james.loebl@valpo.edu
465-7809
Office Hours: MWF 1:00 – 2:00 p.m.
TR 10:00 – 11:00 a.m.
Office 246
Trusts & Estates, Law 439, Spring 2005
CHAPTER 1: INTRODUCTION TO ESTATE PLANNING
SECTION B: TRANSFER OF THE DECEDENT’S ESTATE
1: Probate & Nonprobate Property
1.
Probate: passes under the decedent’s will or by intestacy
2.
Nonprobate: passes under an instrument other than a will which became effective before death
a. Joint Tenancy Property. Decedent’s interest vanishes upon death. To perfect title, survivor files
death certificate. E.g., Spouse’s joint residence is usually held like this.
b. Life Insurance. Company pays proceeds to beneficiary upon receipt of death certificate.
Retirement annuities also fall here. No matter what appears in Decedent’s will, this passes to the
contract beneficiary.
c. Contracts with Payable-on-Death Provisions. Contract with bank, employer, etc. to distribute
to beneficiary per contract upon filing of a death certificate with the custodian of the property.
E.g., checking or savings account with a POD beneficiary named.
d. Interest in Trust. Property distributed to beneficiaries by trustee per terms of trust instrument.
2: Administration of Probate Estates
a.
1.
2.
3.
4.
5.
6.
History & Terminology
Personal Representative: appointment of PR is first step to winding up decedent’s affairs. Principal
duties include:
a. Inventory and collect assets of decedent
b. Manage assets during administration
c. Receive and pay claims of creditors and tax collectors
d. Distribute remaining assets to those entitled.
Executor: Decedent dies testate and names PR to execute the will
a. May have to give bond unless will waives such requirement
Administrator: Decedent dies intestate, or does not name a PR in a will
a. Typically selected from statutory list of persons to be given preference: spouse, children,
parents, siblings, creditors.
b. Must give bond.
Advantages of Writing a Will
a. Testator can designate PR
b. Requirement and expense of fiduciary bond may be eliminated
Probate Courts
a. One court in each county has jurisdiction over administration of estates
b. May be called surrogate’s court, orphan’s court, probate division of district court, or chancery
court—all referred to collectively as “probate courts”
c. “To go through probate” is to have estate administered in one of the probate courts
Dual Vocabulary for real property and personal property
a. Will and Testament are not distinct; “will” may be properly used to refer to instrument disposing
of both real & personal property
b. Testate:
i. Decedent devises real property to devisees and bequests personal property to legatees.
ii. Nowadays, safer to say “I give” rather than trying to discern between “I bequeath” or “I
devise”
c. Intestate:
i. Real property descends to heirs while personal property is distributed to next-of-kin.
1
ii. Nowadays, a single statute of descent & distribution governs intestacy in almost all
states. “Heirs” and “next-of-kin” both typically refer to persons statutorily designated to
take intestate real and personal property.
b.
1.
Opening Probate.
a. Three functions of probate: (1) provides evidence of transfer of title to new owners by probated
will or decree of intestate succession, (2) protects creditors by requiring payment of debts, and (3)
distributes decedent’s property to those intended after creditors are paid.
b. Jurisdiction of Administration: Primary or domiciliary jurisdiction: where decedent was
domiciled at the time of death. Ancillary administration required when real property is located
in another jurisdiction
c. Letters: Letters testamentary or letters of administration are issued per state statute; authorize
PR to act on behalf of estate.
d. English Probate System: provides for in common form probate or in solemn form probate.
i. In Common Form: ex parte proceeding, no notice or process issued to any person.
Interested parties could file a caveat compelling probate in solemn form.
ii. In Solemn Form: Notice to interested parties given by citation; greater court
participation required.
e. Uniform Probate Code (promulgated 1969, revised 1990): provides for informal probate and
formal probate.
i. Informal probate under UPC: PR does not give notice to anyone, and petitions for
appointment. PR has duty of mailing notice to all interested parties within 30 days of
appointment.
ii. Formal probate under UPC is formal judicial determination, after formal court
proceedings, and after notice to interested parties, any of whom may demand formal
probate.
f. Time for Contest: depends upon jurisdiction’s statute.
g. Barring Creditors of Decedent: Nonclaim Statutes: every state requires creditors file claims within
specified time period; those filed outside that time are barred. Two basic nonclaim statute forms:
i. Short-Term: bar claims not filed within two to six months after probate proceedings
begin. Supreme Court held that Due Process requires that known or reasonably
ascertainable creditors be given actual notice before they are barred by short-term
statutes.
ii. Long-Term: Bar claims not filed within one to five years of decedent’s death, regardless
of when (or whether) probate procedures began
Supervising the Representative’s Actions
a. Supervised Administration: Many states require close court supervision requiring approval of
inventory, payments, sales of real estate, attorney’s fees, etc.
b. Unsupervised Administration: Some states allow PR to handle all matters informally without
court order so long as all interested parties are adults and approve fiduciary’s account and release
from liability.
c. Minors: If minors are involved, judicial supervision is required.
d. UPC: allows unsupervised and supervised administration.
Closing the Estate
a. Creditors must be paid; taxes must be paid; tax returns audited and accepted; real estate sold.
b. Judicial approval of PR’s actions required to relieve him from liability.
2.
3.
c.
1.
2.
A Summary of Probate Procedure
Is Probate Necessary?
Probate may be avoided if property owner transfer all his or her property into joint tenancy or a trust,
or executes a contract providing for distribution of K assets to named beneficiaries upon death.
Even property transferred by will or intestacy may not require probate because establishment of the
transferee’s title is not necessary for many personal property items. However, real estate and motor
vehicles (for example) require more formal transfer of title.
2
3.
Close relatives in small estates may obtain possession of personal property by presentation of an
affidavit. This does not transfer title, only possession.
Some state statutes allow filing a will solely as a title document with no formal administration to
follow.
Note that one advantage of going through probate is limiting the time in which creditors or claimants
can go after the estate for their debts owed.
4.
5.
PROBLEM, PAGES 46-47
Probably not…most of these assets are non-probate property.
The joint checking account is joint tenancy property, so Martha automatically has 100% interest in that
account. Aaron’s terminates at death.
Savings account: Usually statutes that allow small estates to just transfer title to that account to the
heir (Martha) without going through probate.
The employer’s pension plan names Martha as the beneficiary for the annuity; as a contract between
Aaron and his employer executed during his life, it cannot be changed by a will and a Court will
not be involved in administering it.
Government bonds payable to Aaron or Martha Green: this is likely a joint tenancy or a payable on
death situation. Either party can cash in the bonds. Martha doesn’t need the court to clear title for
her.
The life insurance policy names Martha as beneficiary. It’s a contractual commitment determined
during Aaron’s lifetime so it is non-probate.
Then we are left with two items subject to administration: the furniture and such, and the Ford car.
These items would be probate property and under the will they all pass to Martha.
Do we have to probate the will and go through court administration to pass the car and
personal property? If establishing title is what is necessary here, with personal
furnishings and effects, possession pretty much indicates title. No one’s going to
question it. Even if kids tried to contest the will and insist on administration, the will
says Martha gets it, so there’d be no change.
The car. Indiana, like most states, says that for small estates, upon the filing of an affidavit,
the affiant can have the title to the property transferred to them. The kids probably
wouldn’t contest it, because, like above, the will says the car goes to her.
What about creditors?
Martha’s got signatory power over the checking account, so she can deal with the creditors
informally without having to go through the court.
The only problem for Martha is that by not going through probate, if there were any
potential creditors or claimants of which Martha is unaware, those claims would not be
barred if she didn’t go through probate.
d.
Universal Succession
Heirs or residuary devisees step into shoes of decedent at his death, taking his title and assuming all his
liabilities and the obligation of paying legacies according to decedent’s will.
Rarely involves a court at all.
Present in Europe and in Louisiana.
Authorized by UPC as alternative to probate administration. Heirs must petition for it.
CHAPTER 2: INTESTACY: AN ESTATE PLAN BY DEFAULT
SECTION A: THE BASIC SCHEME
1: Introduction
Why do the large majority of people die intestate?
Cannot accept and plan for the fact of their own death
Cost involved with will creation & estate planning
Prepare alternative means of disposal of property, including joint tenancy or payable on death
3
Distribution of probate property for persons with no will or incomplete wills is governed by the statute of
descent and distribution.
Personal property: law of the state where decedent was domiciled [that is, the place of your principal
residence—where you live more than half the year, where you vote, have your license, etc.] at time of
death governs
Real property: law of the state where property situated
See the UPC sections on Intestate Estate and Distributions (pp. 72-73).
Note that under all intestate succession statutes, parents are not heirs if the decedent leaves a child.
2: Share of Surviving Spouse
The main policy of intestate succession laws is to carry out the probable intent of the average intestate decedent.
However, studies show many people want everything to go to their surviving spouse, even though the
law doesn’t necessarily provide for that (it gives portions to parents and/or children).
The most common statutory provision under current law is to give the spouse 1/2 share if only one child (or
issue of a child) survives, 1/3 share if more than one child (or one child and the issue of another)
survive.
The UPC is more generous than that. If there are surviving children of the decedent but they are also the
surviving spouse’s children, then the spouse gets it all.
PROBLEMS AND QUESTION
Refer to the Howard/Wendy estate problem from pp. 49-59.
If Howard dies before Wendy intestate, what will be Wendy’s share under UPC § 2-2102?
Wendy takes $150,000 plus 1/2 of any balance of the estate, per §2-2102(3).
Howard’s two kids with Wendy would then each receive 1/4 of the rest of the estate.
Wendy’s child gets nothing.
If Wendy dies before Howard intestate, what will be Howard’s share?
Howard gets $100,000, plus 1/2 of any balance of the estate, per §2-2102(4).
Wendy’s children (the two by Howard & her other one) each get 1/3 of the rest of the
estate.
Do the different amounts provided under §§2-102(3) and (4) have a “rational basis”?
Possibly. In (a), more money is given to Wendy under the assumption, I guess, that she’ll
give some to the child that wasn’t Howard’s. In (b), that child is provided for
individually so Howard does not need to receive extra money that can be passed on to his
kids—they already get their share.
Does this carry out Howard’s wishes? Would he want his biological children to take the balance at his
death & create a future problem for Wendy, who presumably would want all her children to inherit
equal wealth?
It may or may not carry out his wishes; depends on their family situation. Wendy may want
her kids to get equal portions, but Howard may prefer that his bloodline get the estate,
rather than giving some of it away to a stepchild. Other families may not feel like that at
all.
H and W have been married one year. H dies, survived by W and a brother, but no parent.
What is W’s share?
W gets H’s entire estate, as per §2-102(1)(i).
Why does the UPC take into account the length of the marriage in determining the spouse’s forced
share but not the spouse’s intestate share? Is this sound? Should it matter whether H and W are
age 55 or age 25 when they marry?
Possibly to incorporate notions of accumulated wealth? To allow for heirs of a decedent
who wasn’t married very long to share in an estate, so as to prevent short-term spouses
from accumulating the wealth of an estate (ahem, Anna Nicole Smith)?
Should it matter? Well, from a social protection standpoint…maybe. Arguably. From the
standpoint of “Hey, we’re all individuals here, and I can do whatever I want to,” then
no—it should be left up to the individual to protect himself against that kind of situation.
4
Simultaneous Death
A person succeeds to the property of an intestate or testate decedent only if that person survives the decedent for
an instant of time.
Per the Uniform Simultaneous Death Act (1953):
Where there is no sufficient evidence of the order of death, the beneficiary is deemed to have
predeceased the benefactor.
The USDA has been revised, requiring “clear and convincing evidence” of five days’
survival.
For 2 joint tenants (or tenants by the entirety or for community property), A & B, die simultaneously,
1/2 property is distributed as if A survived, and 1/2 as if B survived.
Janus v. Tarasewicz (1985): It is not necessary to determine the exact moment at which a wife died or the time by
how long she survived her husband; the trial court need only find that sufficient evidence supports the conclusion
that the spouse did actually survive the husband.
