shares as there are
1. Surviving Descendants in the generation nearest to The
Descendant which contains one or more surviving descendants,
and
2. deceased descendants in the same generation who left surviving
descendants, if any.
3. each surviving descendant in the nearest generation is allocated 1
share the remaining shares if any
iv.
are combined and then divided in the same manner among the surviving
descendants of the deceased
1. Eg: A gives to B, C, D. B child = E, C child = F, G, D = no children.
a. B and C are dead
b. D gets ⅓ of A’s shares, E, F, G equally split the ⅔ remainder
and thus get 1/9.
i.
B. Class: Notes: January 26, 2022
A
⅓
B
C
D⅓
E
C’s
F 0
husband gets
H
I
⅙
-
G
⅙
C and A are dead.
⅓ to each surviving child, B and D get ⅓
Of that ⅓ it is divided which = ⅙ to F and G.
Vertical equality
Examples
A
C
B
D
E
1.
F
a. English per stirpes E and F will be 25% and D gets 50%
b. Modern per stirpes - each DEF get ⅓
c. Percapita at each generation DEF get ⅓
A
B
C
E
D
F
G
2.
a. EPS - E = ⅓ , F and G = ⅙ D = ⅓
b. MPS E = ⅓, F =⅙, G = ⅙. D ⅓
c. PCG - E = 2/9, F = 2/9, G 2/9, D = ⅓
3. Eg:
A
B
C
D
EF
GH
IJ
K
L MN
O
a.
b. D is dead and money died with him
c. O gets NOTHING beacuse their parent is still living
4.
Cant make a negative will
- I want Moose to go to dad and nothing at all to jacob - under traditional law jacob
will get something.
- What you should say: Moose to dad, all other things to Gregory. Need to allocate
all items somewhere, not just saying where you dont want them to go
-
4. Class of semester
A. Class: Readings 92-123
Transfers to children
Contemporary intestacy law
1. Adopted children
2. Posthumously born children
3. Nonmarital children
4. Children borh with aid and assistance of reproductive technology
5. The mechanics of an advancement on the inheritance of a child
6. The need for guardianships of the person and of the property for the minor child
Hall v Vallandingham 1988
- Made adoption subject to all obligations of natural born child born to petitioner in
wedlock
- Living natural parent is relieved of all parental duties and obligations to the
individual adopted
- Upon adoption the adopted shall lose inheritance rights from their natural
collateral or lineal relatives.
William jr ----brother----Earl and Elizabeth --remarried---- Jim Kilgore
Died 25 years after Earl
****adopted by stepdad
*A
*B
*C
*D
Because ABCD were adopted by Jim
they are not able to inherit from
William
Stepparents
- UPC (Uniform parentage act) adopted children can inherit from their natural
parents and natural parents can inherit from their natural children even if
adopted.
- Age of adoption doesnt matter, but if they are sexual partners it is generally
banned now.
- Before gay marriage was legal same sex couples were adopting each other so
that they could have legal rights (hospital, will, etc…) now they try to undue it so
that they can get married.
Adoption, wills, and trusts
- Intent of the adopter is shown through the adopting which we relate back to a
will. If A adopts B. we should assume A wants B in the will.
Minary v Citizens Fidelity bank and trust co 1967
- The decedent’s son adopted his adult wife in the hopes of bringing his wife under
the provisions of the decedent’s trust in order for his wife to share in the
proceeds from the trust.
- Adopting an adult for the purpose of bringing that person within the provisions of
a preexisting testamentary instrument when that person was clearly not intended
to be covered by the instrument should not be permitted
- It has been accepted that people adopt adults for the purpose of making them an
heir. But this case makes someone an heir beyond the adopting and adopted
party expanding the scope.
Note:
- Even though it complied with the statute that Myra was now an heir. The court
said no.
- Decedent’s intent wasnt mean to give her daughter in law something, if she did,
she could have given something directly to her. She meant her sons.
Doris Duke
- Was it a negative will? Made it seem like it was and adopted daughter still got
$60mil.
UPC Considered a child if
1. Performed functions customarily of a parent before the individual turned 18. Or;
2. Parent intended to perform #1 but was prevented from doing so by death or
another reason, if the intent is proved by clear and convincing evidence.
- This is to avoid manipulative adoption to make that person a beneficiary under a
class gift created by someone else. The transferors use of term child, or issue,
implies an intent to include only adoptees with whom the adopter had developed
an actual parent-child relationship.
Children adopted out
- Under step parent adoption rule if A marries B and has C, A dies, B marry’s D, D
adopts C. C can still inherit from A under the stepparent adoption rule.
Equitable adoption and de facto parentage
O’Neal v Wilkes 1994
- Cook ‘virtually’ adopted Hattie O’Neal- there was no legal adoption
- Lived with another family until she was married, they referred to her as their
daughter and her kids as their grand kids.
-
O’Neal asked for virtual adopted to be declared by the court so she can be
recognized as a recipient for the will. Court rejected.
Need for valid adoption (easier for common law marriage)
1. Agreement between adopting and natural parents
2. Someone with legal rights to the child must consent to formal adoption
and there was no contract or authority. - only parent or guardian can
consent. NOT legal custodian. There was none here besides absent
father.
Equitable adoption
- Oral agreement to adopt A between H and W and A’s biological parents is
inferred if H and W take baby A into their home and raise child as their own.
- H and W are estopped for denying formal adoption took place.
- RECOGNIZED in most states
- Foster kid doesnt countm promise or intention to adopt must be proven by clear
and convincing evidence
De Facto Parentage
- Can establish parentage through proof of living together, parent-child
relationship, caretaking, holding themselves out to be parent.
- Has no effect on child-parent relationship prior to adjudication
- Works for inheritance purposes
Posthumous children
- Conceived before death, born after death.
- Rebuttable presumption that child born within her spouses lifetime or within 300
days after death of her spouse is a child of that spouse
- Regardless of the sex of the spouse.
Nonmarital child
- All states allow inheritance by nonmarital child from childs mother
- Rules on father vary state to state.
a. Need reliable proof of paternity
Posthumously conceived children
- If child is conceived after death with sperm of dead father, they are NOT able to
have rights to any inheritance
Woodward v commissioner of social security 2002
-
-
Issue. Whether posthumous children who are the result of artificial insemination
may receive social security benefits if there genes can be traced to the alleged
father Held. No. Posthumous conceived genetic children may not receive
inheritance rights under an intestacy statue where the reproductive rights of the
genetic parent are greatly infringed. It is within the best interests of children to be
supported by their natural parents and the legislature has expressed this intent in
creating intestacy statutes.
Only can take SS benefits IF intestate heir of predeceased parent
UPC posthumously conceived child can inherit it:
1. During life of the parent they consented to posthumous conception in a signed
writing or consent that is otherwise proved by clear and convincing evidence
AND
2. Child is in utero no later than 36 months or is born no later than 45 months after
parents death
B. Class: Notes
1. Problem 1
a. Under what circumstances can a decedent's stepdaughter take a portion
of the decedent's intestate estate, if the decedent has not adopted the
stepdaughter, and the stepdaughter is the only surviving step-descendant
of the decedent?
i.
Under UPC we would have to have no surviving, spouse and
decedents, grand parent and decedent, essentially all people dead
and she is the last resort before the state.
ii.
120 hours doesnt apply if the last stop before the state. So even if
she died within 120 hours, it still goes to her because it woudldnt be
passed to the state as she is the last stop.
2. Problem 2
a. Dora died without a will she was survived by her spouse sarah, the
couples two minor children A and B. and Sarah’s adult child from a
previous relationship, C, Dora’s estate is valued at $375,000 without
regard to any adjustments what share of the intestate estate will sarah
take
i.
$300,000
3. Problem 3
a. UPC percapita to each generation: A B C (EF) D (H)
b. A and B get ¼, then ½ combined and divided by EFH
4. Prob 4
a.
b.
c.
d.
D (A), and S married
A died within 120 hours so entire estate goes to S.
If A died after 120 hours then estate
Had A died after 120 hours then it would have been split equally.
Adopted children
a. Adopted children shall be treated as a natural child, on adoption a child no longer
shall be considered a child of either natural parent except that upon adoption by
the spouse of a natural parent the child shall be considered the child of that
natural parent.
- A transplant from one family to another family
- If adopting parenting is the spouse of one of the biological parent, then
that parent continues to be the parent.
- So the adopted children get nothing under the traditional view of adoption
from natural fathers' families because they are adopted
b. UPC adoption occurred after death of a parent they can inherit
c. Spouse of a parent before the adoption
Double Inheritance? Adoption
●
A. Edward Milewski - Katherine Belle Milewski
a. John David Milewski - Joanna Milewski
i.
Elizabeth
ii.
Alex
iii.
Jacob
iv.
Gregory
b. Mark Milewski c. Sandra Milewski/powell/Bennett/ i.
Brooks Bennett
ii.
Katie
iii.
Blair Bennett
d. Candice Milewski/Young/Berk
i.
Lauren Young - Kevin Wright
1. Katherine Wright
2. Taylor Wright
3. Celiah Wright
ii.
Lucas Young - Sarah Young
1. Stanley
iii.
Kyle Young - Stephanie Young - Jacquline
1.
2.
3.
4.
Henry
Madeline
Penelope
Lucy
5. Class of semester February 2, 2022
A. Class: Readings 123-143
Advances to Hotchpot
- In calculations of the intestate shares of decedents' children, the administrator
must account for the value of any property that decedents while living, gave each
child by way of advancement.
Advancement at common law
- Lifetime gift was presumed to be an advancement (prepayment) of childs
intestate share. To avoid application of doctrine the child had a burden of
establishing that the decedent had no intent in the gift being counted AGAINST
their share of estate.
- Doctrine is based on assumption that parent would want equal distribution of
assets among children which can only happen with consideration of lifetime gifts.
Which are deducted from shares of estate after death in the equitable division.
Hotchpot (advancements)
- If gift is treated as advancement it is accounted for in distributing the decedent's
estate by bringing it into hotchpot.
- If a decedent gets a large share as advancement they may be left out of the wil
and it will be distributed to the other decedents.
- How it works: O dies and leave $50,000 to A, B, C. A received an advancement
of $10,000. Add $50,000+$10,000= $60,000. $60,000/3 (ABC) = $20,000.
- A gets $10,000 because $20,000-$10,000 advancement
- B and C get $20,000 because no adnvancement.
Advancements in modern law
- Hard to prove the donor’s intent in advancements so most states use common
law application which is that a lifetime gift is presumed NOT to be an
advancement UNLESS it is shown to have been intended as such.
- Most states under the UPC - require the intention to make an advancement be
declared in writing signed by parent or child. And if the child does not survive the
parent the advancement is not taken into account in determining the share of the
child's descendants.
Guardianship and conservatorship of minors
Guardian of the person
- Parents testamentary appointment of guardian isnt binding, but is very
persuasive to the court.
Guardianship of property
- Child must receive property at 18
- Guardian of ward (the child) manages the property.
- Ward gets the rent and guardian gets a management fee. The guardian is
required to account annually to the court of chacery to ensure numbers are
accurate and protects the ward from greed.
- Court approval in this process is required for most things which makes it hard to
manage the property and requires a lot of effort and administration
Conservatorship
- This has really replaced guardianship and is more flexible and inexpensive.
- Conservatorship has a more trust like arrangement. ‘Title as trustee’ to the
protected persons property along with investment powers similar to those of a
trustee.
- Appointment supervision by court is still required but it is more flexible
- The conservatorship terminates when the minor reaches teh age of majority or
dies.
Custodianship
- Child must receive property at 18, 21, or 25.
- Person given property to hold for benefit of a minor under teh UTMA, uniform
transfers to minors act, or its predecessor. Some form of this is in every state.
Property may be transferred to a person, often the donor herself, as custodian for
benefit of the minor.
- Upon the minor turning 18/21, depending on circumstances, the estate transfers
from teh custodian to the minor, or to the minor’s estate if dead.
Trusteeship
- Child can recieve possession until donor thinks the child is competent to manage
the property, or postpone entirely.
- Donor can tailor the trust specifically to the family circumstances and donors
particular desire.
- A sound estate plan will account for possibility of a minor beneficiary which the
best way to do that is through a trust.
Bar to succession
1. The rule that prohibits a slayer from inheriting from his victim and
2. Voluntary disclaimer.
Slayer rule - unjust enrichment
- Slayer is seem as predeceased teh victim, UPC 2-803 says that slayer is treated
as having disclaimed the property. But devisees can still receive if innocent
parties. Usually.
- Felonious and intentional killing is conclusive.
- Acquittal is not dispositive that the acquitted individual is not a slayer
- In absence of conviction the court must determine wheather under teh civil
standard of preponderance of teh evidence rather than the criminal standard of
beyond a reasonabl doubt that they would be guilty.
- Goal is avoid unjust enrichment.
- Someone who ahs kileld while insane is not chargeable as a constructive trustee.
Unworthy heir
- Those who are bared to inherit are usually limited to slayers.
- Usually there is an alternate inheritee.
- Chinese system determines on an individual bases those who assisted the
decedents welfare within the nuclear family and rewards good conduct.
Disclaimer
- Person can disclaim estate if they want no part of it but it can still pass down to
their heirs
O
A (disclaims)
B
A and B still technically get ½
C
D
E
F
G gets ½
G
CDEF - get 1/8th
O
A
B
If A and B are both dead, then
C
D
E
F
CDEFG all get ⅕
G
In re Estate of Mahoney 1966
- Rule of Law Where the statutes of descent require distribution of a decedent’s
assets to the party responsible for the wrongful killing of the decedent, the estate
must pass as statutorily required but equity imposes a constructive trust requiring
the killer to hold the assets in trust for the decedent’s next of kin.
- Facts: Mahoney killed her husband. He only had his wife, mother and father
(administrator of estate). Laws said that entire estate (less than $8,000 need go
entirely to spouse)
- Issue Where the statutes of descent would otherwise require distribution of a
decedent’s assets to the party responsible for the wrongful killing of the
decedent, may the court order distribution of the assets to the next of kin?
- Holding: No, the court must distribute in accordance with teh statute. But the
descent shall be deemed to be sitting in equity to be a constructive trustee of
estate assets for teh next of kin.
1. First, acknowledging that only the statutes of descent govern the
distribution of intestate estates, the killer inherits despite the killing.
2. Second, employing the equitable principle that a person should not profit
from their own wrongdoing, the estate does not pass to the killer.
3. Third, acknowledging the mandate of the statutes of descent, the estate
passes to the killer, but equity prevents the killer from benefitting from their
own wrongdoing by placing a constructive trust on the estate assets to be
held for the benefit of the decedent’s next of kin
- Intent matters, if it was involuntary or voluntary manslaughter.
- Doesnt apply with insanity.
Opt out of slayer rule
- In some states (like 2) you can opt out of the slayer rule if you know of
someones instability and they can still inherit.
Mercy killing
- Euthanasia is not seen as falling under slayer rule
Avoiding Taxes
- If one wants to avoid taxes they can disclaim
- O dies and passes to A, A disclaims, B (A’s child) then is the next recipient.
- Disclaim here must be made within nine months of interest being created making
them a “qualified disclaimer” or after donee reaches 21, whichever one is later.
- If they fail to do so they are NOT a qualified disclaimer and are subject to the gift
tax.
Avoiding creditors
- If the disclaim was made before the filing of bankruptcy the federal courts will
respect the state law relation-back doctrine for claims against a bankrupt debtor.
- If a bankruptcy petition is filed before the debtor disclaims courts almost always
hold that the disclaim is ineffective under federal bankruptcy law.
Federal tax lien
- Example on page 140
-
A persons place to inherit does not impact their ability to receive Medicaid.
B. Class: Notes
Woodward v Comm’r 2002
- Lauren and Warren
- W had cancer and they froze his sperm incase he was infertile, he died of
cancer.
- Lauren had two kids, two years later, (Michayla and Mackenzie) with sperm
- Social security benefits issue, are the kids entitled?
- Would they be treated as heirs under state law?
- If there is a surviving parent they need to prove genetic relation and intent on
dead person to have children being made.
- Court determines
1. Proof of parentage
2. Intent of material being used for reproduction
3. Intent on supporting the children from such use
4. Time limits
- Court says three sets of considerations
1. Best interest of children
a. Usually finding the kids to be the heir is in their best interest
b. But if there are other kids it is in those children's worst interest
because these kids would take a cut.
2. Efficiency and necessity of state administration
-
3. Individual reproductive freedom/rights of being parent of the child.
a. Consent by clear and convincing evidence standard
If some distribution is triggered by death then it safe assumption under state law
UPC 35 months in utero, if born later then no usually
Distributions are not triggered by death with wills and trusts
- Any member of class thats alive at time of distribution gets shares. And
any en utero shares if later born alive
Advancements and hotchpots
- Where we subtract the advancement from the divided up estate, if it is more than
the pot has to offer, they dont have to pay anything back you just divide it up for
other parties.
- Advancement can count against the children of the sibling who received the
advancement
Intestate heir is a minor upon death or legally incompetent
- Until the age of majority then they will distribute.
- Authorize the money to the parent or guardian of the child
- Conservatorship
Barring someone from receiving inheritance
- Slayer rule / statute
- If you kill the decedent it usually bars them from receiving the estate
- If you kill the decedent it is considered that you died before the decedent
6. Class of semester February 3, 2022 A. Class: Readings 143-162
Wills: Formalities and Forms
- Worst evidence is applied to wills because the only person who can confirm
information and validity is now dead.
Validity of will focuses on
1. Authenticity
2. Voluntariness
3. Meaning
Execution of Wills
1. Attested wills
2. Notarized wills
3. Holographic wills
a. To be valid it needs:
i.
ii.
iii.
Date
Upon death or when i die (when does transfer occur)
Testamentary intent
What wi
1) Attested wills
a) The core formalities
i)
Writing
ii)
Signature
iii)
Attestation
(1) Attestation via signature by 2 witnesses or notarization. That
are both there at the time of the signing.
b) The Function of Formalities
- Allows court to validate the will without the benefit of live
testimony for authentication.
i)
Evidentiary
(1) Reliable evidence of intent and terms of the will.
ii)
Channeling
(1) Social and individual aspects executing witnessed wills
results in considerable uniformity of organization language,
and content of most wills courts do not have to puzzle out
meanings.
iii)
Cautionary
(1) The seriousness of testament and caution the testator of
such seriousness.
iv)
Ritual
v)
Protective
(1) Protects testator against imposition at the time of execution.
(2) Prevents substitution
(3) Witnesses should be disinterested in the will and not
motivated to coerce or deceive the testator.
c) Strict compliance rule
i)
Must be signed by the testator (at the foot or end of the will) and tell
the witnesses that it is his signature or sign in their presence and
attested by at least two witnesses
ii)
Competent person not subject to undue influence, duress, or fraud
is unlikely to execute an instrument in strict compliance with all of
the act of the will. Unless person intents validity of their will.
iii)
False-negative and false positive?
iv)
The will must be witnessed being signed by two witnesses AT THE
SAME TIME. or the writer must verify to both parties at the same
time that it is a valid will an it is their signature for validity.
d) UPC doesn’t require the witnesses to be there at the same time.
Authenticity
- Can sign by mark ‘x’ ‘,’ etc… if unable to sign and it is valid, can also be just first
name. But witness matters. DEPENDS ON STATE OR JURISDICTION.