Basics: Stanley & Theresa Janus, recently married husband & wife. Funeral for S’s brother on 09/29/82 who died
from cyanide-laced Tylenol. S & T both consumed the bad pills that evening & later died. (S pronounced dead
shortly after he was admitted to hospital; T pronounced dead after 2 days on life support.) Insurance company
paid proceeds to Δ Jan Tarasewicz, T’s father, under the belief that T survived S. S’s mother filed suit,
claiming no sufficient evidence existed that T survived S. Trial court found sufficient evidence that T survived
S; District Court affirmed, finding proper Trial Court’s reliance on the evidence that T continued showing
positive signs of life after S stopped doing so.
“…in most instances death could be determined in accordance with the common law standard which is based upon
the irreversible cessation of circulatory and respiratory functions… If these functions are artificially maintained,
a brain death standard of death could be used if a person has sustained irreversible cessation of total brain
function.” (see p. 81)
Survivorship is a fact which must be proven by preponderance of the evidence.
3.
Shares of Descendants
A
B
C
D
E
F
The survivors are underlined; all others are dead.
After the spouse’s share is set aside, children & issue of the deceased children take the remainder.
When a child dies before the decedent and leaves descendants, that child’s descendants take by
representation.
Sons-in-law and daughters-in-law are excluded as intestate successors in almost all states.
English distribution per stirpes divides the property into as many shares as there are living children and
deceased children with living descendants. The children of each descendant “represent” their deceased
parent and are moved into his position beginning at the first generation below the decedent.
In the above diagram, A’s property is divided at the level of his children, B and C. Thus, D takes 1/2
of the estate, and E and F share C’s 1/2, each getting 1/4.
Modern (American) per stirpes (per capita with representation) divides the estate into shares at the
generational level nearest decedent where one or more descendants of the decedent are alive and
provide for representation of any deceased descendant on that level by his or her descendants.
In the above diagram, D, E, and F are the nearest generation with living descendants of A, so the estate
is divided at that level—into thirds.
1990 UPC §2-106 (per capita at each generation) gives those equally related to the decedent equal shares
(“equally near, equally dear”). Shares are divided at the level where one or more descendants are
living (as in Modern per stirpes, above). The shares of any deceased parties at that level are treated
as one pot and are dropped down and divided equally among the representatives at the next
generational level.
5
A
B
C
E
F
G
The survivors are underlined; all others are dead.
D
Thus, in the example above, D receives a 1/3 share. The remaining 2/3 that would have gone to B and
C (if they were living) is then distributed equally among their children, E, F and G, who each get 2/9.
Negative Disinheritance. To disinherit someone, you must devise your entire estate to other people; it is not
sufficient to say in your will, “I disinherit John” or “John gets none of my property.” A testator cannot
alter the intestacy statute of his jurisdiction, and therefore, if some of the estate is not devised to
anyone else, and John stands to get a portion under the intestacy statute, he will.
UPC §2-101(b) changes this, and allows a testator to bar an heir through his will. The barred heir is
then treated as though he disclaimed his intestate share, and is treated as though he predeceased
the intestate.
4.
Shares of Ancestors and Collaterals
When there is no descendant, after the spouse receives her share, the remainder of the decedent’s property is
usually distributed to his parents, as under UPC.
If there is no spouse or parent, the decedent’s heirs will be remote ancestors or collateral kindred.
Collateral Kindred: All persons who are related by blood to the decedent but are not descendants or
ancestors.
First-line collaterals: Descendants of decedent’s parents
Second-line collaterals: Descendants of decedent’s grandparents
If there are no first-line collaterals, there are two schemes used:
Parentelic System: Intestate estate passes to grandparents & their descendants, and if none, to greatgrandparents and their descendants, and so on down each line (parentela) descended from an
ancestor until an heir is found.
Degree-of-Relationship System: Intestate estate passes to closest of kin as discerned from the Table
of Consanguinity (see p. 92). Degree is calculated by counting the steps (one per generation) up
from decedent to nearest common ancestor of decedent & claimant, and then counting steps down
to claimant from that common ancestor. Total steps = Degree.
Laughing Heirs: Persons so distantly related from the decedent so as to suffer no sense of bereavement
UPC §2-103 bars inheritance by intestate succession beyond grandparents and their descendants.
Some states move opposite the UPC, and allow even stepchildren and kin of a predeceased spouse to
inherit when there are no blood relatives of the decedent.
Escheat: When decedent leaves no survivors entitled to take via intestacy, the property escheats to the state.
This is rare.
Half-Bloods.
Large majority of states (and UPC § 2-107) treat the relative of a half-blood (e.g., half-sister) the same
as relative of a whole blood.
Few states give a half-blood a half share (Virginia).
Few states give half-blood a share only if no whole-blood relatives of the same degree are alive
(Mississippi).
PROBLEMS 1-3, PAGE 96
The decedent is survived by his mother, his sister and two nephews (children of deceased brother).
How is the decedent’s estate distributed under UPC § 2-103?
Everything goes to the mother, as per UPC §2-103(2).
The decedent is survived by one first cousin on his mother’s side and two first cousins on his father’s side.
6
How is the decedent’s estate distributed under UPC § 2-103?
Per UPC §2-103(4), 1/2 of the estate passes to maternal side by representation, giving that
first cousin 1/2. The other 1/2 of the estate passes to paternal side by representation,
giving each of those cousins 1/4.
Recall that UPC §2-106’s goal is to provide equal shares to those equally related. Is the UPC
treatment of the three first cousins consistent with that goal?
It applies to decedent’s descendants and to parents of the decedent, but beyond that, the
notion of “equally near, equally dear” doesn’t apply.
Why are three grandchildren or three grandnephews treated alike but not three first cousins?
The decedent is survived by A, the first cousin of the decedent’s mother, and by B, the granddaughter of the
decedent’s first cousin.
How is the decedent’s estate distributed under UPC §2-103?
Under §2-103(4), the entire estate goes to B, the granddaughter of decedent’s first cousin,
because she is a descendant of decedent’s grandparent, whereas A is the descendant only
of the decedent’s great-grandparent.
Under Mass. Gen. Laws ch. 190, §3(6)?
The entire estate would go to A, because she is 5 degrees from decedent, whereas B is 6
degrees from decedent.
PROBLEM, P. 97
M has one child, A, by her first marriage and two children, B and C, by her second marriage. M and her second
husband die. Then C dies intestate, unmarried, and without descendants.
How is C’s property distributed under UPC?
UPC treats half-bloods the same as whole-bloods (per UPC §2-107), so per UPC §2-103(3), A and B
each receive 1/2 the estate.
Under Va. Code §64.1-2?
A, the half-blood, would be given a half-share… so I think this means A gets 1/3 and B gets 2/3.
Under Miss. Code §91-1-5?
Because B, a whole-blood relative of the same degree as A, the half-blood, is alive, A is excluded and
B takes the entire estate.
PROBLEM 1 FROM PAGE 76, ASSUMING DECEDENT’S ESTATE = $600,000
Refer to the Howard/Wendy estate problem from pp. 49-59.
If Howard dies before Wendy intestate, what will be Wendy’s share under UPC § 2-2102?
Wendy takes $150,000 plus 1/2 of any balance of the estate, per §2-2102(3).
Thus, Wendy takes 150,000 + [(1/2)(600,000-150,000)] = 150,000 + (450,000/2)
= 150,000 + 225,000 = $375,000
Howard’s two kids with Wendy would then each receive 1/4 of the rest of the estate.
Each child receives $450,000/4 = $112,500
Wendy’s child gets nothing.
If Wendy dies before Howard intestate, what will be Howard’s share?
i. Howard gets $100,000, plus 1/2 of any balance of the estate, per §2-2102(4).
$100,000 + [(1/2)(600,000-100,000)] = 100,000 + (500,000/2) = 100,000 + 250,000
= $350,000
ii. Wendy’s children (the two by Howard & her other one) each get 1/6 of the rest of the estate.
= 500,000/6 = $83,333.33
7
PROBLEM, P. 88
A
B
C
D
E
G
F
H
A dies intestate leaving no surviving spouse.
How is A’s estate distributed under the modern per stirpes system?
Would divide the estate at the generational level nearest decedent where members are alive—thus, at
the level of D, E and F. Estate is divided in thirds.
D receives 1/3 of the estate.
E’s children, G and H, each receive by representation, thus each getting 1/6.
F takes 1/3 of the estate.
Under the English per stirpes system?
Divide according to decedent’s children or decedent’s deceased children with living descendants.
Thus, the estate is divided in half, because B and C each have living descendants.
D takes 1/2.
E and F would each take 1/4. F gets his because he’s alive. G and H take by representation E’s
portion and wind up with 1/8 each.
SECTION B: TRANSFERS TO CHILDREN
1.
Meaning of Children
a.
Posthumous Children
For purposes of inheritance or determining property rights, where it is to a child’s advantage to be treated as in
being from the time of conception rather than the time of birth, a child will be so treated if born alive.
Rebuttable Gestation Presumption. Normal period of gestation presumed to be 280 days. Children claiming
longer gestation periods have the burden of proving the time of conception.
Uniform Parentage Act § 4 presumes a child born within 300 days after the death of her husband is a child of
that husband.
b.
Adopted Children
Hall v. Vallandingham (1988): Because an adopted child has no right to inherit from the estate of a natural parent
who dies intestate, that child also may not inherit through the natural parents by way of representation.
The right to receive property by devise or descent is not a natural right, but is a privilege granted by the State. Thus,
the State is free to impose whatever restrictions it sees fit on that privilege.
Adoption may allow the adopted child equal rights as a natural child, but it would be unfair to give the adopted child
more rights than a natural child (e.g., the right to inherit through natural and adoptive parents by representation)
NOTES, PROBLEMS, AND QUESTIONS
Varying inheritance rights of adopted children:
Adoptee may inherit only from adopted parents & relatives (Maryland).
Adoptee may inherit from both adoptive parents and natural parents & relatives (Texas).
UPC: Adoptee may inherit from adoptive parents & relatives and also from natural relatives, if the
child is adopted by a stepparent.
8
Per UPC §2-114(b), in stepparent adoptions the children can inherit from their natural
relatives, but the natural relatives cannot inherit from them.
MacCallum v. Seymour (Vt. 1996): Denial of an adopted person’s right to inherit through adoptive
parents from ancestors or collateral kin was unconstitutional, because the rationale could be used
to validate racial discrimination too.
Children born by reproduction technology:
May be genetic connection of both H & W to child; genetic connection of either H or W to child; or
possibly no genetic connection whatsoever.
Johnson v. Calvert (Cal. 1993): Parenthood in surrogate mother cases is determined by the surrogacy
contract and the intent of the parties expressed therein, not by genetics or birth.
R.R. v. M.H. (Mass. 1998): Surrogacy agreements are prohibited or enforced only under specified
conditions.
In re Marriage of Buzzanca (Cal. App. 1998): H & W agree to have 3d-party’s embryo implanted in a
surrogate; then the H &W get divorced. Court held that H & W were both parents because they
consented to the artificial insemination that created the child.
Jane Doe v. John Doe (Conn. 1998): surrogate inseminated by H; H & W divorce; Court held H was
father but W was not a parent, though she could get custody if it was in the best interests of the
child.
In England: Surrogate is always legally the child’s mother. If surrogate is married, then her husband
is legally the father unless he can prove he did not consent to the surrogacy procedure.
Same-sex parents:
Adoption of Tammy (Mass. 1993): Court held that natural & adoptive (lesbian) mothers each had
postadoptive rights and child could inherit through both mothers.
Babies switched at birth: Connecticut court held that the child’s birth certificate cannot conclusively establish
that a party is actually the mother. “One does not gain parental status by virtue of false information.”
Refusal to adopt: If a natural parent refuses to consent to adoption of a child, the child may not be adopted by
another.
California permits a child raised in a step- or foster parent’s family to inherit from that parent under
certain circumstances if the child is still a minor.
Adult adoption: Only people who can contest a will are those who had standing to take if the will were denied.
Thus, if a testator adopts a child, his collateral relatives couldn’t contest the will as they would inherit
nothing by intestacy. Thus, some choose to adopt adult friends/lovers.
New York held that adoption of a lover was not permissible. However, a Delaware court expressly
disagreed with that holding.
O’Neal v. Wilkes (1994): Where the obligation to care for a child is not a legal obligation but familial one resulting
in a custodial relationship less than that of “legal custodian,” then the caretaker has no authority to contract for
that child’s adoption.
Dissent believes that the doctrine of equitable adoption should have been used to render the adoption proper.
Dissent points out that the child fulfills her part of the contract by being that person’s child, and that the child is
unable to contract on her own behalf at the time the “virtual adoption” occurs.
NOTES, PROBLEM & QUESTION
Equitable adoption. A doctrine under which an oral agreement to adopt A, between H and W and A’s natural
parents, is implied and specifically enforced in equity against H & W. Permits equitably adopted child
to inherit from the foster parents, but the foster parents & the relatives cannot inherit from the child.
c.
1.
2.
Nonmarital Children
Common law: nonmarital child was filius nullius, the child of no one, and could inherit from no one.
Modern: All jurisdictions allow inheritance from the mother of a nonmarital child, but rules about
inheriting through the father vary from state-to-state.
a. Trimble v. Gordon (U.S. 1977): State discrimination against nonmarital children is subject to strict
scrutiny.
9
b.
c.
d.
Lalli v. Lalli (U.S. 1978): Upheld NY statute allowing nonmarital child to inherit from father only
if he married the mother or had been formally adjudicated the father during his lifetime.
Most states permit paternity to be established by evidence of subsequent marriage,
acknowledgment by father, adjudication during father’s life, or clear & convincing proof after
father dies.
Uniform Parentage Act (1973): Parent & child relationship extends to all parents and children,
regardless of marital status. If father openly acknowledges child as his own and accepts the child
into his home, or acknowledges the child in a writing filed with the court, then he will be
presumed to be, in fact, the father.
Hecht v. Superior Court (1993): Is sperm devisable personal property such that a probate court has jurisdiction over
it? Decedent has an interest in stored sperm in the nature of ownership to the extent that he has decisionmaking authority as to the use of the sperm for reproduction. This interest is insufficient to constitute
“property.”
Decedent committed suicide on 10/30/91. Had been living with Petitioner (Deborah Hecht) for 2 years. Had 2
college-aged children from former wife. Deposited 15 vials of sperm in Cryobank in 10/91 & gave permission
to bank to continue storing it after his death. Noted in his will possibility of Hecht becoming pregnant after his
death. Wrote letter on 10/21/91 to his kids saying he hoped Hecht would get pregnant after his death.
Children argued for sperm to be destroyed to guard the family unit by preventing (1) birth of child who would never
know father and (2) disruption of existing families by after-born children. Hecht argued it was a gift inter vivos
or causa mortis. Trial Court ordered sperm be destroyed. Appellate court reversed.
Children argued that intended use of sperm by Hecht was invalid on public policy grounds: (1) forbids artificial
insemination of unmarried woman and (2) forbids artificial insemination with sperm of deceased.
Court responded by stating that legislature is the proper branch to make such policy decisions and they had clearly
allowed for both married & unmarried women to use artificial insemination, and judiciary is not free to create
an opposing policy. Court also stated that if decedent & Hecht desired to create a child, the parties failed to
establish a state interest sufficient to interfere with that desire.
Court noted it was unlikely that children would face claims on the estate by the after-born children, but the
legislature later repealed the current statute to make such claims possible.
2.
Advancements
1.
2.
3.
4.
5.
6.
Advancement: essentially a property transfer that is viewed as prepayment of child’s intestate share
If a child wishes to share in the intestate distribution of a decedent parent’s estate, child must permit
the administrator to include in the determination of the distributive shares the value of any property
that the decedent gave to the child while he was living.
Common law gave the child the burden of proof to show the transfer was not an advancement.
Common law also dictated that if a parent made an advancement to a child and the child died before
the parent, the advancement was deducted from the shares of the child’s descendants if the parent had
any other surviving children.
Hotchpot: Child receiving the advancement allows it to be calculated with the rest of the estate and
then the distributive shares are determined. If the distributive share is less than the advancement, the
child keeps the advancement and receives nothing more. If the distributive share is more than the
advancement, the child receives the difference.
UPC §2-109 (modern law) reverses the common law presumption: transfers are presumed not to be
advancements unless it is shown otherwise (via a contemporary writing by either the donor or the heir).
This also reverses the common law presumption that if the heir predeceases the donor, that gift isn’t
included in the child’s heirs’ shares. Under modern law, it is included.
a. It is tough to keep an accurate record of all items and property given to each heir, so it’s tough to
figure out the amount of advancements.
b. Besides, we figure it’s up to the donor during his lifetime to make sure he’s giving equal amounts
to each child—we don’t need the law to equalize that at the donor’s death.
Problem is that persons who don’t write wills or consult attorneys probably won’t know that a gift to a
child must be stated in writing to be an advancement in order to be seen as such.
NOTE: TRANSFER OF AN EXPECTANCY
10
Heirs Apparent. No living person has heirs. The anticipated heirs are heirs apparent.
Expectancy. The heirs apparent have an expectancy of inheritance which may be destroyed by the prospective
decedent’s will or deed.
An expectancy is not a legal “interest,” but if an expectancy is transferred for adequate consideration, the
transfer may be enforceable in equity as a contract.
Court scrutinize such transfers closely to protect heirs from unfair “contracts.”
3.
Managing a Minor’s Property
Guardianship / Conservatorship.
Does not have title to ward’s property and thus cannot change investments without court order
Has duty of preserving the property and delivering it to the ward at age 18 unless a court orders
otherwise.
Must support the ward using only income from property, must obtain court order to use principal.
Very costly and restrictive, so the ward often ends up with less property than he started with.
Conservators have more flexibility than guardians, including only requiring annual trips to courthouse
for accounting purposes.
Custodianship.
Useful for modest gifts; large gifts should be done through a trust.
Person given property to hold for the benefit of a minor under the state Uniform Transfers to Minors
Act.
Has discretionary power to expend for minor’s benefit as much or all of the property as needed without
court order
Any property left at minor’s age 21 is transferred to minor (or to his estate if he dies before 21)
Subject to fiduciary duties, the standard of care that would be observed by a prudent person
Trusteeship.
Most flexible of the three options.
Donor may postpone possession of trust assets until whatever age he desires.
Investment Powers
Distributions
Age
Guardianship
Restricted
(need court order)
Income Only
18
Custodianship
Trusteeship
Broad
Broad
Income & Principal
21
Income & Principal
Flexible
PROBLEM
Refer back to the estate planning problem involving Howard & Wendy Brown (pages 49-59). Assume that Howard
dies intestate. After payment of debts, taxes and expenses of administration, the assets of his estate include (see
page 135). Brown is survived by his wife and two minor children and a stepson.
How is Brown’s estate distributed under the Uniform Probate Code?
Non-Probate Property:
Residence
$ 160,000.00
Checking Account
3,000.00
Certificate of Deposit
20,000.00
IRA
30,000.00
American Growth Mutual Fund
40,000.00
Life Insurance
125,000.00
$ 378,000.00
Total Estate:
$ 583,000.00
Remainder:
$ 225,000.00
WENDY
11
Then per UPC §2-102(3), Wendy gets the first $150,000 plus 1/2 the balance:
$150,000 + (75,000/2) =
$ 187,500.00
Added to the non-probate property that transfers to Wendy by operation of law, she takes:
$ 565,500.00
CHILDREN
Each of Howard’s children, per UPC §2-103(1), split the remaining $27,500:
Each child then receives:
$ 13,750.00
Should Howard have left a will?
I guess that depends on what he wanted. If he wanted his stepson to receive anything from his estate,
he should have left a will because the intestate statute provides nothing for the stepson directly. If he
wanted his children to benefit more from his estate, he should have left a will. If he was confident that
Wendy would fairly manage the distribution of his assets amongst the children, though, maybe it
wasn’t such a big deal.
C.
BARS TO SUCCESSION
1.
Homicide
In re Estate of Mahoney (Vt. 1966):
Three lines of decision in states that have no statute preventing a slayer from taking by descent or distribution:
Legal title passes to slayer and may be retained by him in spite of the crime. Refusal to allow the inheritance
would be an additional punishment for the slayer’s crime, a punishment not provided by statute.
Legal title does not pass to slayer because of the equitable principle that no one should benefit from his own
wrongdoing. Criticized as being unwarranted judicial legislation & engrafting on the statutes of
descent & distribution.
Legal title passes to slayer but equity holds him to be a constructive trustee for the heirs or next of kin of
decedent. Avoids “judicial engrafting.”
The Mahoney court states that “the slayer should not be permitted to improve his position by the killing, but should
not be compelled to surrender property to which he would have been entitled if there had been no killing.”
Thus, while the slayer does not profit from his crime, there is no additional penalty for it.
The Probate Court is limited in its power and is bound to follow the statutes of descent & distribution. In order to
establish equitable rights and claims the Probate Court must invoke the court of chancery.
NOTES AND PROBLEMS
1.
2.
Almost all states have statutes dealing with rights of a killer to inherit from victim, but they often leave
many questions unanswered:
a. Does the statute apply to nonprobate transfers (joint tenancy, life insurance, etc.)?
i. UPC §2-803 bars killer from succeeding to nonprobate as well as probate property.
b. If killer is barred from taking, who takes?
i. Usually viewed as killer having predeceased the victim.
1. If killer predeceased victim, is a gift in the victim’s will to the killer’s heirs if
the killer does not survive the victim given effect?
ii. UPC treats killer as having disclaimed the property under disclaimer section, §2-801.
c. Is a criminal conviction required?
i. In the absence of a conviction, court must determine whether, under a preponderance of
evidence standard, the individual would be found criminally accountable.
ii. UPC follows majority view.
It has previously been held by the Supreme Court that the assets of a defendant frozen by a court after
his indictment for drug trafficking and the court’s determination that the assets would likely be
forfeited, could not be used for the party’s legal defense. This same theory may be considered when a
killer wants to pay his attorney using the assets he would acquire by descent/distribution.
12
The Chinese System: Punishes a potential heir’s misconduct by reducing or eliminating his share, and rewards good
behavior. It is argued that this system may have advantages over the American system because the American
system does not penalize unworthy heirs or reward particularly good ones.
2.
Disclaimer
An intestate successor cannot prevent title from passing to him, but a devisee can refuse to accept an inheritance
and prevent himself from taking title. This could lead to tax disadvantages for intestate successors,
whose shares would be taxed as though they had been gifted to other parties.
In order to allow people to disclaim property without adverse tax consequences, almost all states have enacted
disclaimer legislation that provides that the disclaimant is treated as having predeceased the decedent.
This may be used to the disclaimant’s advantage:
Saving Estate Taxes. IRC §2518 permits qualified disclaimers (those made within 9 months after
interest is created or after donee reaches 21, whichever is later) to pass the property from the
intended recipient to the “next in line” free of any gift or estate taxes.
Avoiding Creditors. UPC §2-801(d)(1) provides that a disclaimer relates back for all purposes to the
date of decedent’s death, allowing it to avoid most creditor claims. However, courts are split as to
whether this rule may apply to federal tax liens.
PROBLEM, Page 150-151
O
A
1
2
B
3
4
C
O has two children, A and B. B dies, survived by one child, C. Then O, a widow, dies intestate. O’s heirs are A and
C. A has four children. A disclaims. What distribution is made of O’s estate? UPC § 2-801(d) provides:
the disclaimed interest devolves as if the disclaimant had predeceased the decedent, but if by law
or under the testamentary instrument the descendants of the disclaimant would share in the
disclaimed interest by representation or otherwise were the disclaimant to predecease the
decedent, then the disclaimed interest passes by representation, or passes as directed by the
governing instrument, to the descendants of the disclaimant who survive the decedent.
Answer: A is treated as though she predeceased O, and the property then passes directly to her 4 children. Thus, 1/2
of O’s estate goes to C (by representation for B’s 1/2 share). Then each of A’s children receive 1/8 of O’s
estate (taking by representation A’s 1/2 share).
Troy v. Hart (Md. Ct. Special Appeals 1997): A Medicaid recipient may disclaim his inheritance. However, the
recipient has the legal duty to notify DSS of the inheritance in light of its potential ramifications of the
Medicaid recipient’s eligibility for aid.