- Typed signature is good too. In front of witnesses is needed.
- Signing of the will needs to happen by the testator first because a witness can
attest
- Witness must attest within 30 days of witnessing the signing. ‘Within reasonable
time’
- Reasonable time can extend within the time after death too.
- Some sates require during lifetime. Like california. But also uses harmless error
rule.
B. Class: Notes
Line of sight
- Testator does not actually have to see the witness sign but must be able to see
them were the testator to look
Conscious Presence
- Testator through sight, hearing, or general consciousness of events,
comprehends that the witness is signing.
- Someone else can sign as long as they know that it is in the presence of them.
And how courts of that state interpret the presence
- requirement
Signature requirement
- Shows completed document, not in draft.
7. Class of semester February 9, 2022
A. Class: Readings 163 -204
Interested witnesses and purging statutes
1. Disqualification to purging
a. Old law was that any interest or receiving party could not attest the will in
court.
b. Then changed to they could, but if they did attest the will they did not get
to take their share. Ergo. PURGED their share of the. But the will is
otherwise valid.
c. If a lot of non interested parties attest the will as does an interested party,
they can still receive their share and not be purged.
d. If will gives $500k and then you testify, they purge the $500k and then
anything in excess that you would receive you get to receive it.
False negatives
Substantial compliance
- Court may deem a defectively executed will as being in accord with statutory
formalities if there is clear and convincing evidence that the purpose of those
formalities were served
- Not applicable when only witness signed rather than two
Harmless error rule
- Only and exclusively on teh descendants intentions. If decedent intended this
thing to be the will then we can probate it.
- If there is no signature and she didnt get any way to review the draft, It doesn't
matter it is NOT harmless error.
2. The trend away from purging
a. UPC 2-505(b) most states do not require a witness to be disinterested, an
interested witness is not purged of his shared.
b. Interest no longer disqualifies a person or invalidates their gift under the
will.
Model execution ceremony
- In most states wherever the will was made is moot, it matters where the testator
was domiciled upon their death on which state will the fomalities need to be
executed under.
If the will has all of the foillowing it will be presumed valid in all states: contented on p
166
1. If the well consists of more than one page the pages are fastened together
securely. the will specifics the exact number of pages that spans.
2. before calling in the witness and a notary the lawyer confirms that the testator
has read the will and understand its contents. the lawyer previews for the testator
the rest of the execution ceremony.
3. the lawyer, the testator, two or three disinterested parties, and a notary are
brought together in a room from which everyone else is excluded. if the lawyer is
a notary, an additional notary is unnecessary. the door to the room is closed. no
one enters or leaves the room until the ceremony is finished.
4. the lawyer asks the testator the following questions
a. is this your will
b. have you read and understand it
c. does it depose of your property in accordance with your wishes
i.
after each question the testator should answer yes and a voice that
can be heard by the witness and the notary. it is neither necessary
nor customary for the witnesses to know the terms of the will. if the
lawyer foresees a possible will contest added precautions might be
taken up
5. the lawyer asks the testator do you request witness a and witness be to witness
the signing of your will the testator should answer yes inaudible voice to the
witnesses
6. the witnesses should be standing or sitting so that all can see the testator sign.
the testator should sign or initial on the margin of each page of the will this is
done for purposes of identification and to prevent subsequent substitution of
pages. the testator then signs their name at the end of the will.
7. one of the witnesses reads aloud the attestation clause which a test for that the
foregoing things were done
8. each witness signs and write their name and address beside their signature. the
testator and other Witnesses should be standing or sitting so that they can all see
the witness sign what does
Unfinalized will
- If there is a possible interpretation that leaves too much ambiguity then it will not
be upheld, we need to be able to find with reasonable certainty.
- If there is clear and convincing evidence that
1. Decedent actually reviewed document in question and
2. Thereafter gave final assent to it.
- Absent either of these elements the trier of fact can only speculate their wishes.
- No signature makes it the hardest to excuse under harmless error rule
Clear and convincing evidence that decedent intended the note to be their final
will
- If so this will can be probated.
Harmless error upc 2-503
1. The decedents will
2. A partial or complete revocation of teh will
3. An addition to or an alteration of the will, or
4. A partial or complete revival of their former revoked will or of a formerly revoked
portion of the will.
- If these are not met, then we go back to the old will. Even if we know that is
something that the testator did not want. But that is what has to happen.
- Even though we know they didnt want the old will, the new drafted will may still
not be what they want. So we go by the thing that we knew at some point would
have wanted.
(1-12 on page 166)
B. Class: Notes
Interested witness
- Someone who is a taker of the will
8. Class of semester February 10, 2022
A. Class: Readings
B. Class: Notes
Notarized Wills
- In place of witnesses we can have will acknowledged by a notary, or another
individual authorized by law to take acknowledgement (some states is lawyers).
- Notary is in the US - requirements vary state to state, usually no legal training,
but received license or commission from the state.
1. They can verify the identity of a signer (personal knowledge or formal ID),
and
2. administer oaths where necessary.
Holographic Wills (written by hand)
- What is real is anything a forgery
- Did the writer mean for them to be final indication of testamentary intent or were
they just thoughts/doodles of ideas or intent?
- Are there multiple documents? Which ones are legit
handwriting
- Has to best in T handwriting
- The material portion needs to be in their writing: i give, i bequeath, devise, etc…
the main parts need to be in their writing otherwise people will write in whatever
- Material provisions and material portions
- Intent that the document be the will (not the wishes)
Revocation
- Revocation by inconsistency
- If today i properly execute a will to give X to Y, then i make another one that says
all of my property to Z and say nothing about X, i have then revoked because all
of my property includes X. the later will revokes the prior because they are
inconsistent with eachother.
- If i first say “all” then later i do another that says X to Y, then they are not
inconsistent and we can read this as an addition does not invalidate
- Testamentary intent “if it comes to that” suggests that a prior documents was not
a will and was potentially just an intent.
Codicils
- Intended changes to valid will
Any of the three generations of holographic wills (UPC, material provisions) know
for test.
9. Class of semester
A. Class: Readings 224-248
Revocation of Wills
- People are free to rework and revoke will until death.
1. Revocation by writing of physical act
- All states allow revocation of will by:
1. A subsequent writing executed with Wills act formalities and
2. By physical act such as destroying will, burning, etc… Oral
revocation alone is NOT sufficient.
- If not properly revoked it will be entered into probate.
a. Express and implied revocatory writing
- A writing executed with wills act formalities may revoke an earlier
will in while or in part by express revocation.
- “I X make this my will and revoke all prior wills”
b. Formality in revocation by writing or physical act
Thompson v Royall 1934
- Issue: Was the will revoked prior to death
- 9/4/1932 - Kroll signed will that was typed and signed in front o ftwo witnesses
then given to judge, attorney prepared both documents.
- 9-19-1932 - Kroll wanted both documents destroyed and told them, she held onto
the documents, the back of pages was signed by judge and Kroll that the will was
null and void as of that date but would not be destroyed.
-
10/2/1932 she died
Because will was not damaged it was oaky and entered into probate
Would writing VOID across it be worthy of defacement?? Or giant X? The statute
says “cancelling?” or “revocatory act on the will” she signed it under void.
c. Presumption of Physical act revocation
Harrison v Bird 1993
- Daisy Speer - intestate
- 11/1989 - Speer executed a will which named Harrison the main beneficiary
- 3/4/1991 - Speer called attorney for desire to revoke. Attorney tore up the will
and sent her the pieces with note that it was done and she was without a wil
- 9/3/1991 - Speer died
- Judge said it was not revoked because she wasnt there to revoke it, but because
the pieces were sent to her and they could not find them the presumption was
with her that she herself destroyed the will and thus entered intestate.
- Presumption arises of revocation is rebuttable and the burden of rebutting the
presumption is on the proponent of the will.
- Question of meaning on 231
Actual revocation
- IT HAS TO BE PHYSICALLY DAMAGED
- If you throw it in the trash unharmed it is still a good will
- If a lost will can be pulled up by photo copy, how can we just assume it is
unrevoked?
- If T cannot get copy of the original will a destruction of a copy is okay. IF there is
good reason for non access (like unjust enrichment)
- How do we know things are copies?
d. Harmless Error in Revocation
In re Estate of Stoker 2011
- 2005 will was valid and 1997 will was revoked.
- 5/22/1997 - will executed and nominated Gularte as beneficiary.
- 2/27/2008 - Decedent died
- 3/17/2008 Gularte filed petition for probate
- 3/25/2008 - Pradia filed objection because more recent will existed.
New time line
-
-
8/28/2005 - Decedent wrote will that he revoked prior will as of that date and
stated that Fularte and Stoker should receive nothing. Darin and Danene to have
power of attorney and receive all that he owns.
- No witness signatures. But two witnesses saw him sign.
- Meier witnessed his testament and revocation, and signing of the
document, he stated this was his new will.
Testamentary intent is clear that it was his desire for it to be final will
e. Partial Revocation by physical act
- Partial revocation can occur by an act to the will document.
- Minority of the states say that it can only be done through writing
not through act to the will document
2. Dependent Relative Revocation
- You need witnesses?
- If A bequeathed isnt changing but B is, is the spouse of A able to witness
as in LaCroix?
We clear and conviencing evidence to show intent
LaCroix v. Senecal 1953
- 4/19/1951 - Decedent Dupre died
- 3/26/1951 - Will made leaving her nephew the heir, and friend.
- 4/10/1951 - Codicil, changes which nephew, friend is same.
- Entered into probate.
- The husband of the receiving friend was a witness and they attest the validity
because he is technically a beneficiary of it. However, nothing about what he
would receive changes, it is the same other than the nephew change.
- It was deemed inseparably related to and dependent upon the legal effectiveness
of the new.
3. Revival of Revoked Wills
- Usually flows at follows:
a. T executes will 1
b. T executes will 2 which revokes 1 or does so by inconsistency
c. T revokes will 2 by physical act
d. Will 1 is now revived without having to be re-executed or
republished by a later codicil.
- Most states consider will 1 is revived automatically if that was T’s intent.
-
Minority make it that will 1 is revoked and cannot be revived unless
reexecuted with testamentary formalities or republished.
4. Revocation by operation of law
- Presumptive revocation with T’s probable intent, which can be overcome
by evidence of contrary actual intent.
a. Divorce
- Majority of states divorce is a presumptive revocation of decedent's
will for decedents divorced spouse.
b. Marriage
- Premarital will usually stays in place upon marriage.
- BUT: surviving spouse whom the decent spouse married after
executing will may take an intestate share of the deceased
spouse's estate unless the will indicates that the omission was
intentional or is provided for in the will or by substitute.
c. Birth of children
- Pretermitted child statute - give a child born after execution of
parents will, and who are not mentioned in the will, a share in their
parents estate.
5.
B. Class: Notes
V
Problems
- Give $1000 to Blake, cross out and write $1500 and initials. They would
keep it to $1000
- If they lower the amount we usually go to $0 because for us to assume they
would want us to go back or original number as it would be easy to assume
$0
- Look at what does statute says, or court willing to consider the printed part
to consider the part that is in handwriting.
10. Class of semester
- Class: Readings 248-262
A. Components of a Will
- Formalities for making a revoking a will such as witnesses and signature
of T plays a key role in who receives what.
- At play:
1. Integration
2. Republication by codicil
3. Incorporation by reference and
4. Acts of independent significance
1. Integration
- Integration - all documents that are present at the time of execution
are intended to be part of the will and are treated as such.
In re Estate of Rigsby 1992
- Appelee = Dorsey
- T = Rigsby
- One page was admitted to probate but there were two pages offered.
- Will was found by the surviving spouse folded together but not fastened. Both
pages are written by T and initialed and dated at top of each page with same
date. One page was signed at the bottom leaving two and a half inches below
blank.
- The first page had a signature at bottom, and no reference to the second page.
- Second page looks like a worksheet.
2. Republication by Codicil
- Validly executed will is treated as re-executed as of date of codicil.
Whether or not the codicil expressly republishes the prior will.
3. Incorporation by Reference
a. Existing writings
- Incorporation by reference allows for a writing that was in
existence but not present at the time of execution and that
was not itself executed with testamentary formalities to be
absorbed into the testator’s will - constructive integration.
- IF will manifests this intent and describes the writing
sufficiently to permit its identification
b. Subsequent writing and tangible personal property
- Writings must be signed by the testator and must describe
the items and devisees with reasonable certainty. The
writing may be referred to as one to be in existence at teh
time of T’s death, it may be prebpared before or after
execution of teh will and may be altered by T after its
preparation.
Clark v Greenhalge 1991
- 1997 - T gives to Greenhalge as executor of estate
- They made a list of property titled ‘memorandum’
- In her notebook she kept entry that said ‘list to be given Helen Nesmith 1979’
- 10/23/1980 - codicil to change bequests and delete others
- Upon death Greenhalge gave property away as dictated in memo but kept
painting which she had reallocated in her codicil because he wanted it.
-
The notebook qualified as the memo and a properly executed will may
incorporate by reference into its provisions any document or paper not so
executed or witnessed as long as referred to in will and is clear and satisfactory
proof wherein.
Clark notes:
- As long as sufficiently identified and is signed by the T then it can be in created
and edited at anytime during life. By incorporating an outside document you can
have that document and it constant editing without attestation of the will which
helps.
Notes:
- Has purging statute that requires entire devise not just the excess which is the
norm.
- T gives to A, witnesses are A and B - we purge A.
- T to C, witnesses are C and D. C cant get anything
- Because of codicil, we dont have to purge A under the original will, C gets
nothing A and B share the estate
- Then T gives ring to C, D and E are witnesses. This republishes the first codicil
so C gets ring and $5,000.
- Codicil fixes problems in previous executions, it affirms what they had written and
reaffirms by not having interest witnesses.
4.
B.
- Class: Notes
UPC and restatement, but sometimes traditional rules
- Revoking will revokes codicils
Revocation revival 2-509 a-c
- If a later will recokes will one wholly the revocation of will 2 by a revocatory act
does not revive will 1 unless the proponent of will 1 shows that the decedent
intended the revocation of will 2 to revive will 1
Act of independent significance
- It allows for formality and doesnt revise their estate plans
- When you go and buy something much nicer or worse, whoever gets the product
gets teh same product
- Can give safety deposit box to a person, even though there are some
testamentary decisions can be made
-
But contents of my desk to someone, most people dont change contents of desk
for testamentary reasons
Decisions are responses to how easily how easy it is to pass property without
editing probate things.
11. Class of semester February 23, 2022
A. Class: Readings 271-313
Mental Capacity
- Restatement requirement: Testator must be capable of knowing and
understanding in a general way:
1. The nature and extent of his or her property
2. The natural objects of his or her bounty, and
3. The disposition that they is making of that property, and must be capable
of
4. Relating these elements to one another and forming an orderly desire
regarding the disposition of the property.
- One of capability not actual knowledge
In re Wright’s Estate 1936
- A few isolated acts of abnormal behavior cannot satisfactorily rebut an inference
of testamentary capacity.
- Lorenzo had Grace draw up will left property to friend, granddaughter, and
daughter.
- Left one dollar to many people.
- Daughter contested will
- Both witnesses said he was unsound mind. As proof the gift of $1 to many
people.
- Many family said he was unsound.
- Testator is presumed sane, the witnesses are obligated to assess the sanity of
the T before signing the will themselves.
- Not enough evidence to support lack of capacity.
- Abnormal behavior doesnt mean it influenced testamentary act.
- Incapacity was NOT established.
Capacity
- Capacity for a will requires less mental ability than that to make a contract or to
complete an irrevocable lifetime gift.
- A person under conservatorship is without the contractual power to execute deed
but the person can make a valid will during a lucid interval.
-
Greater capacity is required to make a will than is required for marriage. Marriage
alone will give teh new spouse inheritance rights even if the other spouse lacks
capacity to make will.
Wilson v. Lane 2005
- To prove lack of testamentary capacity, the party challenging the will must
present proof showing that the testator’s condition prevented her from having a
decided and rational desire as to the disposition of her property.
- A party may NOT challenge a T capacity by showing that they may have been
suffering from Alzheimers at the time of executing the will.
- They must show hwo the disease prevented the T from having a decided and
rational desire regarding the disposition of property. It is insufficient to set aside a
will for lack of T capacity.
- Eccentricities and physical issues doesnt not show lack of capacity. Not the fact
that guardianship petition was filed months after will was executed.
- The doctor did not examine the patient so no proof.
Insane delusion
- A person may satisfy the test of testamentary capacity and still be suffering from
insane delusion that causes the will or disposition to fail for lack of capacity
- Testator adheres against all evidence and reason to teh contrary
- In most states if tehre is any evidence to support delusion the delusion’d person
is not insane rather they draw a distinction between the delusion and mistake. If
the mistake is susceptible to correction if the T is told the truth
- To win a delusion case the contestor must show BOTH the T was delusional and
that the will or some part of it was product of such delusion.
- Typical delusion is false belief about member of the family. But if delusion does
not impact the dispositions then the will stands.
- Much of this litigation focuses on causation.
In re Strittmater’s Estate 1947
- Where a testator’s distribution of her estate is the product of insane delusions,
the will must be set aside.
- When insane at teh time of executing will and distribution the product is one of
insanity.
- Here, the doctor said T was suffering from split personality and paranoia, notes T
wrote were extreme beliefs, destruction of items, and killing a kitten.
- The distribution of theestate to a feminist party was a product of the delusions
from becoming a feminist during this time.
Breeden v. Stone 2000 - SC of Colorado
- To invalidate a will for lack of testamentary capacity due to insanity, the
contestant bears the burden of proving that the testator was not of sound mind
and to the extent testator suffered from insane delusions, the delusions impacted
the distribution of the estate.
- 3/17/1996 - car accident
- 3/19/1996 - Made will then T killed himself
- Prior years had been using cocaine and alcohol
- If a testator was suffering from insane delusions at the time of executing his will,
but the delusions did not impact the distribution of his estate and the testator was
otherwise of sound mind, the will is considered valid.
- Unless there is a relationship (casual) between T’s delusions and distribution of
estate the will cannot be set aside.
- To have sound mind a T must not suffer from generalized mental illness that
effects his capacity to understand the following:
1. the nature of his actions,
2. the extent of his estate,
3. the disposition of his estate,
4. the natural objects of his bounty. Lastly, the will must express the
testator’s wishes
- Here substance abuse nor anxiety that lead him to suicide depribed him of
capacity.
Burden
- Burden of proof is now on the contestants of a will to prove incapacity of the
testator. INCLUDING lack of sound mind by a preponderance of teh evidence.
Cunningham Test
- Mental capacity to make a will requires:
1. The T understands the nature of their act
2. They know the extent of their property
3. Understands the proposed testamentary disposition
4. Knows the natural objects of her bounty, AND
5. The will represents their wishes.
The insane delusion test (ID)
- Suffering from insane delusion at the time of execution may be determined as
lacking testamentary capacity.
- Definition:
a. A persistent belief in that which has no existence in fact, and which is
adhered to against all evidence.
BOP rests on the person who asserts that T was suffering from insane delusion
Casual relationship is necessary between an insane delusion and capacity to
contract.
You can have ID regarding some things and be insane on subjects but capable
of transacting business concerning matters wherein such subjects are not
concerned. Insanity doesnt make one incompetent to contract unless the subject
matter of contract is so connected with ID as to render teh afflicted party
incapable of understanding the nature and effect of teh agreement or of acting
rationally.
The insane delusion must materially affect the disposition in the will.
-
-
Cunningham test
-
Appplied in cases in which the
objectors argue testator lack
general testamentary capacity due
to a number of possible cases:
illness, physical, mental, senile
deminetia, general insanity.
Test:
1. The T understands the
nature of their act
2. They know the extent of
their property
3. Understands the proposed
testamentary disposition
4. Knows the natural objects of
her bounty, AND
5. The will represents their wishes.
Insane Delusion test
-
In possession of general faculties,
suffers from delusions that often
take the form of monomania or
paranoia.
-
The insane delusion must
materially affect the disposition
in the will.
Other considerations:
- Legible, logical, identified devisee
by name and address, motor skills
intact.
Undue Influence (UI)
1. What is Undue Influence
- If the wrongdoer overcame the donors free will and caused the donor to
make a donative transfer that the donor would not have otherwise made.
- Is it undue and void OR indelicate but permissible persuasion.
- Usually no direct evidence, merely circumstantial.
- The BOP is on the contestant, that the will was created by undue influence
-
Trier of fact can infer undue influence via circumstantial influence if
evidence shows that:
1. Donor was susceptible to undue influence
2. The alleged wrongdoer had opportunity to exert undue influence
3. The alleged wrongdoer had an opportunity to exert UI AND
4. There was a result appearing to be the effect of suchID
- Circumstantial evidence is admissible to prove or disprove one of these
elements
- The constetor in most jurisdictions is entitled to a presumption of undue
influence IF the contestant shows the existence of a confidential
relationship between the influencer and teh testator and teh presence
of one or more suspicious circumstances.
2. Undue influences Cases
In Re Estate of Sharis 2013
- The conduct of a named beneficiary in a will may amount to undue influence
even without proof of specific acts of the beneficiary at the time the will was
executed.
- D divorced wife and moved in with grandmother and her husband.
- D gained nearly complete control of Gma checking account. Power of attorney
for her too. D later contacted atty and requested that he draft a will for her.
- Atty had call with alice then assigned a drafting to associate who never
communicated with Gma.
- No atty reviewed terms of will with Gma.
- Gma (alice) executed will in nursing home with two witnesses, neither were D. no
behavior that caused question of her free will. Essential everything would go to
D.
- Judge found no special relationship between D and Alice, and Alice questioned
why he was still living with her.
- Conduct of beneficiary in a will may amount to UI even without proof of specific
acts upon time of execution.
- A Fiduciary who benefits in a transaction with a person bears the burden of
establishing that the transaction didnt violate his obligations.
- The BOProve the transaction was fair is generally met if teh fiduciary
shows that the principle made the request with full knowledge and intent or
with the advice of independent legal counsel.
- Because D had a fiduciary relationship with Alice he has a BOP that the will is
not a product of undue influence.
- D initiated almost all financial acts to execute will. D acted with great secrecy by
not informing other family about the will. And Alice was highly susceptible to UI
-
from D because she was old and did not have a special enough relationship to
warrant receiving a bulk of her estate.
Judge found that D acted with UI .
If you are acting as a power of attorney you are a fiduciary which is a confidential
relationship.
Undue influence factors
- Special Relationship to warrant such bequest
- Was there deception, or hiding of the will to other members of family
- Was there a fiduciary relationship? If so, then burden rests to prove no UI.
- Power of attorney
- Fiduciary oes a higher level of relationship
- Was the testator susceptible to Undue Influence? (old)
- Were there any suspicious circumstances present?
- Usually shown through the influencer procuring the will.
Undue influence and Testamentary capacity
- Testamentary capacity is a question of status concerning the mental ability of the
testator.
- Undue influence is a question of conduct concerning actions of third party.
- Many times cases address both because the mental status if T is relevant in
assessing the T’s susceptibility of UI by someone and will be held invalid on both
grounds.
Lifetime Transfers
- A receives transfer from T, but there was UI. Thus, this creates unjust
enrichment.
- This is recoverable through restitution by way of constructive trust.
- Upon death of T, the fiduciary has the same grounds as the T to sue the receiver
of the funds.
- Thus, A receives transfer and T or fiduciary have grounds to sue.
Confidential relationship (CR)
- Confidential relationship = trusting relationship and the law requires a person to
be other regarding because of the potential for abuse of that trust.
- Types of CR’s:
1. Fiduciary
2. Reliant
3. Dominant-subservient (question of fact)
-
Whether a reliant relationship exists is a question of fact. The contestant must
establish that there was a relationship based on special trust and confidence.
Eg. someone who places confidence in the belief that the alleged wrongdoer
would act in the interests of the donor (financial advisor and customer, or Dr. and
patient, maybe caregiver and ill person).
Suspicious Circumstances
- Usually shown through the influencer procuring the will.
- Restatement list of circumstances
1. Extent to which donor is in weaken condition, physically, mentally, or both
and therefore susceptible to undue influence.
2. Extent to which wrongdoer participated in teh preparation or procurement
of will or will substitute
3. Weather donor received independent advice from an attorney or from
other competent and disinterest advisor in preparing of will
4. Whether the will was prepared in secrecy or haste
5. Whether donors attitude toward others had changed by reason of his or
her relationship by alleged wrongdoer.
6. Whether tehre is a decided discrepancy between a new and previous will
of the donor
7. Whether there was a continuity of purpose running through former wills
indicating a settled intent in the disposition of property
8. Whether disposition of property is such that a reasonable person would
regard it as unnatural, unjust, or unfair,
a. Eg. whether disposition abruptly and without reason disinherited a
faithful and deserving family member.
Presumption and burden shifting
- If presumption of UI is triggered burden shifts to proponent to rebut evidence.
- Eg. by showing that the presumed influencer acted in good faith throughout the
transaction and the grantor acted freely, intelligently, and voluntarily.
- In absence of such evidence the contestant is entitled to judgment as matter of
law based on the influence arising from circumstances.
- Theory is that person who benefit sfrom confidential relationship can take
precautions to ensure that proof exists that the transaction was fair.
Caregiver status
- Anything beyond a modest giving to a caregiver is usually given the presumption
of undue influence
In re will of Moses 1969 (HATE!)
- Rule: The presumption of undue influence will be overcome by independent
advice and counsel of an uninvolved attorney if that advice and counsel
addresses the testator's distribution of the estate to the person with whom the
testator has a confidential or fiduciary relationship.
- T dated Holland and devised estate to him.
- Sister contested will under UI
- Holland rebutted claim by stating T had independent counsel and atty drafted the
will.
- T also managed commercial property, apartment building, and 480 acre farm
until death.
- Testimony portrayer her as independent and estranged from sisters.
- Holding: Holland’s relationship with Moses was that of both attorney and lover.
When Shell drafted Moses’ will, he did not determine whether Moses had any
blood relatives or ask why Moses distributed her estate to Holland rather than her
blood relatives. Accordingly, although Moses had independent counsel preparing
her will, the fact that he did not specifically counsel her regarding potential undue
influence by Holland is not sufficient to overcome the presumption of undue
influence in light of Moses and Holland’s relationship at the time of drafting the
will and until her death.
- I completely disagree with this… just because one of her attorney’s was a
lover does not shift the burden on another attorney to investigate teh
undue influence? She came in under her own free will and volition.
- Dissent: strong business women with sufficient evidence to show that she
prepared her wild deliberately and with independent advice of counsel.
Lipper v Weslow 1963
- In addition to showing that a beneficiary of the will had the motive and
opportunity to unduly influence the testator, contestants of a will must also prove
that the will, as written, reflects that the beneficiary’s wishes were substituted for
the wishes of the testator.
- T died - 22 days after final will which left her estate to two kids (D’s), and
disinherited her dead son’s children (P’s).
- D’s drafted the will (they are attorney’s), the will explained why disinheriting
because distant and unpleasant relationship. And D’s tookcare of T.
- Will was not read to T because she signed and reasons for disinheriting
containined inconsistencies. But witnesses testified T’s intent to disinherit with
consistent reasons.
- Showing that beneficiary had the motive and opportunity to unduly influence the
testator’s testamentary plan is just a preliminary showing.
-
-
Proving UI they must ALSO prove UI occurred by substituted wished for T’s
intended testamentary plan.
Here, though beneficiary benefitted from disinheriting other siblings it is still
consistent with the T’s wishes and there is insufficient evidence to show that the
will as written substitutes T’s wishes.
Since the evidence is insufficient to show that the will as written substitutes Frank
Lipper’s wishes for Block’s wishes, the jury verdict is reversed and judgment is to
be entered in favor of the Frank Lipper and Irene Lipper Dover.
Lawyer
- If you are a lawyer dont be dumb and let a client give you money in their will you
can be disbarred and also wont get the money… duh.
B. Class: Notes
12. Class of semester February 24, 2022
A. Class: Readings 313-332
Planning for and Avoiding a will Contest
a. Warning Signs
- If new testamentary scheme departs significantly from prior plans
- Anything that will make someone mad and thus will contest the will from
anger.
b. Strategies in avoiding issues
- Make T explain will and reasoning to witnesses.
- Have T write a letter of explanation or video.
- Video of discussion of will between lawyer and T.
- Professional examination of capacity.
- Suggest a inter vivos trust and trustee. Or inter vivos gifts.
c. Duress
Latham v Father Divine 1949
- Rule: Where a beneficiary of a presently executed will prevents the testator from
revoking that will and executing a new will in favor of another beneficiary by
fraud, duress or undue influence, and the testator dies with the original will in
effect, the property devised under that will to the wrongful beneficiary is held in
constructive trust for the intended beneficiaries of the unexecuted will.
- Facts: T had expressed desire to revoke will and hired atty to make new will but
prevented from executing will because she was killed by someone that the
current beneficiaries paid for via unauthorized surgery.
-
-
-
-
Any prevention of will who prevented T from revoking or redrafting in bad faith
when it would favor another party. The assets will then be held in constructive
trust for teh benefit of T’s intended beneficiaries.
Constructive trust should be imposed on the wrongful beneficiary and should be
given to the intended beneficiaries under the will that T was prevented from
executing due to the wrongful beneficiary.
This approach does not violate the Statute of Wills’ requirement that a will be
properly executed to be valid since the Cousins do not seek to probate the
unexecuted will.
Allegations of complaint of prevention of executing a new will in favor of
another party as assumed to be true and the assets will be held in
constructive trust at this stage.
Expectant beneficiary must pursue EQUITABLE REMEDY of CONSTRUCTIVE
TRUST in an action in RESTITUTION to prevent UNJUST ENRICHMENT.
Fraud
1. Fraud in the execution
a. Occurs when a person intentionally misrepresents the character or
contents of teh instrument signed by T which does not carry out T’s intent.
b. Eg. if T asks H to bring will to sign it and H brings different document
knowing it is not the intended will. = fraud.
c. Unexecuted will could not be admitted into probate but restitution of T’s
freedom can go through equitable remedy > constructive trust to avoid >
unjust enrichment in favor of intended beneficiaries
2. Fraud in the inducement
a. Occurs when misrepresentation causes the T to execute or revoke will to
refrain from executing or revoking or to include particular provision. Which
does not carry out T’s intent.
b. Fraud in the inducement is different than UI, in fraud T retains free agency
and freely makes a new estate plan but does so as a result of being
mislead.
Proving causation
- Donative transfer is invalid for fraud ONLY IF the donor would NOT have made
the transfer if the donor had known the true facts.
Tortious interference
-
Intentional interference with expected gift or inheritance as a valid cause of
action
P must prove that the interference involved tortious conduct
“Tortious interference with inheritance” is a tort on its own.
The tort can NOT be invoked if the challenge is based on capacity.
Schilling v. Herrera 2007
- An injured party may establish the tort of intentional interference with an
expectancy of inheritance by showing that tortious conduct resulted in the loss of
his expectancy and such tortious conduct precluded the injured party from
seeking relief in the probate court.
- T received at home care from D, and lived in D’s attached apartment
- T had left P as sole heir and decision maker for health and finances
- D induced T to execute new will and POA giving entire estate and control of
finances to D.
- Upon T death. D probated will after creditor period expired and after petitioner for
discharge of probate to tell P that T had died. And P had been trying to
communicate with T and paid D for her care of T.
- P sued D for intentional interference with expectancy of inheritance claiming
fraudulent scheme to prevent him from challenging will that D had induced T into/
- Must show: expectancy of inheritance, causation, and damages. And that an
adequate remedy exists in probate court, which must be pursued prior to
pursuing tort claim.
- D i guilty of: UI on T, and interference with ability to challenge will by blocking
communication with sister/notifying of death until probate challenge period
closed.
Tort law as rival to inheritance law
- Intersection of the two exists to recover damages from teh D for wrongful
interference of P expectation of inheritance.
- Helps in recovering because the tort claim isnt subject to the short statute of
limitations that probate is.
- Punitive damages may be recovered in interference
- Rules barring interested parties in will may not apply in tort suit.
- P required to show by clear and convincing evidence on teh same issue if he had
litigated in probate.
- Unlike general inheritance contests in court, tort for interference can be litigated
in federal court.
B. Class: Notes
13. Class of semester March 2, 2022
A. Class Readings: 333-358
Will construction
- Document following donors intent
A. Mistaken or ambiguous language in a will
1. Plain meaning and no reformation
a. Courts cannot correct mistakes of testators. Language cannot be
changed to meet unforeseen circumstances
2. When will isnt ambiguous a will cannot add things in to meet
Mahoney v Grainger 1933
- Facts
- T said to attorney to Leave residue of estate in equal shares to all the
many cousins.
- Died ten days after will was executed.
- They argued that intent of residue was to go to cousins due to
conversation
- Holding
- “Heirs at law” was not ambiguous. = clear meaning which was for maternal
aunt.
- Because there was no latent ambiguity in the will there is no extrinsic
evidence allowed.
- Will = final testator intent, thus extrinsic evidence as to the meaning or the
purpose of the language is only allowed when it is ambiguous or unclear.
- When no ambiguity = no external
- Rule:
- Testimony as to a testator’s intention in using certain language in her will
may not be admitted to prove the meaning of the language unless the
language is ambiguous and susceptible to different meanings.
- Issue
- Where the language of a will is not ambiguous or susceptible to different
meanings, may testimony be offered as evidence of the intention of the
testator in interpreting the meaning of that language? NO.
- Cousins cant prove T intent through extrinsic E. just because not uniform with
instructions to drafter does not allow court to reform or alter it to confirm intent.
-
Extrinsic evidence is always allowed to give fact to the will or matter to which it
relates
In re Estate of Cole
- Patent ambiguity = one that appears on the face of a document
- Direct E of T intent could NOT be considered to resolve ambiguity
- Latent ambiguity = one that only becomes apparent in context
- Direct evidence of T intent COULD be considered to resolve ambiguity
- Facts
- Monetary bequest to the friend in the will “twenty two hundred dollars
($25,000).”
- Lawyer said it was an error, but it was patently ambiguous because the
words and numbers were inconsistent.
- T intent to resolve ambiguity? Yes, can consider direct E of T intent to
resolve ambiguity in will. Whether patent or latent
- Courts can consider T intent to resolve both patent and latent ambiguities in a will
in their determination.
Arnheiter v Arnheiter 1956
- What if will contains mistake that inaccurately expresses T interest
- Will said to: sell ½ interest of land at 304 to make a trust for nieces, but they
never owned teh interest in the land, they had land on 317 NOT 304. Clearly a
mistake
- Can essential detail will erroneous descrition of person or thing then less
essential details can be discarded if the ramining description fits with T intent.
- Courts cannot add or substitute terms even if an obvious mistake, if the T’s
description is clearly erroneous because all of its details do not apply to any one
person or thing, a court can NOT subsitutite.
- Mear errornious detail do not all apply to any one person or thing it applies to
less essential details that can be discarded if the remaining description clearly fits
an intended person or thing
- It was not unambiguous, it was erroneous. All other details apply, but the number
itself was an error. But court cannot replace the number, if the remaining property
description clearly fits under the intent of the will’s term. Without the street
number the leftovers were still valid, they just struck the actual number.
- UPC = 2-805 courts can reform unambiguous will provisions if there is clear and
convincing evidence that it was impacted by a mistake of T true intent.
Construction vs Reformation
3. Openly reforming wills for mistake
a. Swapping out names in wills as mistake is acceptable where there
is mistake involved.
b. Swapping out addresses too
c. Extrinsic evidence of mistake is admissible ad if proceed by clear
and convincing evidence the court may reform the will to reflect T;s
intent.
d. No difference between extrinsic evidence to correct a mistaken
term and using it to clarify an ambiguity
Reformation
- Reformation of an unambiguous will is permissible if clear and convincing
evidence establishes an error in the expression of the testator’s intent and
establishes the testator’s actual specific intent at the time the will was drafted
- State law allows the admission of extrinsic evidence to establish that a will is
ambiguous and to clarify ambiguities in a will. Extrinsic evidence is not authorized
to correct a mistake in a will if the will is unambiguous.
- To overcome the presumption that a writing is accurate, clear and convincing
evidence of a mistake is required before allowing reformation of a contract.
- In cases in which clear and convincing evidence establishes both a mistake in
the drafting of a will and the testator’s actual and specific intent at the time the
will was drafted, denying reformation would defeat the testator’s intent and result
in unjust enrichment of unintended beneficiaries
- Allowed the reformation to ensure that T’s affairs were settled as they had
intended.
14. Class of semester March 3, 2022
B. Class Readings: 359-382
Proving mistake and actual intent
- UPC requires clear and convincing evidence of a mistake in rendering of T’s
actual intent at the time of making the will
- Hard, but not impossible to resolve an unambiguous will, but not impossible.
Clear and convincing evidence
- Higher standard of proof imposes a greater risk of erroneous factual
determination on the party seeking reformation than on the party opposing
reformation.
-
Tilting the risk of erroneous factual determination is okay because party seeking
change is seeking to establish that the document doesnt comply with donors
intention. It also deters suit being brought with insubstantial evidence.
B. Death of beneficiary before death of testator
1. Lapsed and void devises
- If a devisee doesnt survive T the devise fails and it has lapsed
- Common law: gift made by will is subject to a condition that the
devisee survive the T, unless the T specifies otherwise.
- Most states have antilapse statutes = substitutes another
beneficiary for teh predeceased devisee
- Common law lapse rule appy if the will does NOT provide otherwise
and an antilapse statute is not applicable.
- Important to determine if devise is specific, general, or residuary.
- Types of Devises
A. Specific or General Devise (if these lapse it falls into residue)
= T intended to confer a benefit out of general property of
estate rather than to give a particular asset
a. Rg. T gives a watch to A, $10k to B and the rest to C.
under common law, everything would fall into residue
and C would get it all.
B. Residuary devise = if residuary devise lapses the heirs of the
T take by intestacy.
a. Eg. If C predeceased T, the residue would lapse and
pass to heirs by intestacy, NOT to B.
C. Class gift = If devise is to a class and one member of class
predeceases T the surviving members of class divide the gift
a. Eg. T gives $10k to the children of A, one of A’s
children dies before. At T’s death, T is survided by
another of A’s children, C, C then takes $10k, entire
gift.
D. Void devise - devisee is already dead at the time the will is
executed or the devisee is an animal (ineligible taker) the
devise is void. Same rules as lapse rules.