The Medicaid recipient has an obligation to pay for himself as long as possible. Thus, if the recipient disclaims an
inheritance that would have disqualified him from receiving benefits, the renunciation should incur the same
penalty of disqualification that acceptance would have rendered.
Thus, the Medicaid recipient’s disclaimer may be valid, but should be taken subject to any claims that the State may
have against him for any benefits improperly paid as a result of the recipient’s failure to inform DSS of the
acquisition.
NOTES AND QUESTIONS
If a Medicaid recipient dies leaving probate or nonprobate property, the state may attempt to recover out of
those assets benefits paid to the Medicaid recipient.
13
CHAPTER 3: WILLS: CAPACITY AND CONTESTS
SECTION A: MENTAL CAPACITY
1.
Why Require Mental Capacity?
In re Strittmater (1947): Where a condition of insanity leads a testator to do something in her will that she otherwise
would not have done, that part of the will done under insanity may be set aside.
The decedent Strittmater had been a member of a women’s organization for 11 years, but it was not until the last few
years of her life that she showed much interest in it and began stating she would leave her estate to the
organization. The probate court set aside her will, declaring it to be the product of insane delusions, and the
appellate court upheld the ruling.
In almost all states, a person must be at least age 18 and be of sound mind in order to make a will.
Three explanations are given for such requirements:
A will should be given effect only if it represents the testator’s true desires.
A mentally incompetent man or woman is not defined legally as a “person.”
The law requires mental capacity to protect the decedent’s family.
An inheritance is viewed as a “delayed payment” for the heirs’ years of love and support for
the decedent.
If we allowed insane testators to disinherit loyal heirs, those heirs would not have an
economic incentive to support the testator.
Public acceptance of the law rests upon the belief that legal institutions are legitimate, and legitimacy
depends on reasoned decisions.
Mental capacity requirements protect society at large from irrational acts.
Mental capacity requirements may protect a senile or incompetent testator from being exploited by
cunning persons.
2.
Test of Mental Capacity
Testator must have the ability to know:
Nature and extent of his property
Persons who are the natural objects of his bounty (people we feel some affinity toward, to whom we
would leave some property)
Disposition he is making
How these elements relate so as to form an orderly plan for the disposition of his property
Testator must understand the significance of his act.
A few isolated acts or demonstrations of mental irregularity are not sufficient to deprive someone of their
testamentary ability.
Capacity to make a will is governed by a different legal test and requires less competence than the power to
make a contract or a gift, but requires more competence than for marriage.
If a will was written during a lucid moment, the will may be valid even if a gift given during that same
period may not be.
Marriage may grant a surviving spouse a share of the senile party’s estate, even if the senile party
could not grant that share to the survivor in a will.
To draft a will for an incompetent person is a breach of professional ethics. However, no investigation is
necessary; the attorney may rely on his own judgment regarding the client’s capacity.
3.
Insane Delusion
1.
2.
3.
Insane delusion is a legal, not psychiatric, concept, referring to a notion to which the testator adheres
against all evidence and reason to the contrary.
An insane delusion is thus different from a mistake because a mistake is susceptible to correction if the
testator is told of or discovers the truth, where an insane delusion would persist no matter what.
Courts do not reform or invalidate wills because of mistake!
14
4.
Only the part of the will caused by an insane delusion will be set aside.
In re Honigman (1960): Where the proof amply supports (by preponderance of the evidence) a jury finding that the
testator was, at the time of making his will, suffering from unwarranted and insane delusions, and where such
condition affected the disposition made in the will, it is not an error for the court to set aside that disposition
caused by the condition.
A will is bad where the provisions of its disposition were or might have been caused or affected by a delusion. The
fact that there are other possible reasons for the disposition will not negate this rule, and the portion of the will
affected by the disposition may still be set aside.
NOTES AND QUESTIONS
Professor Melanie B. Leslie argues that courts are predisposed to making sure that a testator’s estate is
distributed according to social norms over and above the testamentary intent.
Studies of California and Tennessee cases revealed that juries are considerably more favorable to contestants
than judges. Most of the will contests brought before a jury will be decided for the contestants, but
most of those decisions, when appealed, will be overturned by the appellate judges.
Living Probate or Ante-Mortem Probate. State statutes in AR, ND and OH allow a person to begin an
adversary proceeding during his lifetime to declare the validity of a will and his testamentary capacity.
John H. Langbein stated that the relatives and friends who most loved the deceased and would want to spare
his reputation are the ones usually faced with the choice of defending a lawsuit challenging his
testamentary ability, or giving in to the challengers’ requests. Langbein on reasons why wills are
contested more frequently in America than in England:
No disinherited children in England. In America, most will contestants are children or spouses who
have been disinherited, but in England, both children and spouse are given a forced share
entitlement.
Juries favorable to plaintiffs. In England, civil jury trials are not available for probate contests.
Plaintiffs not accountable for attorney fees. American law is unique in that a losing plaintiff does
not have to pay the other side’s attorney fees, giving no incentive for plaintiffs with weak cases
not to contest the will.
Authenticated wills available in England.
SECTION B: UNDUE INFLUENCE
As defined by Lord Justice Hannen, 1885: “[T]here must be…coercion…It is only when the will of the person
who becomes a testator is coerced into doing that which he or she does not desire to do, that it is undue
influence.”
More recently: To establish undue influence, it must be proved that the testator was susceptible to undue
influence, that the influencer had the disposition and the opportunity to exercise undue influence, and
that the disposition is the result of the influence.
Modern definition still leaves unanswered what influence is undue.
Lipper v. Weslow (1963): Undue influence exists where the influencer substitutes his/her plan of testamentary
disposition for that of what the testatrix would have done were it not for the influence.
πs = Decedent’s grandchildren by a deceased son, Julian Weslow. Δs = Decedent’s surviving children Frank Lipper
& Irene Lipper.
Decedent left nothing in her will to πs. πs asserted the will was procured by undue influence by Frank, who was an
attorney, who prepared the will, and who was named executor of the will.
Part of will was a long explanation of why she was not leaving anything to Julian’s children: said that his widow
Bernice and all her children were unfriendly and distant.
At trial 3 independent witnesses testified that decedent had told them she didn’t want to leave anything to the
Weslows.
Court noted the will and circumstances raised suspicion, but no proof was supplied of “the substitution of a plan of
testamentary disposition by another as the will of testatrix.”
QUESTION AND NOTES
15
Some jurisdictions shift the burden of proof to a person occupying a confidential relation with the testator to
prove the absence of the undue influence if: (1) the person in a confidential relationship (2) receives
the bulk of the testator’s property (3) from a testator of weakened intellect.
Other jurisdictions require additional evidence that the beneficiary was active in procuring execution of the
will.
Those portions of the will that are the product of undue influence may be stricken and the remainder allowed to
stand if the invalid portions can be separated without defeating the testator’s intent or destroying the
testamentary scheme.
NOTE: NO-CONTEST CLAUSES
A no-contest clause provides that a beneficiary who contests the will shall take nothing (or a token amount) in
lieu of the provisions made for the beneficiary in the will.
Majority: Enforce the clause unless there is probable cause for the contest.
Minority: Believe the probable cause rule encourages litigation. Enforce the clause unless the contestant
alleges forgery or subsequent revocation by a later will or codicil, or the beneficiary contests a
provision benefiting the drafter of the will or a witness thereto.
NOTE: BEQUESTS TO ATTORNEYS
Many courts hold a presumption of undue influence when an attorney-drafter receives a legacy except when the
attorney is related to the testator. Presumption may be rebutted by clear and convincing evidence.
New York: Surrogate must investigate a bequest to an attorney, and the attorney must provide an affidavit
explaining the facts and circumstances of the gift. Hearing will be held if surrogate is not satisfied by
the attorney’s explanation.
California: Legislature enacted statute invalidating any bequest to lawyer who drafts the will unless the lawyer
is related by blood or marriage to testator. Exception: if client consults independent lawyer.
In re Will of Moses (1969):
Fannie Moses took as a lover Mr. Holland, a 15-year younger attorney, after her husband died. Holland was her
lover and attorney. Moses made a will giving almost everything to Holland, and had an independent attorney
Dan Shell draw up the will for her.
Holland gave evidence to rebut the presumption of undue influence in the form of Shell’s testimony. Shell testified
that he did not question or investigate Moses’ wishes as to whom she would leave her property. Shell just put
down in writing what Moses conveyed to him as her wishes.
Court held that Shell’s work did not constitute “meaningful independent advice or counsel” because he only wrote
the will, rendering him merely a scrivener. Thus, the evidence was insufficient to overcome the presumption of
undue influence.
Dissent: The “suspicious circumstances” had nothing to do with the will and were “remote antecedent
circumstances” relating simply to the parties’ relationship. Shell did all that was required of him as an attorney.
“If full knowledge, deliberate and voluntary action, and independent counsel and advice have not been proved
in this case, then they just cannot be proved.”
In re Kaufmann’s Will (1965):
Robert Kaufmann = multi-millionaire who left his family & moved to NYC to seek an independent life. Met Walter
Weiss, a non-practicing attorney with few assets, who Robert employed as financial consultant and moved into
his home. Walter ran the household and had access to Robert’s bank account. Robert was an artist and opened
an art gallery.
Beginning in 1951, Robert made a new will each year, each one giving more of his estate to Walter. The final will
in 1958 gave essentially everything to Walter, and included a letter to Robert’s family explaining that he &
Walter were a couple.
2 juries and the appellate division found sufficient evidence that the will was the result of undue influence, and that
all the wills before it were tainted by Walter’s influence.
QUESTIONS AND NOTES
16
1.
2.
Has been argued that the undue influence doctrine denies freedom to testators who want to deviate
from social norms by failing to leave property to their families. Courts are far more likely to find
“undue influence” when the testator leaves their property to someone besides the “usual” heirs.
One venue where much litigation has occurred is where the will of an AIDS victim is disputed by the
victim’s relatives versus his friends and lovers.
SECTION C: FRAUD
Fraud occurs where the testator is deceived by a misrepresentation and does that which the testator would not
have done had the misrepresentation not been made.
Fraud in the Inducement occurs when a person misrepresents facts, causing the testator to execute a
will, include particular provisions in a will, refrain from revoking will, or not execute a will.
Fraud in the Execution occurs when a person misrepresents the character or contents of the
instrument signed by the testator, which does not in fact carry out the testator’s intent.
The misrepresentation must be made with (1) the intent to deceive the testator and (2) the purpose of
influencing the testamentary disposition.
Any provision in a will obtained by fraud is invalid.
Portions of a will not tainted by fraud may stand unless the fraud goes to the entire will or the fraud-tainted
portions are inseparable from the rest of the will.
If the probate court cannot refuse probate, the will may be probated and a court with equity powers may then
impose a constructive trust on the wrongdoer. The wrongdoer would then be forced to surrender the
wrongfully obtained property.
PROBLEM, PAGE 215
T’s first will devised everything to her favorite niece, Jean, who lived in a distant city. T’s second will, executed in
the hospital two days before she died, revoked her prior will and devised everything to her friend Carol. After T’s
death a nurse in the hospital testifies that the day before the will was executed he heard Carol tell T that Jean had
died. “In that case,” T said, “I want you [Carol] to have everything.” In fact, as Carol knew, Jean was alive. What
result?
ANSWER: This is fraud in the inducement, and the provisions obtained through that fraud are invalid. Because the
fraud changed the main (only?) provision from leaving everything to Jean to leaving it to Carol, that provision
would be considered invalid, and the court may put the estate through intestacy proceedings. Or maybe the entire
will would be considered invalid and the old will would be put in its place. Or, the will may be probated, but a court
in equity may make Carol a constructive trustee for Jean.
Latham v. Father Divine (Ct. App. NY, 1949): Where a legatee has taken property under a will, after agreeing
outside the will, to devote that property to a purpose intended and declared by the testator, equity will enforce a
constructive trust to effectuate that purpose, lest there by a fraud on the testator. A constructive trust will be
erected whenever necessary to satisfy the demands of justice.
Decedent = Mary Sheldon Lyon, died Oct. 1946
Plaintiffs = first cousins (but not distributees / next of kin)
Will executed 1943. Gave almost everything to Father Divine (Δ), two corporate Δs connected w/Divine’s cult, and
to Patience Budd (Δ), a follower of Divine.
πs allege that decedent had severaly times said she wanted to revoke her old will and make a new one that would
leave πs with a substantial portion of her estate, that she’d had attorneys draft a new will leaving πs about
$350,000, and then by reason of false representations, undue influence and physical force, Δs prevented
decedent from executing that will.
No NY case on the books decreed a constructive trust in this situation, but several decisions suggest that result, and
none forbid it.
Note that πs are not arguing to probate or establish the will that was never executed; they are simply arguing for a
constructive trust.
17
The constructive trust formula does not disturb the provisions of the Statute of Wills because the court’s action does
not change the will—“the trust does not act directly upon the will by modifying the gift, for the law requires
wills to be wholly in writing; but it acts upon the gift itself as it reaches the possession of the legatee.”
NOTES
Per Cardozo: “A constructive trust is the formula through which the conscience of equity finds expression.
When property has been acquired in such circumstances that the holder of the legal title may not in
good conscience retain the beneficial interest, equity converts him into a trustee.”
Even innocent heirs may not benefit from a fraudulently obtained will provision. Allowing innocent heirs to
keep the property which, but for wrongful acts, they would not have been given, would be allowing
unjust enrichment.
Note that the court, through the “constructive trust” notion in the Latham v. Father Divine case, is essentially
distributing property according to a completely unexecuted will.
NOTE: TORTIOUS INTERFERENCE WITH EXPECTANCY
π must prove the interference involved conduct tortious in itself, such as fraud, duress or undue influence.
Theory may not be used when the challenge is based on testator’s mental incapacity.
Theory is not a will contest but a means to recover tort damages from a third party. Thus:
The tort statute of limitations governs it, and starts running at the time π discovered (or should have
discovered) the fraud or undue influence, and
No-contest clauses in wills do not apply to it.
If π contests the will and loses, he is usually barred by res judicata from suing again in tort.
CHAPTER 4: WILLS: FORMALITIES AND FORMS
SECTION A: EXECUTION OF WILLS
1: Attested Wills
Ashbel G. Gulliver & Catherine J. Tilson, Classification of Gratuitous Transfers (1941):
The general philosophy of courts should favor giving effect to an intentional exercise of a private property owner to
determine his successors in ownership.
That being the case, why require the formalistic requirements of devising?
Ritual Function. Court must be convinced the statements of the transferor were deliberately intended to
convey a finality of intention to transfer, rather than some mere conversation about future intents.
Evidentiary Function. Emphasize the purpose of supplying reliable and satisfactory evidence to the court.
Protective Function. Safeguard the testator at the time of the will’s execution from undue influence or other
form of imposition.
Professor Langbein suggests a fourth: channeling function. Requirements create a safe harbor for testator,
assures him his intent will be carried out because a court won’t be left to try to discern what he really
wanted. Gives testator “every inducement to comply.”
Formal will requirements vary from state to state.
Stem from the Statute of Frauds (1677) and Wills Act (1837). The formalities required by the Wills Act were
stricter than those required by the Statute of Frauds. The Wills Act requires that the will be (1) in
writing, (2) signed at the rood or end by the testator, or signed by another in the testator’s presence at
the testator’s direction, and (3) signed in the presence of 2 witnesses at the same time.
Statute of Frauds = 3 witnesses, did not have to be present at the same time; each could attest
separately.
Wills Act = only 2 witnesses but required that they both be present when will is signed or
acknowledged.
Statute of Frauds = testator did not have to sign at any particular place
Wills Act = testator must sign “at the foot or end” of the will.
18
UPC adopts the less strict requirements of the Statute of Frauds but reduces the required witnesses to 2. Only
Vermont still requires 3 witnesses. All other states permit 2.
A few states permit nuncupative (oral) wills under limited circumstances:
Can be made only during a person’s “last sickness”
Can be used only to devise personal property of small value
Must be uttered before three persons who must reduce the declaration to writing within a specified
period of time
UPC § 2-502. Execution; Witnessed Wills; Holographic Wills
Except as provided in subsection (b) and in Sections 2-503, 2-506 and 2-513, a will must be:
in writing;
signed by the testator or in the testator’s name by some other individual in the testator’s conscious
presence and by the testator’s direction; and
signed by at least two individuals, each of whom signed within a reasonable time after he [or she]
witnessed either the signing of the will as described in paragraph (2) or the testator’s
acknowledgment of that signature or acknowledgment of the will.
A will that does not comply with subsection (a) is valid as a holographic will, whether or not witnessed, if
the signature and material portions of the document are in the testator’s handwriting.
Intent that the document constitute the testator’s will can be established by extrinsic evidence, including,
for holographic wills, portions of the document that are not in the testator’s handwriting.
In re Groffman (England, 1968): In order for a will to be valid, the signature of a testator must be on the document
at the time of acknowledgement, and the witnesses must have seen or had an opportunity to see the signature at
that time.
Decedent = Charles Groffman, died April 11, 1967
π1 = son of deceased, the first executor named
π2 = Mr. Block, second executor named, solicitor who prepared the will
Δ = 2nd wife & widow of deceased who would take the whole estate in the event of intestacy
Most relevant events took place in 1964. Summer of 1964, will was drawn up. On a Tuesday evening in
September, 1964 (probably Sept. 1, 1964), decedent & wife met with Mr. & Mrs. Leigh and Mr. & Mrs.
Block’s house, where Mr. Leigh & Mr. Block signed decedent’s will as witnesses.
ISSUE: Was the will duly and properly executed? HOLDING: Nope.
Court believes the testimony of the witnesses, and believed the will contained the true intent of the decedent.
However, the decedent’s signature was on the document before he asked either witness to act as such; Mr.
Block signed his name in the presence of decedent but not Leigh; and Leigh signed in presence of decedent but
not Block. THUS, QUESTION BECOMES: did decedent acknowledge his signature in presence of both
witnesses? HOLDING: Nope.
There is no sufficient acknowledgment of the testator’s signature unless the witnesses saw or might have seen that
signature.
NOTES, PROBLEMS, AND QUESTIONS
1.
2.
3.
Many recent U.S. cases held that the lawyer supervising the will execution may be held liable for
faulty execution, though some states retain the privity barrier.
Presence. Two definitions of “presence” for the purposes of requiring that the witnesses sign in the
presence of the testator.
a. Line of Sight. Testator is capable of seeing the witnesses in the act of signing.
b. Conscious Presence. Testator, through sight, hearing or general consciousness of events,
comprehends that the witness is in the act of signing.
c. Note that the UPC dispenses with the requirement that witnesses sign in testator’s presence.
Order of Signing. A testator must complete his signature while both witnesses are present. An
acknowledgement coming after witnesses sign (with the witnesses having not seen the completion of
the signature) would not suffice because the testator must sign or acknowledge his signature before
either of the witnesses attest.
19
4.
5.
6.
7.
Signature. An “incomplete” signature may be sufficient where the testator is physically unable to
write a full signature. E.g., if Joseph, paralyzed, scrawls only a “J” on his signature line, that may be
sufficient.
Addition after Signature. If a handwritten line is added after the testator signed the will, the will
would be admitted to probate and the line would be ineffective as a subsequent unexecuted codicil.
Delayed Attestation. When may witnesses sign?
a. Some states require attestation before testator’s death.
b. Other states allow attestation within a reasonable period of time after the will is executed, which
period of time may extend past death
c. Other states have a set period of time (e.g., New York, 30 days)
Notarization. Professor Jane B. Baron finds that judges readily enforce contracts without the oldfashioned formalities because market exchanges create wealth, whereas donative transfers merely
redistribute it, and judges are therefore less interested in effectuating donative transfers.
Estate of Parsons (Cal. Ct. App. 1980): A subscribing witness to a will who is named in the will as a beneficiary
does not become “disinterested” within the meaning of the Probate Code by filing a disclaimer of interest after
the testator’s death.
Decedent = Geneve Parsons, died Dec. 13, 1976.
Will = executed May 3, 1976
Witnesses to Will =
Evelyn Nielsen = beneficiary in will of $100
Marie Gower = respondent, beneficiary in will of real property, executor of will with Lenice Haymond
Bob Warda = notary public
Appellants = decedent’s heirs claiming devise to Gower invalid based on Probate Code § 51, which states that a gift
to a subscribing witness is void unless there are two other and disinterested subscribing witnesses to the will.
Because the purpose of a subscribing witness is at its most essential at the moment the will is executed, the Code
section dealing with the witness’ interest must be pertinent to that moment. Thus, § 51 is seen as looking
“solely to that time” in its operation.
A subsequent disclaimer will be ineffective to transform an interested witness into a “disinterested” one; if the
witness is not disinterested then the will may be invalid, meaning that witness would have no interest to
disclaim at a later time. The interest they disclaim in a function of the validity of the will.
PROBLEMS: PURGING STATUTES
Many states’ purging statutes purge the witness only of the benefit that witness receives which exceeds the benefit
the witness would have received if the will had not been executed.
Spectrum of Purging Statutes
[---------------------------------------------------------------------------------------------------------------------------------------- ]
Massachusettes
PC §50
UPC §2-505
Witness gets
Extra benefit
Entire gift
nothing
is void
goes to witness
RECOMMENDED METHOD OF EXECUTING A WILL
If the will consists of more than one page, the pages are fastened together securely. The will specifies the exact
number of pages of which it consists.
The lawyer should be certain that the testator has read the will and understands its contents.
The lawyer, the testator, two disinterested witnesses and a notary public 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.
The lawyer asks that testator the following three questions:
Is this your will?
Have you read it and do you understand it?
Does it dispose of your property in accordance with your wishes?
20
After each question, the testator should answer “Yes” in a voice that can be heard by the two witnesses
and the notary. It is neither necessary nor customary for the witnesses to know the terms of the will.
If, however, the lawyer foresees a possible will contest, added precautions might be taken at this time.
The lawyer asks the testator the following question. “Do you request _____ and _____ (the two witnesses) to
witness the signing of your will?” The testator should answer “Yes” in a voice audible to the
witnesses.
The witnesses should be standing or sitting so that all can see the testator sign. The testator signs 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 his name at the end of the will.
One of the witnesses reads aloud the attestation clause, which attests that the foregoing things were done.
While no state requires an attestation clause, it makes a prima facie case that the will was duly
executed, and thus the will may be admitted to probate even though the witnesses predecease the
testator or cannot recall the events of execution.
Attestation clause also gives the will proponent’s attorney ammunition for a vigorous crossexamination in the event that a witness claims some flaw in the execution process.
Each witness then signs and writes his or her address next to the signature.
A self-proving affidavit, typed at the end of the will, swearing before a notary public that the will has been duly
executed is then signed by the testator and the witnesses before the notary public, who in turn signs
and attaches the required seal.
NOTE: SAFEGUARDING A WILL
Many lawyers give the will to the client together with instructions to keep it in a safe place.
Clients sometimes make notations, lines, or markings on their wills
Clients also sometimes try to revoke or make changes to the executed will
Some attorneys retain the client’s will in their files, and the client is given an unexecuted Xerox copy of the will
with the location of the original noted.
May have the appearance of soliciting business, which is unethical
Many states have statutes permitting deposit of wills with the clerk of the probate court.
UPC § 2-515 provides for the deposit of a will in court for safekeeping.
In re Pavlinko’s Estate (Pa. 1959):
Decedent = Vasil Pavlinko, died 02/08/1957
Predeceased by Hellen Pavlinko, died 10/15/1951
Reciprocal wills (each spouse left the entirety of their estate to the other spouse, with the residual heir being
Hellen’s brother) executed on 03/09/1949, but Hellen inadvertently signed Vasil and Vasil inadvertently signed
Hellen’s.
Court held that Vasil’s will could not be probated because it did not comply with the probate statute that required
that every will be signed by the testator at the end thereof. Court said that it would have to rewrite the majority
of the will in order to substitute the named testator for the signing party, and calls the will a “meaningless
nullity.”
Dissenting judge points out that the Pavlinkos did not speak English and their attorney interpreted their wills to
them, and then gave them the wills to sign—the Pavlinkos did not know they were signing the wrong wills.