In re estate of russel
- T died leaving valid written will. I give everything i own to Chester and Roxy. My
$10 gold piece and diamonds i leave to Georgia Russell, Alverata, Georgia.
- Chester was friend, Roxy was dog predeceased,
- Niece was only sole heir at law. (P)
-
Because the devise to Roxy was void ½ goes to Chester and ½ goes to niece as
a residuary.
No residue of a residue rule
- If this applied in estate of russel (above) then when A gave to B and Dog, the heir
would get no residual and B would have gotten everything.
Ambiguity and extrinsic evidence
- Court via extrinsic evidence will determine if the outcome is what T envisioned
Antilapse statute
- They dont prevent lapse they substitute beneficiaries, usually the dead
beneficiaries decendent.
Presumed intent
- T would have preferred a substitute gift to the devisee’s descesdnats rather than
for the gift to pass in accordance with the common law of lapse
- T gives ½ to A, ½ to B. B predeceases T, but leaves behind child C.
a. At common law: it would lapse and be a residuary devise, would
pass by intestacy ½ and ½ C. A would get ¾ and C would get ¼.
b. If the no residue of a residue does NOT apply, B’s share would go
to A, leaving A with 100%.
c. If antilapse statute applies, B’s share would pass to C leaving A
with ½ and C with ½. Antilapse statutes rest on the assumption that
T would prefer a substitute gift to C than for B’s share to pass by
intestacy or to A.
Scope
- Antilapse statute applies to a lapsed devise only if the devisee bears the
particular relationship to the T specified in the statute.
- T gives to niece B, and residue to daughter A. B predeceases T, leaving
child C.
- Under UPC: antilapse statute applies only to T’s descendants, C
does not take T’s home. The lapsed fails to fall into the residue
given to A.
C. Default rules
a. Antilapse rules are designed to implement presumed intent,
i.
T gives ½ to A and ½ B, but if A or B both do not survive me, then
to F.
- B predeceases, leaving child C. T’s estate will pass ½ to A
and ½ to F. the antilapse statute does not apply to B’s share
because T has provided expressly for the possibility of B
predeceasing T.
ii.
T devises all to A, B, C, D, E, to share estate. A, B, C, predecease
T, each leaving children (F, G, H). T dies.
- Some places: D ½ and E get ½
- This precluded the application of the antilapse statute from
applying
iii.
T gives X to son S, IF he survives me, and residue to his wife W. S
dies leaving daughter D.
- Under UPC: If he survives me, is not enough to impose
condition of survivorship and the antilapse statute DOES
apply.
iv.
.
Words or survivorship
- Attaching words of survivorship indicates that T thought about the matter and
intentionally didnt provide a substitute gift to descendants.
- T may not understand that survivorship words create disinheritence of a line of
descendants.
- Courts need be cautious in concluding that survival language means a contrary
intent in cases in which the deceased devisee is one of the T children or other
direct descendant.
Ruotolo v tietjen 2006
- Mere survivorship language is insufficient indication that the T intended to negate
operation of the anti lapse statute.
- T died and left residuary estate to stepdaughter Hazel, ‘if she survives me” who
predeceased him, leaving daughter Kathleen. T’s heirs at law challenged uner
antilapse.
- Where a will has language of survivorship the language does not adequately
indicate T’s intent to negate operation of antilapse statute.
- Not sufficient evidence to show that T knew or intended that it would disinherit
the descendants of teh devisee. Without specific language indicating T intent that
antilapse statute be inapplicable or providing for alternate beneficiary.
Dawson v Yucus 1968
- For a devise to be defined as a class gift the number of beneficiaries and the size
of shares must be uncertain, depending on the number of class beneficiaries
surviving at the time of T’s death.
-
-
-
T to S and G nephews 50/50, to go back to her husbands family. G predeceased
T.
A devise of set share amounts to a specific number of named beneficiaries who
do not represent the entire class may NOT be deemed as a class gift.
To be a class gift advise must be uncertain as to the number of class members
and size of shares, to then be determined at how many class members are
surviving after death of T.
T can still name members of the class but the intent to give surviving members a
right of survivorship to shares of predeceased class members must be evident in
language of the will.
Class gift requirement is UNMET here. Because
- Language does not indicate T intended W to have right of survivorship
- T specified size of share on the number of surviving members of the class
- States wish to return farmland to the husband's family which does not
require interpretation of the second clause as a class gift.
C. Class: Notes:
Review Questions
1. C
a. No presence requirement, can watch them sign or get signers
acknowledgement of the signature on the will. And they signed right after
the acknowledgement happened.
2. B
a. UPC does not allow purging, doesn't care about interested witnesses.
3. .
4.
14. Class of semester March 3, 2022
D. Class Readings: 359-382
E. Class: Notes:
Look at page 382
Specific devise
- Devise that falls into the residue
Residuary devise
- If residuary devise lapses,
Class gift
- Surviving members of a class
Void devise
- If devisee is already dead when will is executed or is otherwise ineligible to
take, the devise is void and the lapse rules apply
No residue of a residue rule
- T devises entire entire estate to A and B (½ and ½)
- B dies before T (or is a dog)
- T dies. What happens to B’s chares
Common law: a receives ½ of T’s estate with the other half passing by intestacy
to T’s heirs.
Rule abandoned (as in UPC 2-604(b))
- A receives the entirety of T’s estate
Was the T group minded? Or thinking of specific individuals
2
Group Mindedness
- If a T names specific devisees and their shares they will be said to have NOT
created a class gift.]
- where a gift by will or its residue to several named legatees, are to be divided
among them in equal shares, the gift is to them as individuals and named
individuals constitute a class. BUT this class must bow to the rule of intent of T
which can be determined by the whole document.
Application of Antilapse statutes to class gifts
- Most states: Antilapse statutes almost always apply to single generation like
“children” or “siblings”
- Some states: courts reason that the antilapse statutes are designed to carry out
the typical T intent and typical T would prefer for deceased class members share
to go to that members descendants rather than surviving members
- Less states: antilapse statutes do not apply to dispositions to class members
who died before execution of will. State assumes T did not have the dead class
member in mind and didn't want their descendants to take
- Eg. T dies wills estate to “sisters” with residuary to S. Upon executing the
will T had sisters: A (D and E children) and B. C sister was dead prior, left
child F.
- THUS, T was survived by D, E, B, F. B was only sister.
- YES antilapse Applies: Majority of states
- If antilapse applies, then, B ⅓, D and E share ⅓, and F ⅓.
- Minority of states: F does not share because C was dead when the
will was executed and ½ goes to B and ½ goes to D/E.
- NO antilapse does NOT apply: B would take it all.
If a gift “lapses”
- If a gift ‘lapses’ it means that a receiver predeceased the T. IF the antilapse
statute applies, then there would be distribution to the descendants of the
receiver.
Antilapse
- Does not lapse/stop all inheritance from that line
NO Antilapse Statute
- When you die before the T you and your entire line are SOL and get nothing.
- Harsh rule.
15. Class of semester March 9, 2022
F. Class Readings: 381-394
A. Changes in property after execution of a will
- Will being made stale or obsolete by change in circumstances since
execution that impact property that is subject to the will.
1. Ademption by Extinction
- When Ademption applies means = you dont get the item because it no
longer exists. Ergo, a house.
- When Ademption does not apply, eg, $100,000, they will sell items to get
you your money.
- Generally you do NOT want ademption to apply, right?
- T devises item to someone in will, but then sells/destroys/loses item. This
item of real or personal property is subject to doctrine of ademption by
extinction
- Example: T devises Blackacre estate to son, J, residuary estate to
daughter M. Years later T sells estate and uses sale to purchase
Whiteacre, dies without changing will. The gift of Blackacre is seen
as taken away because T doent own it, devise fails. J has no claim
to Whiteacre, as will doesnt devise it to him.
- Ademption applies only to specific devises, NOT general, demonstrative,
or residuary. A
- Does apply: Specific devise = my house on 123 Main st. or, my car.
- Does NOT apply:General if = confer a benefit out of general property of
estate rather than particular asset. Eg. $100,000 to A. if no $100,000, in
this case, items would be sold to create devise by the ademption rule.
- Demonstrative Devise: general devise payable from specific source. If
source is insufficient, devise is not adeemed, but rather satisfied out of
other of T’s property.
- Residuary Devise: conveys that portion of the T estate not otherwise
effectively decided by other parts of the will. “All the rest, residue, and
remainder of estate.”
- Identity theory: if an item is specifically devised is not in T estate upon
death, the gift is extinguished.
- Intent Theory: Newer identity theory kinda. The item not in the estate the
beneficiary may nonetheless be entitled to the replacement or cash value
of original item IF they can show T intent.
In Re Estate of Anton 2007
- ROL: where specific devise is removed from an estate by the act of an attorneyin-fact that was not known or assented to by T, the devise is not adeemed (taken
away), to the extent that identifiable proceeds remain in the possession of the
estate.
- Facts: T made will with lawyer,, gave ½ interest in duplex to GC (stepkid), and ½
to RL, remainder of estate to RL and NE (kids of T).
-
-
-
-
T got in accident after wille execution and had to do POA to NE and went
to nursing home.
- NE took over finances completely. When NE tried to discuss with T the
need to sell assets to pay for nursing home staff said to not talk about it
because it stressed her out. So she sold assets to pay for a nursing home.
- When income from trust and duplex income was insufficient, last thing to
sell was duplex. And didnt tell T.
- Sold duplex for $133k and after T died $104K remained
Rule: When property specifically devised in a will is no longer in the estate of T at
the time of death due to attorney-in-fact that was unknown or not assented to by
T, the devise is NOT adeemed/canceled.
Identity rule usually requires property which is specifically identified in the will and
when lacking it is canceled.
But with GAL the focus shifts to after removal of property from estate the T had
opportunity to chose not to change her will. T did not have this choice because
she was incompetent to handle own affairs.
Thus: GC gets a half interest in the duplex = half interest was not adeemed and
identifiable proceeds are in the possession of the estate, thus GC gets half
interest in these proceeds.
1. Identity theory - rule with many exceptions
- Many states apply exception for issues when property is not in the estate
because of an accident or action of someone other than T that did not
intend for ademption.
- Many courts: give devisee any unpaid amounts of condemnation towards
award for property or unpaid casualty insurance after property was
destroyed.
- T gives plane to A, T crashes and dies in plane, A can receive the
plane insurance proceeds.
- To acoid ademption courts need to classify a devise as general or
demonstrative and NOT specific.
- Inter vivos disposition as a change of form, not substance.
- Most courts hold that a merger or reorganization is only a change in form
not substance.
- T gives shares of X company to A, X mergers why Y. To make Z
company, If it is determined to be change of form the shares in Z
would be given to A. Rather than saying no shares because X
company is no longer around.
-
-
Most courts said that shares in company that go to A, that has dissolved
and assets transferred to trust, that A now has an interest in that trust.
The intent theory - a standard tempered by presumptions
- UPC abandoned identity theory and took intent theory in 1990’s.
- If devisee can show that T didnt intent ademption then it wont adept UPC 2-606
Replacement Property
- 2-606(a)(5) - T gives “ford car” to A, sells ford and buys “tesla” this implies that A
would take the tesla in the first case.
- What if T devised Ford, but bought a honda and a tesla? We dont know
- What if T devised Ford, but then bought motorcycle? We dont know.
Burden of Proof
- OLD LAW: Burden is on party claiming ademption, presumption against
ademption.
- MODERN: Burden is on party seeking pecuniary value of specifically devised
property not in the estate.
Stock splits and the problem of increase
- Was the bequest based on specific and specified shares (
- eg 100 stock shares, but then they turn into 300 stock shares)
- If T said 100 shares to A, as well as any accretions in stock split.
- OR if court finds T did not have mind in particular property but confer a
general benefit, then A received only 100 shares.
- But these splits are change in form not substance, 300 shares probably still have
the value as the 100 shares.
- They have the same proportional ownership right
- Most courts: you get all the stock from stock split
- Some courts: treat stock dividends differently than stock splits
- Stock dividend = to cash and conclude that devisee cannot logically be
awarded the former when he is denied the latter.
- But this is an issue because the % ownership is still the same.
- UPC holds dividends and splits are considered the same. The beneficiary
gets them with the shares
2. Satisfaction of general pecuniary bequests
a. Aka ademption by satisfaction.
b. May be applicable if T makes inter vivios transfer to devisee after
executing the will, depending on T intent.
c. If T is a parent of beneficairy there is a rebuttable presumption that T
intended satisfaction
i.
Example. T devises $50k to S, residuary to D. after executing will T
gives $30k to S. there is a presumption that gift was partial
satisfaction of the legacy so S will take only $20k
d. Applies to general but NOT specific bequests, generally.
e. If specific property is given to receiver during life the gift is adeemed by
extinction, not by satisfaction.
f. T intent to adeem by satisfaction must be shown in writing. Thus if $30k is
given to kid before death, without writing it will not be subtracted against
the bequest willed to them
3. Exoneration of liens
a. Question: T devises Blackacre to daughter A, Blackacre is subject to
mortgage that secures a debt on which T is liable. Does A Blackacre
subject to mortgage?
b. Some states: A takes Blackacre free of mortgage.
i.
Common law doctrine of exoneration of liens
ii.
Makes specific disposition of real or personal property that is
subject to a mortgage to secure a debt on which T is personally
liable.
iii. Presumed T wanted the debt to be paid out of residuary estate
c. Most states:
4. Abatement
a. Abatement arises if estate lacks assets to pay the descents debts as well
as all devises. Devises must then be abated or reduced
b. Abatement happens in this order
i.
Residuary devises are reduced
ii.
General devises
iii.
Specific and demonstrative devises, reduced pro rata
c. Meant to follow T’s intent
i.
Example: T executes will, $300k to B, $100 to C, residue to A. at
time of execution there are $800k in assets. Upon death $300k.
1. A takes nothing, B takes $225k, and C takes $75k
d. To avoid this, T devises ½ of residue to charity with $400k cap, and the
rest to son A.
G. Class: Notes:
16. Class of semester March 10, 2022
H. Class Readings: 395-424
Trusts: Characteristics and Creation
-
I. Class: Notes:
Sources of law
1. Restatements
a. First 1935
b. Second 1959
c. Third 2003, 2007, 2012
2. The great treatises
a. Scott
b. Bogert
3. Uniform laws
a. Uniform trustee powers act 1964
b. Uniform prudent investor act 1994
c. Uniform trust code 2000
Trust Typology
Inter vivos
testamentary
creation
Declaration of trust or
Deed of trust
will
Type of transfer
Nonprobate (will substitute) probate
Revocability
Revocable or
irrevocable
irrevocable
Differences between declaration of trust or deed of trust
- Declaration = you are trustee yourself, no transfer of legal ownership to another
person
- Deed of trust = transfer to someone else to handle
The settlor, trustee, and beneficiaries
- Settlor
Trust property
settlor
Promise to
manage
property in best
interest of
Beneficiaries
trust
ee
Benefi
ciaries
Trusts: Characteristics and Creation
Trust
- Settlor > conveys to a trustee to hold as a fiduciary > for one or more
beneficiaries
- Trustee gets legal title to trust property
- Beneficiaries get distributions from trust periodically or at discretion of trustee.
- Can be testamentary, created by will and arising in probate.
- Can be inter vivos, created during lifetime by declaration of trust or by deed of
trust, often as a will substitute to avoid probate.
- Versatile instrument for conveyance and management of property separate from
benefits of ownership from burdens of ownership.
A. The Trust in American Law
1. Common law, default rules and mandatory rules
I.
Abides by extent not superseded by UTC
II. UTC is usually default rule that can be overridden by terms of trust. Only
exceptions are mandatory rules scheduled in UTC. “duty of trustee to act
in good faith.”
2. Restatement 3rd of Trusts
- Codifies common law trust rules, usually.
- Rights of beneficiaries creditors to trust assets and trust modification and
termination.
3. The ‘bottom-up’ reforms
- Lobbying bankers and lawyers. To fill gaps in the uniform acts or to make
the state more competitive in the jurisdiction competition for trust business
-
Can allow for a waiver for duty to diversify, and duty to give information to
the beneficiary, etc…
4. Choice of law in trust practice
- Settlor can usually designate the law that will be exercised with the trust,
especially if inter vivos.
Inter vivos
testamentary
creation
Declaration of trust or deed will
of trust
Type of transfer
Nonprobate (will substitute) probate
revocability
Revocable or irrevocable
Irrevocable
Examples:
1. Case 1: O is trustee, beneficiary, and upon death all goes to O’s descendants. O
retains power to revoke trust, unless O revokes, when O dies her descendants
will be entitled to the remainder.
Bifurcation
- Trustee holds the legal title to property, but beneficiaries have equitable or
beneficial ownership.
- This splits the legal and equitable ownership.
A. Bifurcation asset partitioning and the rights of third parties.
a. Separates personal property and obligations of an organization's insiders
from the property and obligations of the organization.
i.
Eg. you can sue the person. and/or the company.
b. Common law trust - not as simple of separation. A trust is not a entity it is
a relationship. A trust cannot sue, be sued, hold property, or transact in its
own name. Instead trustee sues, is sued, holds, and transacts with
respect to the trust property and their fiduciary capacity as trustee. Both
substantive and semantic consequences ensue.
i.
Substantive - legal title to trust property belongs to the trustee, used
to be personal liability. Now set off by right to indemnification out of
the trust fund.
1. Eg. plumber would go after money in the trust, not the
money of the trustee.
ii.
Example: O entrusts to X, to pay A an income for life, then
remainder to B upon A’s death. X sells Blackacre to Y for $100k. Y
may enforce a contract to buy Blackacre by suit against X in X’s
capacity as trustee. X takes proceeds from sale as trustee. If Z has
judgment against X for injury caused by X’s negligence unrelated to
trusteeship, Z has no recourse against Blackacre nor it’s proceeds.
B. Fiduciary administration and the rights of the beneficiaries
a. Trustee has all powers over trust, but beneficiaries bear consequences of
misstep by trustee. Thus we have fiduciary duty for the trustee.
b. Must act under duty of loyalty to beneficiaries, self dealing is prohibited.
c. Objective standard of care of a prudent person. Need to be impartial.
d. Duty to keep trust and personal assets separate.
e. Duty to inform and account to beneficiaries.
f. ?beneficiaries and remaindermen when you only have a sole beneficiary
who is also the sole trustee? Can there be a breach of fiduciary duty if
there is only a duty to oneself and potential, not guaranteed remaining
interest?
g. If duty is breached the beneficiary is entitled to remedy that include
compensatory damages to restore trust estate and trust distributions.
h. Restitutional remedy, make whole again, trustee won't get compensation if
they are compensated for their duties.
Functions of Trusteeship
1. Custodial
2. Administrative
a. Accounting, record keeping, filing taxes.
3. Investment
a. Reviewing assets, making and implementing prudent investment
programs for overall strategy.
4. Distribution
a. Disbursement of income or principal to beneficiaries in accordance with
terms of trust within the circumstances.
A trust compared with a legal life estate
- Trusts - create successive beneficial interests. Income is usually payable to the
beneficiary for life, with the trustee to distribute. Plans for future interests and
future when there is no trust.
- Life estate - equitable rather than legal future interests. Legal life estates and
future interest in personal property are rare, and stupid.
a. Legal life estate
i.
tenant have no power to sell a fee simple unless such power is granted in
the document creating the life estate.
ii.