Plus, each will gave everything to the other spouse, and then the residue to Hellen’s brother, so it’s clear that
both parties intended to do that. Giving effect to the will would be appropriate.
PROBLEM AND NOTE
In recent years, there has been some movement in the direction of correcting mistakes in limited circumstances.
UPC § 2-503 gives the court the power to dispense with formalities if there is clear and convincing evidence
that the decedent intended the document to be his will.
UPC § 2-503. Harmless Error
Although a document or writing added upon a document was not executed in compliance with Section 2-502, the
document is treated as if it had been executed in compliance with that section if the proponent of the document or
writing establishes by clear and convincing evidence that the decedent intended the document or writing to
21
constitute (i) the decedent’s will, (ii) a partial or complete revocation of the will, (iii) an addition to or an alteration
of the will, or (iv) a partial or complete revival of his formerly revoked will or of a formerly revoked portion of the
will.
In re Will of Ranney (N.J. 1991):
Issue: Whether an instrument purported to be a will that includes the signature of 2 witnesses on an attached selfproving affidavit, but not on the will itself, should be probated. HELD: It can be probated, not because the
witnesses signed the affidavit, but because the will may be proven to substantially comply with the
requirements.
Decedent: Russell Ranney
Widow: Betty Ranney (now Betty McGregor)
10/26/82: Ranneys visit law firm of Kantor, Mandia & Schuster to execute their wills. Russell’s will was not
numbered and pages not attached prior to execution. The Ranneys, attorneys Kantor and Schuster, and
secretaries Stout & Mattox (also notary) went to conference room to execute wills.
Russell signed the fourth page of the will, and no one else signed that page. Russell signed the self-proving affidavit
with Schuster & Stout, who thought they were attesting the will. Both attorneys thought the will had been
properly witnessed and attested. Mattox notarized all signatures.
Appellate Div. decided that the self-proving affidavit was similar enough to an attestation clause to warrant treating
the attached affidavit as an attestation clause. State Supreme Court disagrees because self-proving affidavits
function as proof that the will has been duly executed and permit probate without the appearance of either
witness. Attestation clauses, on the other hand, facilitate probate by giving prima facie evidence that testator
voluntarily signed the will in presence of witnesses.
The Legislature envisioned that the will and attestation clauses would be independent and distinct from a selfproving affidavit, so the signatures of the witnesses on the affidavit do not comply with the statutory
requirements for a will.
Substantial Compliance: A functional rule designed to cure the inequity caused by “harsh and relentless
formalism” of the law of wills. The idea is that just because a will contains a formal defect should not render
the will automatically invalid, but should just require further inquiry and proof.
The court acknowledges that rigid insistence on literal compliance often frustrates the purposes meant to be
achieved by the formalistic requirements. Thus, in limited circumstances, a will may be probated if it
substantially complies with formal requirements, as proven by clear and convincing evidence that testator
intended that the document constitute his will.
NOTES, QUESTIONS & PROBLEMS
Professor John Langbein: Observed South Australian law, which allowed for dispensing power. That is, the
court had the power to validate a document that the decedent meant to be a will even though the
formalities are not complied with (not even “substantially complied” with). Dispensing power focuses
on whether the testator intended to create a will.
Langbein felt dispensing power was preferable to substantial compliance because “courts read into
their substantial compliance doctrine a near-miss standard, ignoring the central issue of whether
the testator’s conduct evidenced testamentary intent.”
Notes that in order of importance, writing is first, then signature, then attestation.
UPC § 2-503 adopted in CO, HI, MI, MT, SD, and UT.
A court is more likely to adopt a substantial compliance doctrine, because there are many analogies in other
areas of the law and because it appears to carry out the fundamental intent of the legislature, whereas
the dispensing power may appear to usurp the legislature’s role.
2.
Holographic Wills
1.
2.
About half the states allow a holographic will, one that is written by the testator’s hand and signed by
him, and does not require attesting witnesses.
Most states allow a holographic will where the signature and material portions of the document are in
the testator’s handwriting.
a. Several states require that the holographic will be entirely handwritten. (The problem with this
requirement is that it causes trouble for pre-printed form wills.)
22
b.
3.
4.
A few states require the holographic will be dated, but such a requirement would then cause the
will to fail even if the rest was written in testator’s handwriting but contained no date.
Almost all states allowing holographic wills permit signature anywhere on the will, but may raise
doubt if the will is not at least signed at the end.
Ashbel G. Gulliver & Catherine J. Tilson, Classification of Gratuitous Transfers: Exemption of
holographic wills is justifiable by the terms of the evidentiary function, because being entirely
handwritten by the testator gives more evidence for handwriting experts.
a. However, casual non-testamentary statements are often made in letters (in writing).
b. There is a lack of ritual value in holographic wills, which authors suggest as reason for many
states not adopting them.
In re Estate of Johnson (AZ Ct. App. 1981):
Issue: Whether the handwritten portions on a printed will form constituted a holographic will, where state statute
requires that the material provisions of a holographic will be entirely in the handwriting of testator.
HELD: An instrument may not be probated as a holographic will where it contains words not in testator’s
handwriting that are essential to the testamentary disposition. Said differently, all words essential to the
testamentary disposition must be in testator’s writing.
Decedent: Arnold H. Johnson, died 01/28/1978 at age 79.
Son: John Mark Johnson, personal representative
Decedent had five other children as well
Appellants: Barton Lee McLain & Marie Ganssle, wanted document dated 03/22/77 probated as Johnson’s will.
John Mark objects & petitions for summary judgment on grounds that appellants’ document was not attested by
any witnesses, and was not holographic because material portions were not in his father’s handwriting.
Trial court found for John Mark. Appellate court affirmed.
Court decided that the only portions of appellants’ will that indicated testamentary intent were printed, not
handwritten.
Appellants argued that the handwritten portions containing the words “To [name here] 1/8 of my estate” were
sufficient to render testamentary intent. Court disagreed.
Distinguishing Blake: The case on which Appellants relied, Blake, had the words “You can have my entire estate,”
but also had the words “SAVE THIS” written with it. In other words, the Blake court did not find testamentary
intent in the word estate alone, but in its presentation along with the other words and decedent’s full signature
on a letter that may otherwise have had a more colloquial closing. Furthermore, the Blake writing contained the
words “You can have,” indicating some future intent. The word “To” in Johnson’s purported will did not
suffice.
NOTES AND PROBLEMS
Nebraska court held that handwritten words on a photocopy of a will could not be probated as a holographic
will because the handwritten portion made no sense as a testamentary disposition without reference to
the typed portions.
UPC §2-502(c) allows testamentary intent to be established by portions of the will not in handwriting, and the
corresponding comment allows printed will forms if the material portions are handwritten.
Statutory Form Wills. Several states have authorized “fill-in-the-form wills” where the wording is spelled out
in a statute and gives spaces to be filled in by the testator. However, many of these wills are refused
probate for being incomplete—many people do not have them properly executed and attested.
An attorney may be liable to intended beneficiaries if he was instructed to prepare a will but negligently delays
preparing it and/or securing the client’s signature.
In re Kimmel’s Estate (Pa. 1924):
Decedent = Harry A. Kimmel
Appellants = heirs at law
Sons = George & Irvin
Letter at issue was written Dec. 12, 1921, the same day it was mailed and Kimmel died.
ISSUES:
Is the paper testamentary in character?
23
While the informal character is one element used to determine whether it is testamentary, it is not
dispositive, especially where it appears from the face of the paper that the decedent intended to
make a posthumous gift.
Where words condition such a gift, testamentary intent is further supported. (In this case, the condition
was “if enny thing hapens”)
The question of testamentary intent was one of law for the court.
Court notes that the writer’s intent in this case is made more difficult to discern as he had little
knowledge of “law, punctuation, or grammar” and his writing had to be “resolved into plainer
English” to be discernible.
The “dispositive” gifts in the letter were made dependent on only “enny thing happen[ing]”, rendering
those gifts of testamentary intent.
Other factual circumstances considered: Decedent knew he was sick and unable to work, and was
“probably expecting an early demise.”
Is the signature on the letter (“Father”) in sufficient compliance with the Wills Act?
Court declares that it is sufficient because it was “intended as a completed signature to this particular
character of paper.”
Court finds that Kimmel’s intent to execute as apparent beyond question, and thus allows the letter into
probate.
NOTES
In wills where death from a stated event is described, courts presume the will may be probated even if the
conditional language (e.g., “If I die while in surgery…”) does not occur. The courts presume that
language is “merely a statement of the inducement for execution of the will.”
SECTION B: REVOCATION OF WILLS
1.
Revocation by Writing or Physical Act
Wills are ambulatory, meaning they are subject to modification and/or revocation by the testator during his
lifetime.
All states allow revocation either
By subsequent writing executed with testamentary formalities, or
By a physical act such as destroying, obliterating, or burning.
Oral revocations by themselves are invalid in all states because of the assumption that those would induce fraud.
A duly executed will shall be admitted to probate unless it is revoked in a statutorily permitted manner.
UPC § 2-507. Revocation by Writing or by Act
A will or any part thereof is revoked:
by executing a subsequent will that revokes the previous will or part expressly or by inconsistency; or
by performing a revocatory act on the will, if the testator performed the act with the intent and for the
purpose of revoking the will or part or if another individual performed the act in the testator’s
conscious presence and by the testator’s direction. For purposes of this paragraph, “revocatory act on
the will” includes burning, tearing, canceling, obliterating, or destroying the will or any part of it. A
burning, tearing, or canceling is a “revocatory act on the will” whether or not the burn, tear, or
cancellation touched any part of the words on the will.
PROBLEM: REVOCATION BY INCONSISTENCY
A subsequent will wholly revokes the previous will by inconsistency if the testator intends the subsequent will
to replace rather than supplement the previous will.
A subsequent will is presumed to replace and revoke the prior will by inconsistency when it does not
expressly revoke it but makes a complete disposition of the testator’s estate.
A subsequent will is treated as a codicil to the previous will if the subsequent will does not make a complete
disposition of the estate.
24
In 1995, T executes a will that gives all her property to A. In 1997 T executes a will that gives her diamond ring to
B and her car to C. It contains no words of revocation. Even though the 1997 will makes no reference to the earlier
will, the 1997 will is ordinarily called a codicil.
(a)
In 1999 T destroys the codicil with the intention of revoking it; T dies in 2000. The 1995 will is
offered for probate. Should it be admitted?
a. No; the codicil is needed.
(b)
Suppose instead that T destroys the 1995 will with the intention of revoking it. After T’s death the
codicil is offered for probate. Should it be admitted?
a. In a majority of circuits, the codicil could be admitted even without the will.
Harrison v. Bird (Al. 1993):
Decedent = Daisy Virginia Speer
Personal Representative = Mae S. Bird, given letters of administration through intestacy proceedings on 9/17/91
Appellant = Katherine Crapps Harrison, main beneficiary of prior will, filed for probate of will on 10/11/91
ISSUE: Was Speer’s will sufficiently “revoked”, such that the copy of that will offered for probate by Ms. Harrison
should be refused, and the estate allowed to be administered through intestacy? HELD: Yup—by exercise of
presumptions that Harrison was unable to rebut.
FACTS: Speer executed a will, Nov. 1989. Called her attorney (Mar. 4, 1991) and said she wanted to revoke it.
Her attorney tore it into four pieces. Sent her a letter informing her that he “revoked” her will as instructed and
was sending the torn pieces as proof. Speer died on Sept. 3, 1991. Postmarked letter from attorney found in her
effects, but without the torn pieces of the will.
Presumption of destruction arises if evidence establishes that testator had possession of the will prior to death but
the will is not found among the personal effects after death.
Presumption of revocation arises where testator destroys any copy and duplicate of the will in her possession, even
though a duplicate exists that is not in her possession.
To rebut these presumptions, Harrison would have to provide sufficient evidence that the absence of the will in the
personal effects was not due to destruction and revocation. Harrison failed to do so.
PROBLEMS
Presumption of revocation not rebutted where evidence showed the opportunity of a disinherited heir to destroy
the will. Estate of Travers, Ariz. 1978.