Otherwise, all remainder interest parties much agree to sell or the life
tenant must obtain judicial approval. Same with mortgage or lease.
Waste problem - deforesting, taking oil, etc…
iii.
iv.
b. Equitable life estate - a trust
i.
All issues of life estate are solved by making a trust.
Business Trusts
- Freedom of contract and commercial transactions is big use of trusts.
- Business trusts were used to escape heavy regulation that corporations do.
- Trust is still preferred form for mutual funds which used to be ‘investment trusts’
B. Creation of a trust (intent, ascertainable beneficiaries, specific property).
● Intent to create a trust
- Intent by the settlor to create a trust
- No particular words needed
- Only needs to manifest intent to create a fiduciary relationship
known by law as a trust. “To X for use and benefit of A” is sufficient.
a. Testamentary trust
- Created by a will
- If intent to create trust is not stated clearly it may be inferred
from language.
- A trust will not fail even if there is no trustee (dead, fake,
etc…) one will be appointed by court.
- Precatory language = language that advises, counsels,
suggests something. Doesn’t mean that if not met, the
person will not receive anything.
- Deed of trust - no formalities required to create an inter
vivos trust of personal property.
- Testamentary trust (created by a will) MUST satisfy the
Wills Act
- Inter vivos trust of land MUST satisfy the Statute of Frauds.
b. Deed of trust - no formalities required to create an inter vivos trust
of personal property.
-
c. Declaration of Trust
- No formality required. If you are put into a position to hold
property or funds for benefit of another you are now a trustee
and thus have the requirements to serve as such with the
fiduciary duty.
Jimenez v Lee 1976
● Transfer of property with intent to vest ownership to 3rd person gives rise
to trust and imposes on trustee duties to administer the trust solely for
benefit of the beneficiary and account for trust income and expenditures
● P = Elizabeth, her money
● D = Father
● P’s grand mother gave her $1k bond for education, and Mrs. Adolph gave
$500 to P for education.
● D cashed in the bond and invested in stock in his na,e as custodian for P.
● RULE: where property is transferred to individual to be held for benefit of
another a trust arises imposing duty on trustee to administer the trust
solely for benefit of beneficiary.
● Doesnt matter that it wasnt stated that D was a trustee, he was. D
controlled the funds and they were for the benefit of P and no one else. By
divesting and investing he did so for his own benefit and not benefit of P
which was a breach of trustee fiduciary duties.
The Hebrew University Association v. Nye 1961
- Person who declares himself a donor does not make themself a trustee unless
expressly assumes the obligations of a trustee
- Received husbands library upon death and spoke to Hebrew Uni. about donating
books, told them she would donate them.
- A person who declares her intention to make a donation does not hold the
property in trust for the intended donee unless that person expressly declares
that she intends to be a trustee.
- Although a trust may be created without consideration or delivery, an oral
declaration of trust must be express and declaring oneself a donor does not
constitute an express declaration of trust. A donor-trustee must expressly
assume the obligations of a trustee.
- The lack of delivery in this case cannot be cured by assuming creation of trust
through intent to deliver.
- No express intent shown.
The Hebrew University Association v. Nye 1966
-
-
An inter vivos gift will be valid despite lack of manual delivery where manual
delivery was impracticable and donor took steps to transfer title that constitutes
constructive delivery.
Constructive delivery requires that that the donor’s actions were as complete as
possible in light of the particular circumstances.
here, Ethel’s public declaration together with the memorandum itemizing the
library materials to be donated constituted constructive delivery and the inter
vivos gift is valid.
17. Class of semester March 23, 2022
J. Class Readings: 424-454
2. Trust Property
- Must have property (called “res”) to have a trust.
Unthank v Rippstein 1964 - SC TX
- Unless a donor expressly identifies property as being held in trust for the purpose
of making promised payments, a trust does not arise from the promise to bind the
donor’s estate to make such payments.
- O wrote a letter to P three days before death, stating that he wanted to send P
$200/mo for five years, assuming he lives that long.
- O died, and did not charge anyone with sending payments to P, thus there was
no relationship established nor trust established.
Notes
- Did not show testamentary intent, we need some identifiable property
- We need ascertainable beneficiaries in order to create the legal trust relationship
Valid trust needs
- For a valid declaration of a trust one must show intent to declare trust over a
specific property.
- Manifestation of intent by the settlor to hold certain property over which he
already has legal title in trust for one or more beneficiaries is ALL THAT YOU
NEED.
- No transfer of property or further documentation is required for validity.
Deed of Title - created by a trust
- To be valid it requires a transfer of property to the trustee.
Resulting trusts - Equitable reversionary interest
a. If express trust fails or makes an incomplete disposition or
b. If one person pays the purchase price for property and causes title to the
property to be taken in the nae of another person who is not a natural object of
the purchase's bounty.
- In below examples, the property holder is not entitled to the beneficial interest, it
is “to result to” (revert to) the transferor.
- Examples: Failure of express trust: O devises to X to pay to A for life, and
on A’s death distributes to A’s living descendents. A dies without
descendants, because the remainder to A’s descendants fails, X holds the
remainder on resulting trust for O’s heirs or devisees.
- Ex: purchase money resulting trust: B purchases blackacre with money by
A. Unless B can show A intended to make a gift to B, B holds title to
Blackacre on resulting trust from A, which means Blkackacre is still A’s.
1. Ascertainable Beneficiaries
a. The beneficiary Principle
i.
Private trust must have ascertainable beneficiaries to whom the
trustee owes fiduciary duty to aka trustee.
Clark v Campbell 1926
- ROL: a valid private trust will not arise unless the trust is made for the benefit of
definite and ascertainable beneficiaries and is to be distributed in specific
proportions
- Will did not name any specific beneficiaries, just ‘friends and family,’
- Trust will fail if the class of beneficiaries is not limited by specific criterion so that
trust has definite and ascertainable beneficiaries who are entitled to specific
proportions of trust.
Notes:
- Friends and family who they select are not ascertainable beneficiaries. It is not
determinate. What are friends? Business? Too vague.
- We have intent, we have property sufficiently identified,
- Attempts to create trust fail because of lack of identification of beneficiaries.
Powers of appointment
- Common in estte planning practice
- I devise property to be held in trust for benefit of my wife while she lives, then
upon her death then to whoever she appoints.
- She gets to pick, and up to her judgment where it goes next.
Scott Treat’is
-
Someone tries to create a trust and it fails. We should treat it as a discretionary
power of appointment.
In re searight’s estate 1950
- Bequest for care of specific animal is valid as long as the person receiving the
gift for the benefit of the animal accepts the gift and agrees to carry out the
wishes of T and the will properly limits the period of time in which the bequest is
to be carried out
- O to Trustee $1,000 in account and care for dog, Trixie, .75$ per day of care until
she dies. If she dies before the $1k is out the remainder goes to the trustee and
four other people.
- Trustee accepted the bequest of trixie. It is valid. As long as the person accepts
it.
- A pet cannot be a beneficiary of property but it can be “res” property.
The beneficiary principle 402(a)(3)(2000)
a. A trust is created if
(3) the trust has a definite beneficiary or is:
(A) A charitable trust;
(B) A trust for the care of an animal, as provided in 408; or
(C) A trust for a non charitable purpose, as provided in 409.
Common law honorary trusts
- Transferee is not under a legal obligation to carry out the settlers stated purpose,
but if the transferee declines or neglects to do so she holds the property upon a
resulting trust and the property reverts to the settlor stated purpose.
- Must be aware of the rule against perpetuities violation. A pet is NOT validating
life.
b.
2. A written instrument (3)
a. Oral inter vivos trusts of personal property
- Rule 407 - evidence of oral trust can be proven through clear and
convincing evidence (CCE)
In re Estate of Fournier 2006
- If proven by CCE a valid oral trust may be created by transferring property during
the settlors lifetime with the intent that the transferee hold the property as trustee
for the benefit of a definite beneficiary.
- George Fournier, O, gave two boxes of cash to friends, Mr. and Mrs. Madore, to
hold until his death, then give it to his sister, Faustina Fogarty. O told T that B
had greater need for money than his other sister, Juanita Flanigan. O died, T was
appointed to distribute the estate, and gave B the money. Then T petitioner for
declaratory judgment that O had created an oral trust for B’s sole benefit.
- At trial multiple people testified and said that there was confusion around who
and which sister.
- However they did establish via CCE that it was just to go to the one sister. And
the oral trust was valid.
Another step:
- Later, a note was found that said the $400,000 should be given to Flanigan,
Faustina, and King for reimbursements. The court then ordered that it be
distributed into three equal shares.
b. Secret Testamentary Trusts and the Wills act
Olliffee v. Wells 1881
- Extrinsic evidence may not be used to prove the terms of an intended trust and
save it from failing for indefiniteness where the will decises property in trust but
the terms of teh trust are communicated outside of the will.
- O devised residue of estate to D, with proviso “to carry out wishes which I have
expressed to him or may express to him.” which gave discretion to determine the
manner in which he would distribute the residue, not authorize him to recieve it
as a gift outright.
- P’s (heirs) challenged his devise to himself, and requested that the residue be
warded to them. D said that O had expressed to him that the residue of property
should be used for charity and intended to do so.
- e court cannot enforce that trust against the devisee but can only rely on the
devisee’s willingness to perform as directed outside the will.
- Donovan’s intent to create a trust is clear from the language of the will but the
terms of that trust are not declared in the will. Therefore, the extrinsic evidence
offered to establish the terms of the trust was not admissible. Accordingly, since
the trust fails for indefiniteness, and Wells is not entitled to receive the bequest
outright, the residue of the estate must pass to Wells subject to a resulting trust
in favor of Donovan’s heirs who would take under the laws of intestacy.
-
Result is: treat the devise as though it has lapsed, and therefore it goes to the
intestate heirs.
-
We know enough from face of the will that it was not an outright devise to
REverend wells. But we dont have sufficient information to enforce as written
because we dont know who the beneficiaries are, we have some knowledge of
intent, but NO beneficiaries. The traditional approach that is applied is that we
cannot listen to the extrinsic evidence, then it is an oral will. Which we don't want.
So the whole thing fails, then intestacy.
-
In contrast: semi secret trust. It is not secret that there is a trust, it is a secret of
who the trust is for (secret because the will does not disclose it),
-
The decree is entered for Donovan’s heirs.
c. Oral inter vivos trusts of land and the statute of frauds
- Example: O deeds to X via oral trust, to pay A and income for life,
upon A’s death, convey to B.
- Statute of frauds requires writing to evidence conveyance of land
and prevents the enforcement of this. Who gets the land (above)?
- 50/50 split between X retaining the land on grounds that
SOF forbids proof of oral trust and allowing relief in
restitution by way of constructive trust imposed on X to
prevent unjust enrichment.
- Results vary based on court.
K. Class: Notes:
Creation of trust
1. Intent to create trust
2. ascertainable beneficiaries who can enforce trust
3. Specific property, the res, to be held in trust, AND
4. If the trust is testamentary or is to hold land then to satisfy the wills act of statute
of frauds the trust must be in writing
18. Class of semester March 24, 2022
L. Class Readings: 454-480
Chapter 7: nonprobate transfers and planning for incapacity
- Needs to pass the ‘Wills act Formalities’ to be effective transfer of property
- How much should policy based substantive limts on testation by will and default
rules of construction that are applicable to a will apply to a will substitute.
A. The rise of nonprobate succession
Major Reforms to the property restatement and the UPC: Reformation, Harmless
Error, and Nonprobate Transfers
- Use of will substitutes to transfer property upon death.
- Main types of substitutes:
1. Revocable inter vivos trust
2. Life insurance
3. Various types of pay on death bank accounts (POD)
4. Transfer on death securities accounts (TOD), and
5. Pension accounts, primarily individual.
- Some are asset specific only
Legal questions raised by non probate success
1. Whether wills act formalities should be required of will substitutes, answer = no.
2. Whether the subsidiary law of wills, meaning the policy based substantive limits
on testation by will and the rules of construction should also apply to will
substitutes. Answer = none.
Inter Vivos trust
- can be created through declaration of trust or deed of trust.
- Either way the trust can be irrevocable or revocable, or both.
A. Revocable trusts
- Most resembles a will in natures of function. But don't have to use wills act
formalities.
- Made to donors liking, drafted precisely
- Not inherently asset specific, it is ambulatory, which means it is subject to
amendment or revocation by the donor.
- Under modern law revocable trust gives beneficiaries no rights until death
of the donor.
- Revocable trust, yeah just like a will - makes sure that when settlor-trustee
dies and the beneficiary gets it. Even though it wasn't done ‘correctly’ it
does it outside the probate system and without attestation, but modern law
does not care… as long as the beneficiary gets what the settlor intended,
it's fine.
- When settlor dies, the trust becomes irrevocable, when person with right
to revoke dies, it is irrevocable. There is then a successor trustee who
takes over the stock. Now the successor owes a fiduciary duty to williams.
Fiduciary enforcement
- Right to revoke at any time and do anything if is a revocable trust done by the
settlor-trustee with remainder interest
1. The wills act and a present transfer
- Revocable trust may be created by a deed f trust whereby the
settlor transfers to the trustee the property to be held in trust. Upon
settlors death it is distributed in accordance with terms.
- But while alive, settlor can revoke at anytime.
- Revocable trust may be created by declaration of trust whereby
settlor declares himself to be trustee
2. Abandoning the Present Transfer Fiction
- Should a revocable trust be effective to pass property at death
without Wills act?
- Will act substitutes should be seen as the donor is free to transfer
wealth on death either in the probate system or in the nonprobate
or both.
- Revocable trust can be openly acknowledged as a will substitute,
need to figure out the settlors intent.
603 Settlor’s Powers; Powers of Withdrawal
(a) To the extent the trust is revocable by settlor a trustee may follow direction of
settlor in ways contrary to the trust. Trustee must follow direct from the trustee
even if adverse to trust language and beneficiaries.
(b) To exten a trust is revocable rights of beneficiaries are subject to the control of
and the duties of the trustee are owed exclusively to the settlor.
Fulp v Gilland 2013
- Trustee of a revocable trust does not owe a duty to the remainder beneficiaries.
- Made revocable trust, then sold farm to son, daughter sued for breach of duty to
remainder beneficiaries. Trustees don't owe a duty to remainder beneficiaries
while it is revocable. Subject to settlors control. Only owes a duty to themself.
Because primary beneficiary and only owed duty to herself. And no duty to
children, and didn't need to amend the trust to sell the farm.
- No duty to remainder beneficiaries.
1. No enforceable interest
-
When a settlor is also a trustee then any action by the settlor-trustee that
diminishes the interest of a beneficiary cannot be a breach of trust but
rather is an implied revocation to that extent.
- The sell of the farm was an effective revocation of the trust as to the
difference, and beneficiary lacked standing to complain. BECAUSE the
settlor-trustee cannot be compelled by a beneficiary to account or to
provide information and is not subject to liability for breach of trust. (462).
- If you are listed as the sole trustee and beneficiary does this apply the
same standard?
2. Revoking or amending a revocable trust
- Inter vivos trust created by a written instrument used to be presumed to be
irrevocable unless there was express or implied reservation by the settlor
or power to revoke the trust.
- Today: under WTC 602(c) revocable trust can be a,emded or revoked in
any manner that clearly manifests teh settlors intent to do so unless the
instrument specifies a particular method of amendment or revocation
exclusively.
UTC 602 - revocation or amendment of revocable trust
(a) Unless expressly provided that trust is irrevocable settlor may revoke or amend
trust. This does not apply to trust made under an instrument executed before this
code.
Patterson v Patterson 2011
- Darlene created trust for her benefit during life, then remaining property to kids
after her death
- Can be amended with written notice to trustee. (but didnt say the ONLY way for
amendment to happen).
- Beneficiaries interest are vested until the trust is revoked or terminated
- Amendment removed Ron, son, as beneficiary. He sued for invalidation after her
death. Because his benefit was vested.
- Is a trust amendment having to specifically comply with what trust says? No. as
long as it doesnt exclusively say that it has to be. General intent needs to be
followed.
- Amendments literally comply with trusts terms
- As long as amendment method was not exclusive the amendment just needs to
be by intent by clear and convincing evidence.
- Thus: valid amendment of trust, Ron is fucked.
- Settlors
3. The subsidiary law of wills
State street bank and Trust Co v. Reiser 1979
- Where a settlor of a trust retains the power to amend and revoke the trust or
power to control the principal and income during his lifetime, his creditors may
reach the assets of the trust after his death to the extent that the assets of his
estate are insufficient to pay his debts.
- Made a trust which gave him power to: revoke or amend, and direct trust assets,
and pay debts of trust.
- Made will which left everything to the trust.
- Application for loan he listed income of trust, and got loan of $75,000.
- Upon death bank wanted repayment and took action against trustee
- Trust was part of estate and thus they should be able to recover their personal
debts
- A creditor may reach the assets of a settlor's revocable trust upon death to the
extent that the settlor during life would have had access to those assets for his
own benefit during their life.
1. Creditors and revocable trusts
- Used to be that creditor of settlor had no recourse against property in the
settlors revocable trust unless settlor was also a beneficiary of the trust.
- Modern law: rejects this. Settlors power to revoke trust and take back
property is equal to ownership and thus it is subject to claims of creditors
for actions during life, at death. Codified by UTC 505(a)(3)
2. Creditors and other nonprobate transfers
- Not all nonprobate assets are created equal. Creditors may reach property
in a revocable trust settled by the decedent but that cant reach other
nonprobate transfers.
- Creditors of a joint tenant cannot reach jointly held property after a joint’s
death.
- Life insurance proceeds are usually exempt from insurced creditors if
payable to spouse or child, and retirement benefits are usually exempt.
3. Spousal rights and revocable trusts
Clymer v Mayo 1985
- Unless express intent Bequests in a will to a former spouse are automatically
revoked
- Revocable trust making estate go into revocable trust making D her beneficary.
-
After they divorced she changed beneficiary of life insurance to Marianne but
didnt change beneficary of trust which remained D.
Bequests in a will to a former spouse are automatically revoked
4. Revocable trusts in contemporary practice
Unified Estate Planning via Revocable
Trust
Pour-over Will
Lifetime Transfers
Nonprobate Transfers
Revocable Trust
-
Just change revocable trust and it changes the estate plan
Pour-over will (probate transfer) = my residuary estate goes to the trustee of my
trust, this way, if i left things out in my probate state they will go to the trustee of
my revocable trust too and be distributed to my trust. In effect the will is just a
conduit to make anything left to go into the revocable trust.
- We don't want anything significant to be transferred here.
Divorce or annulment
- makes a will/trust bequest void unless contrary intent is expressed
Abatement and ademption
- Un a revocable trust in which there is not enough property to make all cash
payments called for by trust upon death the court applies ademption to the trust
and calls for transfer of specific property to a particular beneficiary on death of
settlor.
Antilapse
- O creates revocable trust, upon death goes to A (C and D) and B.
- If A predeceased O and trust was created under will C and D would get A’s
redirected share.
5. Revocable Trusts in Contemporary Practice
- Avoids probate to the extent it is funded during the settlor's life and allows
the settlor to consolidate the disposition of property, probate, and
nonprobate, under one instrument.
- Consolidation happens by naming trustee as beneficiary of all the settlor’s
will substitutes and as beneficiary under the settlor’s will (pour over will)
- Bonus is the continuity of property management upon settlor's death. The
trustee can act immediately without need of court order.
- Bonus = privacy, revocable trust is private and need not be filed with court
unless a dispute arises.
a. The Pour-Over Will
i.
O sets up a trust making T trustee. O executes will devise estate to
T.
ii.
Pour over will only control the disposition of T’s probate property. =
property subject to a will substitute is governed by disposition in
that will substitute, not T’s will.
iii.
Valid pour overs need
1. Incorporation by reference, a will can reference the
document in existence at the time it is executed, but not
amendments to document made after execution, thus trust
will be testamentary not inter vivos
2. Acts of independent significance. Trust doesn't have to be in
existence when will is executed, but the trust must exist and
so does property prior to the testator's death. The assets
poured over from probate estate to trust, like the assets in
settlor earliest transfer of trust are subject to terms of the
trust.
b. Multistate estate planning
i.
Easier to do with revocable trust. Can avoid a second probate
(ancillary probate).
ii.
More freedom in choice of law
c. Capacity
i.
Can be contested for lack of capacity and undue influence, but
harder to set aside a funded revocable trust than a will
d. Lifetime considerations
i.
RT can facilitate property management by a fiduciary. With 3rd
party trustee to mange the trust and duties.
ii.
Funded revocable trust can be used in planning for incapacity and
keeping clear title.
M. Class: Notes:
19. Class of semester March 30, 2022
N. Class Readings: 480-507
A. .
B. .
C. The other Will substitutes.
1. Life Insurance
- Valid transfer of property on death without wills act formalities
a. Term life insurance
i.
Obligates insurance companies to pay the beneficary if the
insured dies within the policys terms
ii.
Less expensive
b. Whole life insurance or ordinary or straight life
i.
Life insurance combined with savings plan
ii.
Becomes paid up, or endowed after which no further
premiums are owed because whole life is permanent until
death.
iii.
Most expensive form.
c. Settlement options for receipt of death benefits
i.
Lump sum, interest for years to follow payment of principle.,
periodic payments of interest and principal.
d. Cook v equitable life assurance society 1981
i.
The Testator made a life insurance policy with the
beneficiary being his wife at the time, upon death, ex wife.
He stopped paying the premiums and they converted it to a
paid up policy. He divorced his wife and remarried and had a
child. 14 years later he made a will stating that everything
goes to new wife and son, but never contacted the insurance
company to change anything with his policy. After 14 years
of being divorced.
ii.
Because of this. The court determined that the will did not
supercede the insurance policy because he never attempted
in any form to edit the policy, he had 14 years to do
something about.
iii.
The court said “equity aids the vigilant, not those who
slumber on their rights.” His ex wife gets the policy because
his failure to act. His “current '' wife and son didn't get the
policy.
iv.
Under Indiana law, an insured party may only change the
beneficiary of a life insurance policy in the manner set out in
the policy, and a designation of an alternate beneficiary by
will is ineffective.
v.
There are three exceptions:
1. (1) if the insurer waived strict compliance and made
the change based on the insured’s request,
2. (2) if the insured literally could not comply with the
requirements, and
3. (3) if the insured complied with the policy’s
requirements but died before the change was made.
vi.
Substantial compliance will only be effective if “the insured
has done everything in his power” to make the change.
Public policy protecting the interests of insurance
companies, insured parties, and beneficiaries is best served
by this rule and its narrow exceptions. Insurance companies
may distribute proceeds without awaiting probate, and
beneficiaries receive prompt payment. Further, everyone
benefits when judicial resources do not have to be dedicated
to such matters.
e. Looking at Cook notes.
i.
Many states look at ‘substantial compliance of terms’ to
determine if the policy holder complied.
ii.
Many states the revocation provision of ex-spouse does not
apply to life insurance policies.
iii.
Upc 2-804 does apply to life insurance but only privately
obtained life insurance, IF the policy had been part of
employment benefits the state revocation on divorce statutes
would have been preempted by federal law
iv.
They talk about a ‘superwill’ if he had been explicit about the
change in the policy it still would not have been validly
transferred?
f. Tax advantages to retirement plans:
i.
Most contributions are tax-deferred. Saving pretax dollars.
ii.
Earnings on qualified plan investments accrue and
compound on a tax deferred basis
iii.
Most retirees have lower taxable income in retirement years
than in peak earnings they find that distributions from
pension are taxed lower marginal rates.
g. Pension and retirement plan types
i.
Defined benefit plan
1. Retired employee receives a regular pension check
for life (life annuity) or joint and survivor annuity. Size
of it depends on years paid into plan and level of pay
upon retirement. At death of employee there is
nothing left in plan to pass on.
ii.
Defined contribution plan
1. 401(k), employee and usually employer make
contributions to the account. Employee makes
investment decision for account choosing from mutual
funds. Once retired former employee controls size
and timing of distributions from account subject to
spousal protection and mandatory annual withdrawal
beginning at 72. At employee’s death, rules specified
in plan go through nonprobate transfer.
iii.
individual retirement account
1. Similar to contribution plan. Main difference is IRA is
not established by employer. But governed by
contract between account holder and custodial
institution.
2. Used usually with self employed people
3. Common to transfer defined contribution to IRA
account upon retirement.
4. At death any remainder passes outside of probate
according to terms of beneficiaries designation or
default distribution rules.
h. Egelhoff v Egelhoff
i.
ERISA governs any employer benefit plan and it preempts
(overtakes/overrides) any state statute to allow for uniform
governance.
ii.
THUS - state statutes that allow for beneficiary designation
to be void after a divorce do NOT apply and you need to go
and change the plan yourself because the default is whoever
the beneficiary is on the plan regardless of circumstances.
iii.
ERISA preemption (supersedes) of a state statute applies
when the state statute affects the administration of an
i.
ERISA-governed plan in a way that interferes with the
objectives of the ERISA statute.
iv.
Death without beneficiary designation after divorce, does
prior spouse get the money from the policy and pension?
v.
ERISA governs the plans.
vi.
Washington statute: On no probate assets upon divorce the
designation to the ex spouse goes away. So statutory heirs
(children) should get them under state law.
Varela v Bernachea - 2005
i.
Mistress - Varela
ii.
Owner of account with mistress - Bernachea
iii.
Joint tenancy with survivorship right given to Varela
iv.
Mistress transferred $200k to her personal account when he
was sick in the hospital. Once well, he wanted it back and
the bank gave it back.
v.
He sued as sole owner of the account, but he never added
any restrictions on the access.
vi.
Where a joint bank account is created with funds belonging
to one person, a gift of the funds to the other person is
presumed and the presumption may only be rebutted by
clear and convincing evidence.
vii.
Rebuttable presumption exists that when money is created
using funds from only one account holder there's a
presumption that the account holder intends a gift to the
other account holder. Only rebutted by ‘clear and convincing
evidence’ that didn't mean to be a gift.
viii.
j.
2. Non Probate Transfer of Real Property
a. Non probate transfers used outside of probate
i.
Joint tenancy; and
1. Upon death the surviving tenant owns property
absolutely. No probate necessary
2. Imperfect will substitute
3. During life cannot revoke the transfer or cancel
interest unless by both
4. No devising interest by will.
ii.
TOD deed for real property
1. T deeds ‘upon death’ to A, T dies, B is sole heir.
2. During life A has no interest or power.
3.
D.
O. Class: Notes:
20. Class of semester March 31, 2022
P. Class Readings: 599-635
Chapter 9 - Trusts: Fiduciary Administration
Bifurcation
- Trustee holds legal title to the trust property and
- beneficiaries have equitable or beneficial ownership.
- Benefits
- Avoids probate, no need to transfer title upon settlors death
- Managerial intermediation between beneficiary and trust property.
Because the trustee has custody, administration, investment, and
distribution of trust property in accordance with trust.
- Ensures distribution by settlers terms and desires of trust
- Postpones important decisions about investment and distribution of trust
property
- Cons:
- Potential mismanagement of trust by trustee, thus exists fiduciary
duty/administration.
Trustees
- Must act in good faith and best interest of the trust
- Subject to Primary fiduciary duties of:
1. Loyalty and
a. Duty of impartiality with regard to interests of beneficiaries
2. Prudence.
a. Objective standard of care
- As relating to recurring circumstances
- If breach of duty, you are removed as trustee and beneficiaries may be entitled to
remedy against you.
A. From limited powers to fiduciary administration
- Usually used for professional management of property on behalf of
beneficiaries
- Trustee normally gets broad powers of administration and exercise of
powers is subject to their fiduciary duties
1. From conveyance to management
a. Management of Trusts
Trustee’s are now usually professionals whose work is to be
a proper trustee and fiduciary.
ii.
Now, a trustee can engage in pretty much any transaction
that may enhance value of the trust as long as they act with
prudence and loyalty.
b. Types of Trusts:
i.
Business trusts
ii.
Revocable trusts for nonprobate transfers
1. Will substitute for conveyance of property.
iii.
Irrevocable trusts for ongoing fiduciary administration
1. Usually trustee is a fee paid professional and the trust
is a portfolio of liquid assets.
i.
2. Trustee Powers
a. They get all powers of the trust plus any power that would be
appropriate for a competent owner and to meet the goals of
distribution for the beneficiaries.
b. Same powers and the outright owner.
c. All powers enumerated by UTC
d. Third parties dealing with a trustee need verify certification of trust
but can assume without inquiry that the existence of the facts
contain in the certification are valid. (pg. 604).
3. Fiduciary Governance
a. Trustees are given the UPC enumerated powers given by trust and
statute but are limited by
i.
protecting beneficiary from abuse of trust
ii.
must be prudent,
iii.
loyal, and
iv.
impartial,
v.
adhere to terms of trust.
b. Trust law as fiduciary governance plus asset partitioning
i.
Trustee gets broad powers subject to fiduciary duties that a
legally competent person who individually owned the
property would act. Modern law got rid of projection of all
possibilities and simply imposes the FD with loyalty and
prudence requirement instead.
c. Breach of trust
i.
Trustee lacked the power to act as they did
ii.
The trustee’s act, even if within powers, was a breach of
their duty.
B. Duty of Loyalty
a. Hartman v Hartle 1923
i.
Duty to not take for personal benefit, if they do, there needs to be
court approval.
ii.
Just as an executor of an estate is not permitted to purchase
property from himself without leave of the court, his wife also
cannot purchase property from him without leave of the court.
b. In re Gleeson’s Will 1955
i.
A trustee who engages in self-dealing breaches his fiduciary duty
regardless of whether he was acting in good faith and the trust
suffered no injury as a result.
ii.
He profited slightly for holding over for the year, the trust suffered
no losses, he wasn't trustee until after he agreed to it. Doesn't
matter. If you profit at all it is a breach of duty. His gain he should
have paid back into the trust.
c. No further inquiry rule
i.
If there is a transaction that involves a conflict between the trustees
fiduciary capacity and personal interest, NO additional information
is needed. It is NOT allowed.
ii.
To prove breach all that is needed:
1. Conflict of interest
iii.
Only defenses
1. The settlor authorized the conflict in terms of the trust
2. Beneficiary consented after full disclosure or
3. Court approved the transaction in advance
iv.
When no further inquiry rule does NOT apply, the beneficiary
remains entitled to judicial review of whether trustee acted fairly
and in good faith. The core of fiduciary obligation cannot be waived.
d. Remedies of breach
i.
Beneficiary is entitled to compensatory damages to restore the trust
and distributions that they would have gotten prior to breach.
ii.
Trustee is too disgorge any profit from breach
iii.
Trustee who profits from breach is then considered unjustly
enriched.
iv.
Remedies under UPC
1. Removal or suspension of trustee
2. Injunctive relief to compel performance
3. Denial of trustee compensation.
4. May be able to enforce constructive trust or equitable lien
against third party who acquires trust property in
consequence of the trustees breach of trust unless the third
party is a good faith purchaser for value with no notice of
breach.
v.
In re Rothko 1997
1. If a will’s executor sells estate property for inadequate value
due to a conflict of interest, the sale is void, and the executor
is liable for the property’s appreciated value at the time of
trial.
2. Under the no-further-inquiry rule, a court may order
rescission of a self-dealing transaction without considering
the transaction’s fairness.
3. With respect to damages, if a trustee is authorized to sell
property, and the trustee's only breach of trust is selling the
property for too little, the trustee is liable for the property's
value at the time of the sale less the value the trustee
received for underselling it.
4. Date-of-sale damages are appropriate if trustees have an
authorization to sell property, rather than a duty to retain it.
Otherwise, trustees would be reluctant to sell.
5.
C. Duty of Prudence
- Objective standard of care UTC 804
- Reasonable care, skill, and caution.
1. The Distribution Function
- Dispusements from the principal to beneficiaries in accordance with
terms of trust. May be mandatory or discretionary.
- Mandatory trust = must make specified distributions. Breach to not.
- Discretionary trust = trustee has no discretion over when or who the
amounts get distributed.
- Spray trust = must distribute all income but has some discretion on
how to do so
- Sprinkle trust = trustee can accumulate income and add to principle
- Support trust = Standard of support in many trusts is to provide for
the beneficiaries health, education, maintenance and support.
- Discretionary trusts = allow flexibility on distribution across time.
a. Discretionary Distributions
i.
Marsman v Nasca 1991
1. A trustee directed by the trust to use his discretion in
determining the amount of trust principle to distribute
for the support of the beneficiary must inquire into the
needs of the beneficiary in order to exercise his
discretion with the sound judgment required of a
fiduciary.
2. trustee is required to make appropriate inquiries into
the financial position of the beneficiary to determine
whether distributions are adequate for the
beneficiary’s “comfortable support and maintenance
b. Comfortable support and maintenance
i.
If these are the terms of the trust the trustee has an active
duty to inquire upon teh need for money. As in case above
the trustee requested the beneficiary to send more
information of his request for funds, when he did NOT do
that. He did not send him funds. Then beneficiary went and
sold off property that he shouldn’t have. Thus they found that
trustee breached this duty because it wasn't the job of the
beneficiary to determine his own support and maintenance it
is the job that of the trustee.
c. Limits on trustee sole/absolute discretion
i.
Good faith = not acting arbitrarily or capriciously/impulsively
(usually under reasonableness).
ii.
Honest acting in the state of mine contemplated by the
settlor
d. Exculpation clause
i.
Protects trustee from liability from out of pocket damages,
but not against other injunctive relief_ for breach of trust
unless teh higher threshold of fiduciary misconduct
prescribed by the clause is met.
ii.
This may deter litigation and give trustees freer hand in
administrative acts.
iii.
Presumptively unenforceable with a rebuttable presumption
iv.
Cannot exculpate bad faith, recklessness, intentional or
willful neglect.
Q. Class: Notes:
21. Class of semester April 6, 2022
R. Class Readings: 635-664
1. The Investment Function
-
Reviewing trust assets and implementing an investment program that fits
the purpose of the trust and circumstances of beneficiaries.
- Prudent investor rule.
a. From legal lists to the prudent investor rule
i.
Limited powers to fiduciary governance is a big shift we’ve made.
ii.
Prudent investor rule (PIR) applies to common law trusts, pension
funds, and endowments.
iii.
Case by case circumstances
iv.
Avoiding: default risk via encouraging in government bonds.
v.
Even if a risky investment paid off, the trustee still can face liability
for risking the trust.
b. Prudent Investor Rule
- Bonds are low risk buy expose trust to inflation risk
- Stocks have less inflation risk
(1) Codifying portfolio theory
(a) Differentiation between marker risk and idiosyncratic risk.
(b) Greater risk = greater return.
(c) Mark risk is compensated more because more risk
(d) Idiosyncratic risk is general yuncompensated and risk can be
reduced or eliminated by diversifying.
(e) Reforms
(i)
Trustee’s investment and management to individual
assets must be evaluated in the context of portfolio as
a whole by having strategy with risk and return
objectives reasonably suited for the trust. NOT
looking at individual investments and divisions.
- Not avoid risk all together, but evaluate the
purpose and circumstances of trust. Avoiding
wasteful risk.
(ii)
Ongoing duty to monitor investments and make
portfolio adjustments as appropriate.
- Rebalancing in change of circumstances.
(2) Matching market risk with trust risk tolerance
(a) Facts and circumstances standard of practice for
investor/trustee.
(b) Reasonable risk and return objectives.
(c) Subjective judgements in determination of risks and
circumstances relevant to beneficiaries risk tolerance.
(d) Compensated risk isnt bad, but if the risk tolerance of
beneficiaries is low then so is the tolerance.
(3) The effect of the Rule in practice
(a) Safe bonds and stocks for investments are common for
personal trust assets.
c. Applying the PrudentInvestor Rule
i.
The duty to diversify and inception assets
1. In re estate of Janes 1997
a. Failure to diversify an investment is a breach of trust if
in light of all the circumstances a prudent person
would have diversified.
b. Need to act in the interest of the whole trust and the
beneficiaries. If preservation of the trust is important
then you gotta do it.
2. Small diversification goes a long way.
3. Power and duty to retain assets and be prudent in needs of
beneficiaries.
2. Custodial and administrative function
a. Custodial and administrative function
i.
Custodial function
1. Taking title and custody of trust property and safeguarding it
ii.
Administrative function
1. Record keeping, bringing and defending claims held in trust,
accounting and giving information to beneficiaries. Making
tax and other filings.
b. Duty to collect and protect trust property
i.
Collect and protect without reasonable delay.
ii.
Appraised, secured, insured.
iii.
UTC 812.
c. Duty to Earmark Trust property
i.
Designate trust property distinct from the trustees own property
UTC 810.
ii.
Depositis of trust money in bank with separate account. Title to land
acquired by trustee should be taken and recorded.
iii.
If not earmarked for trust trustee might later claim that investments
that proved profitable were the trustee’s own and vice versa.
d. Other duties:
i.
Not to mingle trust property with ones own
ii. Adequate records of administration
iii. Bring and defend claims of trust
3.
S. Class: Notes:
22. Class of semester April 7, 2022
T. Class Readings: 673-681, 701-732
A. The duty of Impartiality
1. Due regard and the terms of the trust
a. Arises with multiple beneficiaries with conflicting interests. UTC
803
b. Trustee much act impartially in investment, managing, and
distributing trust property with due regard for respective interests.
c. Impartiality to sense of equity.
2. Principle and income problem
a. When A benefits for life, then B benefits from A’s death to receive
the principle.
b. Trustee must balance interest of A receiving income, as well as B
receiving principle.
c. Trustee has power to adjust under Uniform Fiduciary Income and
and Principle act 203.
d. In re Heller 2006
i.
A trustee who is also a remainderman may elect to have the
optional unitrust provision of the New York UPAIA applied to
the trust if a review of the process shows the election was
fair.
701-732
Chapter 10 - Trusts: Alienation and Modification
Gift in trust
- Settlor ensures that property will be managed and distributed in accordance with
wishes as expressed in terms of trust.
- Consider reach of dead hand.
- How much can a settlor impost restraint on alienation of beneficial interest.
- Beneficiary of discretional trust can NOT alienate his beneficial interest.
- A creditor of beneficiary can usually attach future distribution.
- Creditor of spendthrift trust beneficiary cannot attach any distributions to
beneficiary even if beneficiary has current right to mandatory distribution.