Presumption of revocation was rebutted where evidence showed that husband lived in house with wife and the
couple had been fighting prior to wife’s death. Lonergan v. Estate of Budahazi, Fla. App. 1996.
NOTE: PROBATE OF LOST WILLS
A will that is lost or destroyed with testator’s consent but not in compliance with the revocation statute can be
admitted if its contents are proved, unless a statute states to the contrary.
A lost will may be proved by a copy in the lawyer-drafter’s office, by the secretary who typed it, or by other
clear and convincing evidence.
Some state statutes prohibit probate of a lost or destroyed will unless it was in existence at the testator’s death
and destroyed thereafter, or was fraudulently destroyed during testator’s life. These statutes would
refuse probate to an accidentally misplaced will that was never revoked per a revocation statute,
rendering them in conflict with the revocation statutes.
Courts give effect to will revocation statutes and “have gutted” the proof statutes by holding either:
A will not lawfully revoked continues in legal existence until testator’s death, OR
A will destroyed by a method not permitted by the revocation statute has been “fraudulently
destroyed.”
Thompson v. Royall (Va. 1934):
Decedent = M. Lou Bowen Kroll
ISSUE: Given that Kroll’s intent was to revoke her will, was the act she used sufficient for that purpose? HELD:
No. In order to revoke a will, both the act and the intent must be present: an act specified by statute must be
done, WITH the intent to revoke; one without the other is not sufficient.
25
Kroll signed a will on 9/4/32. It was properly executed and witnessed. H.P. Brittain, the named executor, was given
the will for safe-keeping.
On 9/15/32, Kroll executed a codicil and gave it to the lawyer-drafter, Judge SMB Coulling, for safe-keeping.
On 09/19/32, Kroll requested that Coulling & Brittain bring the documents to her home so she could destroy them.
However, Coulling advised her to retain them as memoranda in case she wanted to prepare a new will later, so
instead of destroying them, Coulling wrote a notation on the back of them, which Kroll signed, declaring them
“null and void.”
Kroll died on 10/2/32. Some of the beneficiaries offered the will and codicil for probate.
Court held the notations ineffective as a writing declaring the intention to revoke because they were not wholly in
her handwriting and her signatures to them were not attested by 2 witnesses.
Furthermore, the faces of the documents were not torn, burned, obliterated, canceled or destroyed as required.
Despite Appellants’ insistence to the contrary (that cancellation does not require defacing the document), Court
holds that “cancellation within the meaning of the statute contemplates marks or lines across the written parts of
the instrument of a physical defacement, or some mutilation of the writing itself, with the intent to revoke.” The
marks, therefore, must somehow affect the written portion of the will.
This differs from the UPC, which specifically allows revocation without touching the written part of a document
(though it does require that the written cancellation be on the will itself, even if not touching the written part of
the will).
QUESTIONS AND PROBLEMS
.
Partial Revocation by Physical Act.
Many states prohibit partial revocation of a will by an act, and allow only a subsequent instrument to effectuate
partial revocation.
Reasons for this prohibition:
Canceling a gift to one person results in someone else taking that gift, and that new gift must be made
only by an attested writing (as is the rule for all bequests).
Eliminating the prohibition invites fraud.
Where partial revocation by act is prohibited, the will must be admitted to probate in its originally executed
form if the language on it can be ascertained.
PROBLEM
Some states distinguish between a partial revocation by physical act that attempts to revoke a complete devise
(“my car to A”) and one that attempts to rearrange the shares in a single devise (“$10,000 to A and B”
with “and B” crossed out cannot increase A’s share).
The Restatement declares this a “distinction without a difference.”
T executes a will that devises the residue of her estate to four named relatives. After T’s death some years later,
her will is found in a stack of papers on her desk. One of four names in the residuary clause has been
lined out with a No. 3 lead pencil. There is no direct evidence that T marked out the name.
What result in a state having a statute similar to UPC § 2-507?
What result in a state that does not permit partial revocation by physical act?
Since they don’t accept that, all four beneficiaries take.
Courts don’t seem to make any distinction between use of pencil and pen.
Suppose that T’s will is a holographic will in a jurisdiction permitting holographic wills. What result?
2.
Dependent Relative Revocation and Revival
1.
2.
Doctrine of Dependent Relative Revocation (DRR): If the testator purports to revoke his will upon a
mistaken assumption of law or fact, the revocation is ineffective if the testator would not have revoked
the will had he known the truth.
Another way of saying it: A revocation is NOT valid where the testator revoked in reliance on some
mistake of law or fact, AND he would not have revoked the will if he had been aware of the truth.
26
3.
4.
Usually invoked where testator destroys a will believing that a new will is valid when in fact the new
will is not valid. The court will apply the DRR and cancel the revocation of the old will, if the court
finds the testator would not have revoked that will if he’d known the new will wasn’t valid.
Courts have limited application of the DRR doctrine to two situations:
a. Where there is an alternative plan of distribution that fails, or
b. Where the mistake is recited in the terms of the revoking instrument, or where the mistake is
proven by clear and convincing evidence.
Carter v. First United Methodist Church of Albany (Ga. 1980):
Decedent = Mildred G. Tipton
Appellant (“caveator”) = Luther Reynolds Carter
Appellee (“propoundent”) = Church
ISSUE: Did Tipton absolutely revoke her 1963 will when she drew pencil lines through it and had drawn up—
though never executed—a 1978 will proposing a different distribution of her estate? HELD: No, based on a
doctrine of conditional revocation.
FACTS: Tipton died 2/14/79, a mere month and two weeks prior to the monumental day on which one Ms. Marissa
Bracke was born. A signed and executed will dated 8/21/63 was found in Tipton’s personal effects, folded
together with a second instrument purporting to be her will, dated 5/22/78, but which was neither signed nor
witnessed. The 1978 will distributed Tipton’s estate differently than the 1963 will, and the 1963 will had pencil
lines drawn through it.
Superior Court found that Tipton told her attorney “from time to time” that she needed his services to change or
revise her will or create a new one, and she had written out proposed changes for her will on tablet paper. Court
also found that she did not intend to revoke her will.
State statute created a presumption of revocation where a will is canceled or obliterated in a material part, and a
presumption that the testator made such obliteration when the paper is found in the decedent’s personal
effects. Because it was stipulated that the paper was found in Tipton’s personal effects, only issue is whether
the presumption of revocation stands or is rebutted.
The doctrine of DRR, per this court, does not operate to absolutely save from revocation any will that is canceled or
obliterated where a new will is, for some reason, ineffective. A canceled will remains canceled, and DRR will
not revive it.
Court holds that Tipton had a conditional revocation—the revocation of her old will depended upon the creation of
the new will (“the cancellation and making of the new will were parts of one scheme, and the revocation of the
old will was so related to the making of the new as to be dependent upon it”).
Court holds that the evidence presented rebutted the presumption of revocation and created a presumption in favor
of the Church under DRR, shifting the burden to Carter to prove that Tipton would have preferred intestacy to
the probate of her old will, which Carter failed to do.
PROBLEMS
Clause 5 of T’s typewritten will provides: “I bequeath the sum of $1,000 to my nephew Charles Blake.” T
crosses out the $1,000 and substitutes therefore “$1,500.” T then writes her initials and the date in the
right-hand margin opposite this entry. After T’s death some years later, her will is admitted to probate.
Blake contends that he is entitled to $1,500 or, in the alternative, $1,000.
What result in a state that recognizes holographic wills?
Court did not see it as a valid holographic amendment to the will that he should get $1500.
California is a jurisdiction that refuses to look at the printed matter and will look only at
handwritten.
Pretty much no jurisdiction in the country that would call this a valid holographic will (the
crossed out & changed portion).
What result in a state that does not permit partial revocation by physical act?
If no partial revocation by act is allowed, then crossing through the number $1000 won’t do
anything to change it. He gets the $1000.
What result in a state that permits partial revocation by physical act? Should the doctrine of dependent
relative revocation be applied?
The $1000 has been revoked on the mistaken belief that the $1500 will be effective, which
is not true. Thus, the two elements are present. Blake gets $1000 under DRR.
27
Suppose that T had crossed out $1,000 and substituted $500. In a state permitting partial revocation by
physical act, should the doctrine of DRR be applied?
The evidence would be that T preferred that he get nothing that get $1000—the evidence on
which the court bases this is that there was a significant reduction in the testamentary gift,
indicating that the testator’s preference would be to give him nothing over giving him the
original amount.
In his typewritten will, which contains a legacy of $5,000 to “John Boone,” T crosses out John and writes in
“Nancy.” Nancy cannot take because the gift to her is not attested. In a state permitting partial
revocation by physical act, should the legacy to John be given effect under the doctrine of DRR?
NOTE AND PROBLEM
A lawyer’s testimony as to a client’s intent to create a new plan of distribution was insufficient to apply the
doctrine of DRR to cancel an earlier will’s revocation. In re Estate of Ausley, Okla. 1991.
T’s will bequeaths $5,000 to his old friend Judy, and the residue of his estate to his brother Mark. T later
executes a codicil as follows: “I revoke the legacy to Judy, since she is dead.” In fact, Judy is still
living and survives T.
Does Judy take $5,000?
Suppose the codicil read “I revoke the legacy to Judy since I have already given her $5,000.” In fact
the testator did not give Judy $5,000 during life. What result?
Suppose it read “I revoke the legacy to Judy.” Evidence is offered that shows that three weeks prior to
execution of the codicil T was told by a friend that Judy died, believing it to be true. In fact, Judy
survives T. What result?
Estate of Auburn (Wis. 1963):
Decedent = Ottilie L. Auburn, died 11/13/1960
12/05/1960 = Adele Ruedisili (decedent’s sister) alleges Ottilie died intestate, files petition to be administrator
Viola Henkey, decedent’s grandniece, files petition to probate 1955 Milwaukee will
Lulu Auburn (sister-in-law) & Doris Auburn (no relation) file petition to probate 1959 Kankakee will
County Court = Kankakee will destroyed under mistaken belief that its destruction revived Milwaukee will, which
had been revoked pursuant to Kankakee will’s revocation clause. County Court ordered the Kankakee will
probated under the doctrine of DRR.
ISSUE: Whether trial court’s finding that the Kankakee will was revoked under the mistaken belief that the
Milwaukee will would be revived, goes against the great weight and clear preponderance of evidence. HELD:
The finding is not in error, judgment affirmed.
Doctrine of Dependent Relative Revocation: “It is held as a matter of law the destruction of the later document is
intended to be conditional where it is accompanied by the expressed intent of reinstating a former will and
where there is no explanatory evidence [to the contrary].”
Decedent moved to Milwaukee in 1954 & lived with Viola Henkey; executed Milwaukee will on 08/12/1955. In
May 1959, she moved to Kankakee & lived with brother, Robert Lehmann; executed Kankakee will
05/22/1959. In June 1960, she moved to Fort Atkinson & lived with another brother, Edwin Lehmann.
06/29/1960 decedent gave Edwin the torn up pieces of the Kankakee will, which he took to the dump and let the
pieces fly in the wind. After Ottilie’s death, Edwin searched her personal effects for the Milwaukee will but did
not find it. His wife, Olga, testified that Ottilie told her that the Milwaukee will was the one she wanted to
stand.
Under Milwaukee will, none of the next-of-kin were legatees. Under Kankakee will, only Robert was a legatee, and
he received a bit less than what he would receive through intestacy.
There is no evidence that Ottilie would want her estate to go through intestacy, distributing 9/10 of her estate to
next-of-kin named in neither will. There is sufficient evidence to support the finding that Ottilie believed the
Milwaukee will was still effective after the Kankakee will was destroyed. Thus, through the doctrine of DRR,
the Kankakee will is probated.
NOTE: REVIVAL
28
Revival typically occurs where Testator executes Will #1. T then executes Will #2 which revokes #1 either
expressly or by inconsistency. Later T revokes Will #2, leading to the question of whether or not Will
#1 is then revived.
States fall into three groups:
Majority: Will #1 is legally revoked at the time Will #2 is executed, but if #2 is later revoked and T
intends to revive #1, then #1 is so revived. T’s intent is provable by evidence surrounding #2’s
revocation or contemporaneous or subsequent oral declarations that #1 is to be given effect.
Minority: Will #1 is legally revoked at the time Will #2 is executed, and #1 cannot be revived unless
it is “reexecuted” with testamentary formalities or is republished by reference in a later, duly
executed testamentary writing.
Few Courts (English Common Law): Wills do not operate until T’s death, so Will #2 purporting to
revoke #1 is given no effect during T’s life, leaving T free to revoke #2 and revive #1 at any time
during his life. (Technically, this is not revival, since the will is not seen as being effective until
death, and thus, Will #1 isn’t actually revoked by Will #2 since Will #2 is not legally operative
while T lives.)
UPC § 2-509. Revival of Revoked Will
If a subsequent will that wholly revoked a previous will is thereafter revoked by a revocatory act under § 2507(a)(2), the previous will remains revoked unless it is revived. The previous will is revived if it is
evident from the circumstances of the revocation of the subsequent will or from the testator’s
contemporaneous or subsequent declarations that the testator intended the previous will to take effect as
executed.
[THUS: If a subsequent will that wholly revoked the prior one is itself revoked by act, presume that
previous will IS NOT revived.]
If a subsequent will that partly revoked a previous will is thereafter revoked by a revocatory act under § 2507(a)(2), a revoked part of the previous will is revived unless it is evident from the circumstances of the
revocation of the subsequent will or from the testator’s contemporaneous or subsequent declarations that
the testator did not intend the revoked part to take effect as executed.
[THUS: If a subsequent will partly revokes the prior one is itself revoked by act, presume the prior will IS
revived.]
If a subsequent will that revoked a previous will in whole or in part is thereafter revoked by another, later, will,
the previous will remains revoked in whole or in part, unless it or its revoked part is revived. The previous
will or its revoked part is revived to the extent it appears from the terms of the later will that the testator
intended the previous will to take effect.
PROBLEMS
Suppose Ottilie Auburn’s Kankakee will, executed in 1959, had not contained an express revocation clause.
Under UPC § 2-509, would the presumption be that the 1955 will was revived? Does the 1959 will
wholly or only partly revoke the 1955 will?
In 2000 T dies. T’s heir is H. T’s safe deposit box contains the following three documents, all duly signed and
witnessed according to law: (1) will executed in 1995 devising all T’s property to A; (2) will executed
in 1996 devising all T’s property to B; (3) Document executed in 1999 reading, “I hereby revoke my
1996 will.” Under UPC §2-509(c), who takes T’s property?
If the 1996 will wholly revokes the 1995 will by inconsistency, then when the 1999 document revokes
the 1996 will, the presumption is that the 1995 will is not revived unless the terms of the later
revocation make it clear that the earlier will is to be revived; here, I don’t think that is clear from
the 1999 document’s terms. So, I guess T’s property goes through intestacy.
3.
Revocation by Operation of Law: Change in Family Circumstances
1.
2.
The vast majority of states provide that a divorce revokes any provision in a decedent’s will for the
divorced spouse.
In a tiny minority of states, revocation occurs only if the divorce is accompanied by a property
settlement.
29
3.
4.
5.
These statutes do NOT usually apply to life insurance policies, pension plans, or other nonprobate
transfers.
Marriage.
a. Majority of states give a spouse an intestate share if a premarital will is in effect, unless the will
makes clear that the omission was intentional, or unless spouse is provided for by the will or a will
substitute with the intent that it is in lieu of a testamentary provision.
b. Where a spouse omitted from a premarital will is mentioned in the will (and therefore cannot take
the intestate share), the spouse may take a “forced share” given to all spouses regardless of
whether their disinheritance was intentional.
Birth of Children.
a. Small minority of states follow common law rule that marriage followed by birth of issue revokes
a premarital will.
b. This rule is not incorporated in the UPC, and is rapidly disappearing.
c. Almost all states have pretermitted child statutes, which give a child born after the will’s
execution but not provided for in it, a share of his parent’s estate. These statutes sometimes
provide for omitted children born prior to execution as well.
PROBLEM AND NOTE
T executes a will devising all his property to his wife (W), and if W does not survive him to W’s son (T’s
stepson), S. T divorces W and then dies. T’s heirs are his children by a prior marriage. A state statute
revokes all provisions in a will for a divorced spouse and treats the divorced spouse as having
predeceased the testator. Does S take T’s property? Who takes under §2-804?
SECTION C. COMPONENTS OF A WILL
1.
Integration of Wills
The doctrine of integration holds that all papers present at the time of execution that are intended to be a part
of the will are integrated into the will.
Usually all pages of a will are physically connected, or there is a sufficient connection of language carrying
over from page to page to show an internal coherence of the provisions.
A 1989 case, Keener v. Archibald, holds that this doctrine is not the law of Indiana. However, the doctrine is
necessary unless wills are required to be written on just one page.
2.
Republication by Codicil
The doctrine of republication by codicil treats a will as re-executed or republished as of the codicil’ date.
The doctrine is not automatic; updating the will must carry out the testator’s intent.
Example: T revokes Will #1 by Will #2. T then executes a codicil to Will #1. This republishes Will #1 and
thereby revokes Will #2.
Fundamental difference between integration and republication doctrines: Republication applies only to a
prior validly executed will. Incorporation by reference applies to incorporate testamentary instruments
that were never validly executed.
Some jurisdictions do not recognize incorporation by reference, but will typically apply republication broadly.
For example, in New York, a codicil may republish and give effect to a will that was properly executed
but invalid (e.g., for undue influence or mental incapacity), but it cannot republish or give effect to an
instrument that was never properly executed.
3.
Incorporation by Reference
UPC §2-510. Incorporation by Reference
Any writing in existence when a will is executed may be incorporated by reference if the language of the will
manifests this intent and describes the writing sufficiently to permit its identification.
Clark v. Greenhalge (Mass. 1991):
30
Decedent = Helen Nesmith
Executor = Frederic Greenhalge, also primary beneficiary
Virginia Clark = close friend of decedent for over 45 years, often visited Nesmith, openly admired the farm scene
painting
ISSUE: Were written bequests of personal property in a notebook kept by decedent properly incorporated by
reference into her will such that the probate judge was correct in giving effect to them? HELD: Yes.
Nesmith duly executed a will in 1977 naming cousin Greenhalge executor & principal beneficiary, granting him all
her personal property except “those items which she ‘designate[d] by a memorandum left by [her] and known to
[Greenhalge] or in accordance with [her] known wishes’ to be given to others living at the time of her death.”
1972 = Greenhalge helped Nesmith draft a “Memorandum” specifying the bequest of 49 items of personal property.
1976 = Nesmith modified the 1972 Memorandum with interlineations, additions and deletions.
Notebook = plastic-covered notebook entitled “List to be given Helen Nesmith 1979.” Conway & Dragoumanos,
home care nurses, observed Nesmith writing in the notebook and had been told by Nesmith that the farm scene
painting here at issue was to be given to Virginia Clark.
1980 = Clark said Nesmith told her she would give her the farm scene painting when she died, and mentioned that
she would note that in her book.
May 1980 & Oct. 1980 = Nesmith executed 2 codicils to the 1977 will, amending and deleting certain bequests
while ratifying all other parts of her will.
01/28/86 = Nesmith dies. Greenhalge distributed property pursuant to the amended will, the 1972 Memorandum (as
modified in 76), and certain provisions of the notebook (namely, he gave himself everything as the notebook
instructed, and gave Virginia Clark everything as the notebook directed except for the farm scene painting,
which he wanted to keep for himself).
PROBATE COURT = notebook qualified as “memorandum” within the meaning of Article V of her will, as ratified
by the 1980 codicils. THIS COURT = affirmed that judgment.
REASONING: Court notes that the “cardinal rule in the interpretation of wills…is that the intention of the testator
shall prevail,” and the intent is ascertained by the language of the testamentary instruments as well as the
circumstances at the time such instruments were executed.
Court states that Nesmith intended the language of Article V of her will to retain her right to alter and amend her
bequests of personal property without having to formally amend her will, and the notebook unquestionably
reflects that retained right. Further, the court says that Article 5’s language does not preclude the existence of
multiple memoranda, and it does not require just one specifically labeled “Memorandum” as Greenhalge so
contends.
Simon v. Grayson (Cal. 1940): Court gave effect to a letter in a safe-deposit box dated 7/3/1933, despite the fact that
the testator’s will directed that effect be given to a letter dated 3/25/1932 (which letter was never found). The
1933 letter was dated prior to the date of testator’s 11/25/1933 codicil, which the court held republished the will
and incorporated all other documents in existence so referenced by the will—that 1933 letter included—despite
the fact the will referenced the 1932 letter, never the 1933 letter.
NOTES AND PROBLEMS
Questions re: CLARK.
If made after 1980 Codicils: If it wasn’t around at the time of the codicils, it couldn’t have been given
effect.
2-503 could probably be used since there is no question that decedent’s intent was to dispose of the
property as instructed in the notebook.
Substantial Compliance: There is not substantial compliance if you make the entries after the date of the
codicils.
2-513: Opens the way that people when they’re disposing of personal effects and household goods, can
make reference in the will to a document in existence or that will be prepared at a later date.
A deed that was executed but never delivered during Testator’s life was incorporated by reference and was
thereby given legal effect through a provision in T’s will stating that “I have already deeded my farm
to my niece, Alta J. Pullman, and for that reason I do not devise my farm to her in this Will.” Estate of
Dimmitt, Neb. 1942.
The doctrine of incorporation by reference is not recognized in Connecticut, Louisiana, and New York.
31
UPC § 2-513. Separate Writing Identifying Bequest of Tangible Property
Whether or not the provisions relating to holographic wills apply, a will may refer to a written statement or list to
dispose of items of tangible personal property not otherwise specifically disposed of by the will, other than money.
To be admissible under this section as evidence of the intended disposition, the writing must be signed by the
testator and must describe the times and the devisees with reasonable certainty. The writing may be referred to as
one to be in existence at the time of the testator’s death; it may be prepared before or after the execution of the will;
it may be altered by the testator after its preparation; and it may be a writing that has no significance apart from its
effect on the dispositions made by the will.
Johnson v. Johnson (Okla. 1954):
Decedent = D. (Dexter) G. Johnson
ISSUE: Was the District Court correct when they affirmed the County Court’s denial of probate to an instrument
purported to be the last will and testament of Dexter Johnson? HELD: No.
“Will” = three typewritten paragraphs on one sheet of paper which made numerous bequests and devises,
recommended an attorney to probate it, and stated that testator declared it his “last Will and Testament.”
Testator did not sign or date this instrument, and it was not witnessed. At the bottom of the page, Johnson
handwrote “To my brother James I give ten dollars only. This will shall be complete unless hereafter
altered….” Johnson signed and dated that handwritten portion.
If the instrument is one complete and integrated writing, it cannot be probated because it was not properly executed
(no witnesses). However, the handwritten portion thereof was found to be a valid, holographic codicil. Thus…
ISSUE BECOMES: can the valid codicil republish and validate a will that was previously inoperative?
HELD YES: General rule of law states that a valid codicil may republish a will and give effect to it regardless of the
defects that existed in the will. A proper execution of the codicil extends to the Will.
Concurrence: Any instrument that properly reflects the decedent’s intent without fraud or undue influence should be
given effect.
Dissent: A codicil cannot exist without a valid will. The handwritten portion is a continuation of the typewritten
portion, not a codicil thereto, and as such is invalid unless properly executed and witnessed.
PROBLEMS AND NOTE
Questions about Johnson.
Language handwritten between the lines of a typewritten will was given effect as a holographic codicil which
republished the typewritten will with the handwritten modifications. Estate of Nielson, Cal. 1980.
4.
Acts of Independent Significance
1.
2.
A gift will be upheld under the doctrine of acts of independent significance where the beneficiary or
property designations are identified by acts or events that have a lifetime motive and significance apart
from their effect on the will, even where the phrasing of the will leaves the testator the power to alter
the beneficiaries or the property by a non-testamentary act.
Cases typically assume the validity of such gifts without making specific reference to the acts of
independent significance doctrine.
UPC § 2-512. Events of Independent Significance
A will may dispose of property by reference to acts and events that have significance apart from their effect upon the
dispositions made by the will, whether they occur