- Should we allow creditors of settlor recourse against self-settled asset protection
trust in which the settlor retains beneficial interest?
Modification of trust without settlors consent
Generally accepted:
1. By consent of all beneficiarties if modification or termination is not contrary to a
material purpose of settlor
2. Changed circumstances not anticipated by the settlor that would defeat or
substantialy impair the accomplishment of the purposes of the trust (equitable
deviation doctrine).
Recent reform:
3. Trust Decanting: trustee who has a discretionary power to distribute trust
property exercises that power to distribute the property to a new trust with
revised terms. Protection for settlors intent in a decanting arises from the
trustee’s fiduciary duties applicable to act of decanting.
4. Trustee Removal: court can remove trustee through consent of all beneficiaries if
removal would be in best interest of beneficiaries and not contrary to a material
purpose of the settlor.
A. Alienation of the Beneficial Interest
1. Discretionary Trusts
- Provides flexibility in distributions over time.
- Trustee may be given discretion over when and who gets
distribution.
- Asset protection - creditor of discretionary trust beneficiary has little
recourse against their interest in teh trust. And beneficiary cannot
voluntarily alienate interest.
- Types
1. Pure discretionary trust
2. Support trust
3. Discretionary support trust
Types:
a. Pure discretionary trust
i.
Trustee has absolute discretion over distributions to beneficiary
ii.
No recourse against beneficiaries interest in the trust
iii.
Beneficiary can NOT voluntarily alienate her beneficial interest.
iv.
Creditor, transferee, or court cannot compel trustee to pay him.
v.
Beneficiary does not have ‘property interest’ to be taken
vi.
Hamilton order:
1. Once the sum of the trust is to be paid out to Beneficiary it should
first be paid to the creditors, then to Beneficiary. So they still get
their money.
b. Support trust
i.
Trustee is required to make distributions as necessary for beneficiaries
education or support
ii.
Beneficiary of support trust cannot alienate their interest in trust. Nor can a
ordinary creditor of Beneficiary compel distribution.
iii.
Trustee can determine what is necessary for health, support, maintence,
and education can can refuse such payments in discretion if determines
they dont need them. (eg. if needs being met by the state jail
c. Discretionary support trust
i.
Not really a thing, but a combo of absolute discretion and distribution
standard
ii.
To provide comfort and support of my daughter in the trustee’s sole and
absolute discretion
iii.
They treat these trusts as pure discretionary trusts foreclosing claims by
all of beneficiaries creditors.
iv.
Essentially, if creditors come after it they will not disperse funds and
cannot be sued for withholding.
d. Collapsing the categories
i.
Difference between discretionary and support trusts have been killed.
Uniting rules over alienation and rights of creditors for all trusts in which
trustee has any discretion over.
ii.
Requires there to be a payout of the trust
e. Protective Trusts
i.
Settlor wants the beneficiary to have mandatory right to regular
distributions, but also wants asset protection of discretionary trust. (Esp in
jurisdiction that doesn't do spendthrift trust).
ii.
Trustee pays income to beneficiary, but if creditors attach to interest, it is
automatically changed to discretionary interest. Once the interest is
discretionary, creditors cannot demand any part of it.
2. Spendthrift Trust
a. Beneficiary cannot voluntarily alienate her interest in the trust. NOR
can creditors attach to her interest.
b. Still true even if beneficiary is entitled to mandatory distributions
from the trust
c. A creditor of the beneficiary is prohibited from attaching a protected
interest and may on;y attempt to collect directly from beneficiary
AFTER payment is made.
d. Created by imposign restraint on beneficiary’s ability to transfer or
otherwise alienate the beneficial interest.
e. O entrusts X to pay benefit to A for life and upon death distribute to
descendants per stirpes
i.
A cannot alienate and her creditors cannot attach her
interest in the trust, no creditor of A can attach to distribution
by X to or for the benefit of A.
Scheffel v Kruger 2001
- Under New Hampshire law, a spendthrift provision in a trust will is applicable to
claims by tort creditors unless the beneficiary is also the settlor or the assets
were fraudulently transferred to the trust.
- May a tort creditor satisfy her claim from a spendthrift trust of which the tortfeasor
is a beneficiary, if the beneficiary is not the settlor and the assets of the trust
were not fraudulently transferred? NO
- Unless the beneficiary of a trust containing a spendthrift provision is also the
settlor or the assets were fraudulently transferred to the trust, creditors may not
reach the beneficiary’s interest in the trust.
- Under RSA 564:23, where a trust prevents the beneficiary from transferring his
future interest in income and principal, “a creditor of a beneficiary shall not be
able to subject the beneficiary’s interest to the payment of the claim.”
- RSA 564:23 provides only two exceptions to application of this rule:
1. if the beneficiary is also the settlor and
2. if the assets were fraudulently transferred to the trust
ii.
Most states reject recovery for Torts. Georgia is an
exception.
iii. Impoundment - Breach of Trust by a Trustee-Beneficiary
iv.
Children and Spouses
1. Judgements can be enforced against debtors interest
in most states because of public policy prefrence for
making good on support orders for child or spouse
against beneficiary.
v.
Bankruptcy - protection of any beneficial interest in trust
that is not alienable.
vi.
Pension Trusts- benefits under plan may not be assigned
or alienated. EXCEPT for child support, alimony, or marital
property rights. Protected from non-family creditors.
3. Self-settled asset protection trust
a. UTC 505 person cannot shield assets from creditors in a trust for
their own benefit. Even if it is discretionary, spendthrift, or both
creditors can reach the maximum amount for settlors benefit.
b. Ex. O entrusts to X to pay income to O as X determines. O harms
A, A seeks recovery from trust. Entire body of trust is reachable
because X could, in own discretion, pay the entire trust to O.
c. When donor and donee are the same, they shouldn’t really be
protected as separate entities.
d. Some states recognize APT’s - but not always protected it can be
seen as a work around for protection of assets in fields like medical
and legal to protect assets from liability.
e. Humber v Huber 2013
i.
Federal law = inter vivos trust of interest shall fall under local
law of state designated by the settlor to govern validity of
trust provided that this state has substantial relation to the
trust and that application of its law does not violate a strong
public policy.
ii.
What does the state say for or against self-settled asset
protection trust? If against it = void against existing or future
creditors.
iii.
State has substantial relation to the trust, if:
1. The trustee or settlor is domiciled in the state
2. The assets are located in the state and
3. The beneficiaries are domiciled in the state
iv.
These contacts are not exclusive.
v.
Consideration of intent of the creator
f. Fraudulent Transfers
i.
Should there be a distinction between APT established
1. Before a claim against the settlor is pending,
threatened, or expected, and that leaves the settlor
with enough funds to pay anticipated debts, versus
2. One established after a claim is pending, threatened,
or expected, and that is funded with virtually all of the
settlors assets.
ii.
It is actual fraudI to make a transfer with intent to hinder,
delay, or defraud.
iii.
Constructive fraud to make transfer without receiving
equivalent value if the transfer leaves teh debtor with
insufficient assets to pay anticipated debts.
g. From Fraudulent to Voidable Transactions
i.
Voidable transfer = without regard to whether the transaction
is directed at an existing or identified creditor.
4. Trusts for the state supported
- State resource qualification based on financial need.
- Self settled trusts and trusts created by third parties
a. Self-Settled Trusts
i.
If assets of individual were used to form all or part of body of
trust. And trust was established by teh individua; or spouse,
or guardian. Or upon their request.
ii.
If trust is revocable by individual and teh principal and all
incomes are considered available resources.
iii.
If irrevocable any income or principal that under the
circumstances could be paid to or applied for teh benefit of
teh individua are considered resources of the individual.
iv.
Exceptions
1. Discretionary trusted created by will of ones spouse
for benefit of another is not deemed a resource
available to other spouse
2. Not considered available if medicaid applicant is for
disabled individual and property by a parent/guardian
of person, and states that upon death of person the
remaining goes to the state.
b. Trusts created by third parties
i.
Trust income or principle is considered available both when
actually available and when applicant has lega interest in
liquidated sum or legal ability to make sum available for
support or maintenance.
ii.
If discretionary trust is created the trust is not considered a
resource available to beneficiary unless intended to be used
for applicants support.
23. Class of semester April 13, 2022
U. Class Readings: 732-765
A. Alienation of the Beneficial Interest (above)
B. Modification and Termination
- Consent (claflin)
- Changed circumstances
1. Consent of Beneficiaries
- If settlor and all beneficiaries consent, and irrevocable trust may be
modified or terminated. EVEN IF contains and spindrift clause.
-
If trustee disagrees or is dead there is question however. (english
vs american law)
a. English Law
i.
Once agreed upon by individuals and court it is then revoked
and belongs to beneficiaries and the dead hand continues to
rule only by beneficiaries
ii.
Beneficiaries rights is alienable regardless of contrary intent
of settlor
b. The Claflin Doctrine
i.
Trust cannot be terminated or modified on petition of all
beneficiaries if doing so would be contrary to material
purpose of the settlor.
ii.
If the intent requires no changes should be made, then no
changes should be made.
iii.
Trusts cannot be terminated in:
1. Spendthrift
2. The beneficiaries is not to receive the principal until
attaining specified age/enjoyment postponed
3. Discretionary trust or
4. Trust is for support of beneficiary
iv.
Petitions for termination that provide for successive interest
have proved more vexing.
1.
c. In Re Estate of Brown 1987
i.
An active trust may not be terminated by agreement of the
beneficiaries if any material purpose of the trust remains to
be accomplished.
ii.
An active trust may not be terminated by agreement of the
beneficiaries if any material purpose of the trust remains to
be accomplished. The trust at issue is neither a support trust
nor a spendthrift trust, neither of which may be terminated by
agreement of the beneficiaries.
2. Deviation and Changed Circumstances
a. Traditional Law
i.
Equitable deviation doctrine = trustee can deviate from
administrative terms of trust if compliance would defeat or
impair accomplishment of purpose of trust with changed
circumstances not anticipated by settlor.
ii.
Proposed deviation must be necessary to accomplish the
purpose of the trust.
iii.
If it doesnt change the fundamental stage and purpose of the
trust the courts usually are okay with it (save on taxes so
they restructure, all good usually)
b. In re Riddell 2007
i.
Under the Restatement Third, a trust may be modified to
create a special needs trust if the settlors were unaware of
the special needs of the beneficiary when creating the trust
and the modification will further the purpose of the trust.
ii.
two-prong test that permits equitable deviation from the
terms of the trust when
1. (1) there are circumstances not anticipated by the
settlor, and
2. (2) the proposed modification furthers the purpose of
the trust.
iii.
Probable intent by the settlor/s
c. Trust Decanting
i.
Must have proper power to do so
ii.
Hodges v Johnson
1. In general, trustees may not decant trusts without
considering and treating all beneficiaries’ interests
equitably given the trust’s purposes and terms.
2. imposes a duty of impartiality requiring trustees to
treat beneficiaries equitably, considering the trust’s
purpose and terms. The Code allows decanting from
one irrevocable trust into another with only some of
the same beneficiaries, unless the decanting reduces
the first trust’s beneficiaries’ vested interests.
3. he code comments clarify that decantings eliminating
nonvested interests also violate the duty of impartiality
unless the trustee treats them fairly. Therefore, the
impartiality duty applies to all beneficiaries, regardless
of whether their interests are present, future, vested,
or contingent. The code also allows trustee removal to
remedy serious breaches of trust, including breaching
the duty of impartiality, or if removal best serves the
beneficiaries’ interests.
iii.
Must not exceed powers of trust, cannot add new beneficiary
or add on a remainder interest
iv.
No reduction of beneficiary in first trust. As well as same
payment terms.
d. Trust Removal UTC 706
i.
Remedy for breach of trust
ii.
Used when tension between intent of the trust and actions of
the trustee
iii.
Davis v. US Bank national assoc 2007
1. A trustee may be removed without showing
wrongdoing if all qualified beneficiaries request
removal and show that a suitable successor trustee is
available and willing to serve and removal is not
inconsistent with a material trust purpose and serves
the best interests of the beneficiaries.
2. meet three additional requirements:
a. (1) a suitable successor trustee is available
and willing to serve,
b. (2) removal is not inconsistent with a material
trust purpose, and
c. (3) removal serves the best interests of the
beneficiaries.
3. If removed it needs to serve the best interest of the
beneficiaries.
V. Class: Notes:
Discretionary trusts - traditional law
Pure discretionary trust
- Trustee has absolute discretion over distributions to beneficiary
- Creditor of a beneficary has no recourse against beneficiary’s interest in trust.
Hamilton order - judicial remedy
Support trust
- Trustee required to make distributions as necessary for beneficiary’s needs
- Insulates the trust property from some but not all of the beneficiary's creditors
(Child, spouses, and suppliers of necessities).
- Suppliers of necessities (food, medical, housing) when beneficiary owes money
for these necessities then the creditors can go after them (ie. can go after
grocery store
Discretionary support trust
- Common for a trust to combine absolute discretion with a distribution standard
-
As to creditors, usually treated as pure discretionary trust
Creditors rights
- Under UTC not restatement for exam
Spendthrift trust
- If discretionary giving of trust
- Creditors dont have rights to access the trust because they had knowledge to go
into the deal withe the trust beneficiary
- But tort creditor didnt choose to become a creditor.
Creditor rights
- Revocable trust - its available to creditors to extent i have power to revoke. They
can get anything inthere
- Most trusts- even irrevocable trust of which i am also a beneficiary then my
creditors can get at whatever rights i have to distributions for that trust. As long
as im alive the trustee shall pay me all of the trust and all i request, then you just
gave you gave yourself ability to take it all back out in distribution. Because youre
entitled to the income and can drain the trust. Your money, your creditors can get
it because you have the power to get at the money at any time.
- Spinthrift trust insulated by creditors
Assignment:
1. Distribution of income under what circumstances can this creditor get reach to
attachment. Section 503(c) says ST provision IS enforceable. 506 says whether
or not a trust has ST provision, we dont care, creditor of bene can reach it if there
if the trustee hasnt given it. Before jan 1 no ability to reach anticipated
distribution. But if it hasnt been given then yes this creditor can reach it. Because
trustee is just avoiding creditor and trustee is violating trust instrument they are
just hoarding the money and creditor can come get it.
2. Under no circumstances can creditor do it to principle. 506(b) is up to trustees
discretion its not under 506a so its not mandatory distribution and subject to ST
provision and they cannot distribute. 506 does NOT apply. 502 ‘subject to ST
trust is sufficient’ c is not within any exceptions, no hamilton order available. If
trustee abused discretion or failed to comply, creditor isnt in scopre of 504c with
powers to compel discretionary.
3. 503(b)(1) ST provision is unenforceable for CS order. And therefore 503(c)
expressly authorizes S to reach provision.
4. To extent trustee has abused discretion © or breach standard distribution then it
is accessible. If court determines either that bene abused discretion in not
distributing or that they didnt comply with standard bene support. Then to that
extent the spouse having ordering hand coems within set of claimants can get
order compelling T to distribute to S. only to whatever amount B would have
distributed to S. if court thinnks B would only have send 2 of 5,000$ then the
court will five 2,000 not 5. They can compel and hamilton order. Weather or not
tehre is ST provision. Spouse can compel distribution what court thinks they
would have distributed if trustee has been authorizing discretion properly.
24. Class of semester April 14, 2022
W. Class Readings: 529-555
Chapter 8 Limits on Freedom of Disposition: Protection of the Spouse and Children
- Majority of states surviving spouse is entitled to elective or forced share, usually
⅓, of decedents spouses estate.
- Community property states = each spouse earnings split equally in undivided
shares.
- Surviving spouse is protected against any prior will that may result in accidental
disinheritance by way of neglect of updating will
A. Protection of the surviving spouse
1. The elective share of a Separate property surviving spouse
a. Separate property or community property
i.
Separate property
1. Whatever a spouse earns or acquires from earning
belongs to that spouse
2. 40/41 separate property states gives surviving spouse
an elective share of property (aka forced or statory
share).
3. No Elective share in this type because each spouse
owns ½ of everything of earnings of other spouse
during the marriage.
4. Elective share is = ⅓ of decedents probate property
plus nonprobate transfers.
5. Ex. H earns $50k/year, W =SAHM, if H dies W gets
50%. But if W died before H, there are no shares to
split.
ii.
Community property
b. Economic Partnership or support obligation
i.
Partnership Thoery
1. Surviving spouse contributed to wealth overall. =
partnership theory
2. theory gives points to ½ going to surviving spouse
(SS)
3. If a life estate is accepted by the partner this is NOT
considered partial satisfaction of the elective share.
Because SS should have complete dominion over SS
share pf the partnership in property. (most states)
4. If H dies and then W dies before exercising right of
election, W’s personal representative can renounce
H’s will and pass to W’s heirs and devisees. Because
W is entitled to direct the disposition of her share of
property accumulated by marital partnership/
a. Most states only allow this is W is still alive.
ii.
Support obligation/theory
1. after death is the justification for elective shares less
than ½, usually ⅓
2. But it also may lead to 100% to SS.
3. If a life estate is accepted by the partner this is
considered partial satisfaction of the elective share
4. If H dies and then W dies before exercising right of
election, H’s will stands because W has no need for
support.
iii.
Elective shares
1. Usually ⅓
2. Doesn't matter if you are married for one hour or 10
years.
3. If a life estate is accepted by the partner this is
considered partial satisfaction of the elective share
4. Unmarried party is not left any elective share upon
death
iv.
c. Non probate property
i.
Elective share
1. Gives SS a fractional share (⅓ usually) of estate
which is called probate estate.
ii.
iii.
iv.
v.
2. If you put everything in trust for a kid you can
effectively disinherit your spouse.
Sullivan v Burkin 1984
1. For purposes of determining an omitted spouse’s
share under G.L. c. 191, §15 where the decedent
spouse created an inter vivos trust during the
marriage and only the decedent spouse had the
general power of appointment under the trust, the
trust assets shall be treated as part of the probate
estate.
2. rnest was the sole trustee, and had the right to revoke
the trust as well as receive the net income and invade
the principal during his lifetime.
3. So if it is just created as clearly a ploy to disinherit
then you cannot do it and it will be considered subject
to equitable transfer
Revocable trust
1. SS elective share does not apply to property here.
2. Illusory revocable trust is valid but counts towards
assets subject to teh elective share. So the trustee
may have to contribute some of trust property to make
up the elective share.
Elective share
1. Non probate assets be added nack to probate estate
for purposes of elective share
In re estate of Myers 2012
1. Pay at death assets are not part of elective share
2. spouse’s elective share included revocable trusts,
notwithstanding the fact that section 633.238 did
not specifically list revocable trusts, because the
decedent had complete control over the trust
assets before his death.
3. only assets specifically named in the statute are
to be included. POD assets are not among these
four categories.
d. Uniform Probate code
i.
1989 Augmented estate
1. includes the probate estate plus the following non
probate and inter vivos transfers made without
consideration at any time during marriage UPC 2-202
ii.
2. Limitation of transfers including revocable trust
created before marriage is NOT included in teh
augmented estate
1990 UPC and 2008 amendments
1. Augmented estate transfers made before marriage
and during if decedent retained substantial control
over the property. Includes power and property
received from others.
2. Partnership interest owned by a decedent spouse
would be included in augmented estate even though
the agreement provided an option for purchase by the
surviving partner.
iii.
e.
2.
B.
X. Class: Notes:
Modification and Termination
Irrevocable trust
- Once settlor dies any revocable trusts becomes irrevocable
Settlor consents
- Settlor plus all beneficiaries may modify or terminate
Settlor does not consent
- Claflin doctrine:
- consent of all the beneficiaries and
- Not contrary to a material purpose of the settlor
- Equitable deviation doctrine
- Petitioner must show unanticipated change in circumstances such that:
- Not deviating will defeat or substantially impair accomplishment of
trust purposes (traditional law) or
- Deviating will further the purposes of the trust (UTC/3rd
restatement).
- ‘
Protections for surviving spouses
25. Class of semester April 20, 2022
A. Class Readings: 555-564, 572-597
Waiver by Premarital or Postnuptial Agreement
1. Right of election
a. Allows SS (surviving spouse) to take statutory share in spite of will of
decedent spouse.
b. Policy based substantive limit on freedom of disposition
c. But spouses can waive their respective elective share rights in advance
ー Waiver of right of election
d. Occurs in premarital agreement, or antenuptial agreement.
2. Separate property states
a. Enforce a waiver of right of election by premarital agreement and may
enforce waiver agreed to during marriage
3. Enforcement of waiver must conform with UPAA, parties must agree to pre/postnuptial agreements in this way. (UPC 2-213)
1. Must be voluntary, or
2. Conscionable when executed and parties had fair and reasonable
disclosure of other parties property and finances.
4. Reece v Elliott 2006
a. Disclosure of fair but not exhaustive assets disclosure of assets can
support enforcement of a prenuptial agreement if the other spouse chose
not to seek additional information and had adequate time to seek counsel
and/or additional information.
b. Enforceable if they enter into agreement both:
i.
knowledgeably and
1. Party receives full and fair disclosure of assets before
execution
a. Nature, extent, and value of property interest
b. General knowledge of overall net worth
ii.
Fairly
1. Balancing factors
a. Fairness of terms
b. Sophistication of pirates (proficiency in language)
c. Representation by counsel
d. Other circumstances
c. Key factors:
i.
Access to attorney
ii. If they had an opportunity to get more info and didn't, it is
okay.
d. Prenup can validly waive statutory property rights
5. Community Property (aka marital property)
a. Spread of community property
i.
Assumption in most states that property is community in marriage
unless both spouses agree to separate ownership.
ii.
Each spouse is owner of an undivided one half interest in the
community property
iii.
Death of one spouse dissolves the community
iv.
Deceased spouses owens and has testamentary power over their
half of community property, and SS already owns their half.
v.
If insufficient evidence to determine source of funds for property,
the presumption is that it falls into community property
b. Community property with right of survivorship
i.
Similar to joint tenancy, avoids probate costs and goes directly to
SS.
ii.
Because community property cannot be held in common law Joint
tenancy spouses in community property states previously had
toconvert community property to separate before they could create
survivorship.
iii.
No longer needed
c. Multi state property holdings
i.
The law of the land controls problems of the land
ii.
Law of marital domicile at time of personal property is acquired
controls the characterization of the property as separate or
community.
iii.
Law of marital domicile at death of one spouse controls the
survivors rights.
d. Moving from separate property to community property state
i.
Gets property in separate property state then moves to community
property state issue of fairness for SS may arise.
ii.
Traditional law = law of state where couple is domiciled when
movable property is acquired determines ownership of that
property.
e. Moving CP to SP
i.
Generally doesnt change the preexisting property right of spouses.
ii.
CP continues to be characterized as if couple and property move to
separate property state.
6. Miscellaneous Additional Rights
a. Social security
i.
Cannot get rid of current spouse on SS and give it to someone else
ii.
If prior marriage lasted more than ten years they may have a lasting
interest after divorce.
b. Pension and retirement
i.
ERISA requires that spouse of employee have survivorship rights if
employee predeceases spouse
ii.
Usually benefits are paid as joint and survivor annuity to employee
and spouse
iii.
If employee dies before retirement the SS may be entitled to
preretirement survivor annuity.
iv.
If employee retires and dies and gave interest under community
property law to husband for life, and then sons. Upon husbands
death the benefits go to benefit current life rather than be paid to
the sons who were named beneficiaries to carry out ERISA’s SS
protections.
v.
A spouse can waive the right to benefit under a pension plan but
ERISA complicates the waivers for strict validity rules. Written
consent and notarized/witnessed by a representative. A prenup
can NOT waiver ERISA covered pension rights because one
who is not yet a spouse cannot waive spousal rights.
c. Homestead
i.
Aka probate homestead
ii.
SS usually gets right of occupation of land within lifetime.
iii.
Usually needs to be established by decedent during life via
declaration of homestead in public office.
A. Intentional Omission of a child
1. American Law
a. No child has protection against intentional disinheritance by parent.
Unlike that of a spouse.
b. Risky to do because of will contesting that’ll likely happen.
2. The family maintenance system of commonwealth
a. Lambeff v. Farmers Co-operative executors and trustees 1991
i.
Under Australian law, where a parent’s will leaves his child
without adequate provision for proper advancement in life,
the court may award the child a part of the decedent parent’s
estate that the court determines to be appropriate.
ii.
Basis that a parent is responsible to helping child succeed in
life.
B. Protection against unintentional omission
- For cases when intent is unclear
1. Spouse omitted from premarital will
a. SS who is omitted from premarital will usually will get an intestate
share otherwise leaving the premarital will intact.
b. They correct the presumed mistake neglecting to update a
premarital will by look to intestacy for what a typical married person
would want to pass to SS
c. In re Estate of Prestie 2006
i.
Revocation of will by marriage
ii.
Where will does not provide for SS who married testator
after will executed the presumption of revocation may only
be rebutted by evidence of marriage or provision of will that
provides for SS or indicates intention NOT to provide for SS.
iii.
They married, divorced, she took care of him, he added her
into life estate, and wrote a new will which did not include
her, then they remarried.
iv.
The issue is if the will applies because it was made before
they married. Is it sufficient that he provided for her in the life
estate?
v.
A will is revoked as to the testator’s spouse if the testator
marries after the will.
1. The couple had a valid marriage contract
2. If spouse was provided for in will
3. If will stated clear intent to not provide for spouse
vi.
No other evidence allowed besides those three.
vii.
He updated trust which does not preclude her receiving from
will
viii.
He failed to provide for her from the will and so it revoked the
will because it did not provide for wife.
2. Child disinheritance
a. Gray v Gray 2006
i.
an omitted child born after execution of the decedent’s will is
not entitled to an intestate share under the omitted child
statute if the decedent parent omitted all of his children from
the will and left the entire estate to the omitted child’s other
parent.
ii.
Left all kids out of the will so it doesn't matter that he wasn't
born before the will was made
b. If you name the children and dont give them anything it is more
likely to be upheld, if you avoiding naming them it wont end well.
c. Every child born after death of testator not named in will shall be
entitled to the same portion of estate as he would be if deceased
were intestate
d. In re estate of jackson 2008
i.
Are assets of a revocable inter vivos trust subject to
provisions predetermined heir statute? No.
ii.
Predetermined heir statute does not extend to a revocable
inter vivos trust
iii.
The son had no claim to the trust assets, affirming of the TC
judgment.
iv.
It is assumed that if testator omits to provide for child it was
intentional omission.
B. Class: Notes:
26. Class of semester April 21, 2022
A. Class Readings: 817-822, 939-948
Chapter 12 - Trusts: Powers of Appointment (POA)
- Settlor preserves flexibility by giving trustee fiduciary discretion over distributions
of trust property
- Settlor can also provide for non fiduciary power, typically someone other than
trustee to distribute, called Power of Appointment.
- Holder of POA known as donee, can appoint property to people know as objects
of the power, according to terms of document.
1. H gives to X in trust to give to W for life, upon death of W, to distribute the
principal to H’s descendants as W shall appoint in her will
a. W holds a nonfiduciary capacity
b. W is donee
c. H’s descendants are objects
d. H is donor of a POA
- POA’s are good for planning:
a. for flexibility and change beyond the years of those who died,
b. Tax planning,
c. Asset protection
d. No creditor has access to donee (W above)
A. Purposes, Terminology, and types of power
- Estate planning
-
Tax planning - no income, estate, or gift tax will be levied on donee or her
estate, and no creditor of donee can reach estate.
- Asset protection
1. Terminology and Relationships
a. The parties
i.
Person who creates the power of appointment is donor of
power
ii.
Person with the power is the donee or power holder
iii.
Persons in whose favor the power can be exercised are
objects of teh power or permissible appointees
iv.
When power is exercised in favor of object that person
becomes appointee
v.
Person who will receive property if donee fails to exercise a
power of appointment are takers in default of appointment
or takers in default.
vi.
The property subject to power of appointment is appointive
property.
vii.
Example: T devises property in trust to X, to pay to A for life,
or until A appoints, then distribute principal to persons A
appoints by deed or will. If A doesnt appoint, then when A
dies, X is to distribute principle to B,
1. T is the donor.
2. A is donee
3. B is taker in default of appointment
b. Creation
i.
To create POA donor must manifest intent to do so
expressly or by implication.
ii.
Don't need to say exactly want to make a POA.
iii.
You need to
1. Terms of instrument creating the power maifest the
donors intent to create in a powerholder a power of
appointment over the appointive property exercisable
in favor of a permissible appointee
iv.
DON'T USE words like: wish, desire.
c. General and non general powers
i.
All POA can be divided into general powers and non general
powers
ii.
General Powers
1. Power which is exercisable in favor of donee, his
estate, and his creditors or creditors to the estate.
iii.
NonGeneral Powers
1. Power not exercisable in favor of the donee, his
estate or creditors
2. Commonly called a special power or limited power
iv.
d. Time and manner of exercise
i.
POA may be exercisable by deed during life,
ii.
By will at death
iii.
Or by deed or will
iv.
Power that can be exercised by only deed is a inter vivos
lifetime power
v.
Power that is presently exercisable if can be used now
vi.
Postponed power if in the future once events occur
e. Ownership equivalence
i.
Donee of general POA with presently exercisable general
power can do almost anything with appointive property that
an owner of the fee simple can do.
ii.
Also called ownership equivalent power
iii.
As long as duties of trust are met doesn't matter how.
iv.
Non general power presently exercisable is more limited,
does not have equivalent power as owner.
f. A Fiduciary POA
i.
No fiduciary duty, just fiduciary discretion.
ii.
But there are fiduciary POA’s we just aren’t doing that here.
2. Tax considerations
a. General and non-general powers
i.
Donee of general POA has power that is equal to ownership
(tax purposes they are owner).
ii.
If donee releases power during life the transfer of appointitve
property is subject to gift taxation as if donee personally
made gift.
iii.
If donee dies without exercising power while alive appointive
property is subject to estate taxation weather or not the
donee exercises power by will.
iv.
Two exceptions to this taxation scheme:
1. Ascertainable standard
a. If donee is gover POA which is limited by
ascertainable standard relating to health,
education, support, or maintenance of donee, it
v.
shall not be deemed a general POA. HEMS
standard.
b. This exception power in A beneficiary ro
consume trust as needed to maintain standard
of living to which A is accustomed is treated as
non general power for tax reasons.
2. Five-or-five power of withdrawal
a. If donee has POA has power to appoint
property to himself. A lapse of power (failure to
exercise it) will not be taxed as general power .
b. So power in A beneficiary,to withdrawal each
year whether or not they need it will not be
treated for tax purposes as general power in
any prior year in which A does not exercise
power, allowing it to lapse.
Power of nongeneral POA does NOT have ownership
equivalent power. So the donee of such power is not treated
as owner of property.
1. A power in A, life tenant, tp POA during life and to
name remaindermen at does does not have adverse
tax consequences to A so long as property cannot be
appointed in favor of A, A’s creditors, A’s estate, or
creditors of A’s estate.
Reading: 939-948
Chapter 15 - Wealth Transfer Taxation
- Gift, estate, and generation skipping transfer taxes
A. The Federal Gift Tax
1. Taxable gifts
a. Inadequate consideration in money’s worth
i.
Taxes on transfer of property via gift, not exchanges usually.
ii.
gift = less than adequate full consideration
b. Completion
i.
Transfer is not subject to gift tax until it is complete
ii.
Complete = donor has relinquished all dominion and control
over property, has no more present interest over the
property.
iii.
Transfer in a trust is complete when the trust becomes
irrevocable
iv.
No tax gift due on revocable trust because it is revocable.
c. Income tax basis
i.
Capital gains income tax is levied on gain from sale of
property.
1. Difference between taxpayers basis and selling price
ii.
If property is acquired from decedent the basis for computing
both gain and loss is usually based on value of asset on the
date of the descendants death, NOT the decedents basis.
1. SO, dad buys home for $1000, its worth $mil, he dies
and gives it to me, my basis is $1mil when i decide to
sell? I dont have to pay tax on it? Just subject to
estate tax?
2. So you dont want a gift you want a inheritance?
d. Liability for gift and estate taxes
i.
Donor has primary liability for paying gift tax.
ii.
If donor doesnt pay, donee is liable for unpaid amount.
iii.
The administrator of estate has personal liability for payment
of estate tax but is entitled reimbursement out of estate.
iv.
If no administration of estate the people in possession of
property are liable for tax which is liable for Generation
Skipping Transfer.
v.
UNLESS you are super rich aka $12mil, you arent going
to have to pay the federal estate tax
2. The Annual Exclusion
a. Gifts less than $15,000/year are exempt from the gift tax. Give up
to $15,000 to each person that we want to do. Now it is $16,000 in
2022. With no gift tax liability. The person who gives the money
pays the tax on it, and the person who receives doesn’t have to pay
income tax.
b. Unlimited spending allowed for higher education tuition,
room/board/books isn’t included.
c. Medical bills are allowed unlimited spending without any gift tax,
doesn’t matter who it is (family or not).
d. There is an unlimited exclusion for medical bills and tuition
payments.
e. Only applies to present interest, the beneficiary needs to have right
to immediate possession or enjoyment of the property and that
each such beneficial interest be capable of valuation.
f. (trusts aren’t allowed usually) BUT: to qualify as a 2503(c) trust the
donor must give the trustee the power to expend all the income and
principal on the donee before the donee reaches 21. The
unexpended income and principal must pass to donee at 21, or to
donees estate if dies before.
i.
Disadvantage to this trust:
1. Distributions must be made during beneficiaries
minority and
2. distribution of remainder must be made when they
reach 21
Fiduciary duty of a sole-trustee, with remainderman interest
- Depreciation of the trust
3. The marital deduction of gift splitting
a. Unlimited marital deduction spouses can make gifts of any size to
each other without gift or estate taxation, spouses should be able to
treat their property as belonging to marial unit freely transferable
within unit.
b. From spouse to third person it is subject to gift tax. If the non-donor
spouse consents the two spouses can report the gift as made onehalf by each of them. Eg. gives kid $30,000, the split it, so it goes
until the $15,000 annual gift and they dont have to pay taxes on it.
c. If i give all money to spouse as gross estate there are NO
deductions, needs to be outright transfer. If i try to retain control
then you can mess up deduction and make it subject to property of
estate.
i.
All to spouse for life, then to. THEN it is subject to deduction,
because you are still in control. You wont qualify for marital
deduction.
ii.
If you give to spouse, but makesure some property goes to
kids. Then it will be subject to some professional shifting to
avoid deductions.
d.
B.
B. Class: Notes:
Procedural Safeguards
- Freely
- Knowledgeably
- Good faith
ERISA
- Employment retirement
- If it is in 401k and spouse is by default the beneficiary of that account. If i die, she
automatically gets that money
- If i want anyone but my spouse to get that money my spouse has to sign off on it
in front of notary or authorized rep of the pension plan
- My right to a pension and im married the default form of the plan is that i get X
per month then once i die my spouse gets a different sum, but still X amount. If i
want it to change terms the spouse has to sign off on it too. To make sure that in
the ordinary case if one spouse who participates in a plan and has plan when the
person die the SS is the beneficiary of the plan.
The predetermined spouse share is more generous than the elected share.
27. Class of semester April 27, 2022
A. Class Readings: 948-955, 968-969, 972-973
948-955
A. The federal Estate Tax
1. A Thumbnail Sketch
a. Estate tax = Decedent’s gross estate as defined in IRC 2033-2044
b. And Decedent’s probate estate
c. Gross estate includes:
i.
Lifetime gratuitous transfers which they had possessory
interest or control of beneficial enjoyment, or power to alter,
amend, terminate, revoke transfer
ii.
Any property over which they had power of appointment.
d. From the Gross estate deductions may be take (debts, claims,
claims against estate, death taxes, marital deduction, charitable
transfers). Etc…
e. To compute estate tax, adjusted taxable gifts are added to taxable
estate.
f. Estate tax + Taxable Gifts = Estate Tax Base
i.
What the tax rate is applied to produce a tentative estate
tax.
ii.
Gifts that were previously paid on are subtracted. (post
1976).
g. Calculation for estate tax.
i.
Gross Estate - Deductions
ii. = Taxable Estate + Adjusted Taxable Gifts
iii. = Estate Tax Base x Tax rate
iv.
= Tentative Estate Tax - Credits
v.
= Tax Due.
h. Unified credit applies to estate tax under 2010 or gift tax under
2505.
i. Credits
i.
Did you pay gift tax on taxable gifts? If so, then that is a
credit. You dont get taxed twice.
ii.
j. Advantage of Lifetime Gifts
i.
Taxed on date of gift with gross estate value taken at time of
decedent’s death.
ii.
Inter vivos gift, donor can remove from her gross estate and
subsequen abbreviation on property value.
2. The Gross Estate
a. The probate estate
i.
Probate estate = all value of property to extent of interest
therein at time of death
b. Joint tenancy
i.
No interest in JT at death. Not included in gross estate
ii.
UNLESS you are unmarried and the deceased contributed
the vast portion of funds and the surviving tenant cannot
furnish adequate records about source of funds used to
acquire JT. Because then it can be included in deceased
estate.
c. Retained rights and powers
i.
If A dies and had given house to child X and A retained right
of use to house. The amount of that use will be calculated
and taxed, but that retained power to use the house cannot
be given to anyone. Damn taxes…..
968-969,
Powers of Appointment
a. Settlor can give a non trustee fiduciary powers to distribute trust property AKA
POA.
b. Power is exercisable in favor of donee
c. Nongeneral appointment = This is a special or limited power granted to the POA.
cannot be exercised by the donee for own benefit, is not an ownership equivalent
power.
i.
If given POA that is limited to standards relating to health, education,
support, or maintenance of donee it is NOT deemed general power of
appointment.
d. A general appointment = donee to appoint for own benefit an ownership
equivalent value.
972-973
Deductions
1. Marital deductions
a. Donative transfers between spouses should not be subject to wealth
transfer tax because spouses are one economic unit.
b. Requirements
i.
Survive spouse
ii.
SS must be US citizen or property must pass in qualified domestic
trust.
iii.
Value of interest deducted must be invludable in decedents gross
estate
iv.
Must pass from decedent to SS
v.
Interest must not be nondeductable terminable interest within
meaning of 2056(b)
1. Interest passing to SS must be subject to taxation in SS
estate to extent not consumed or disposed of during life.
2. It will eventually be taxed.
2. Charitable deductions
B. Class: Notes:
28. Class of semester April 28, 2022
A. Class Readings: none
B. Class: Notes: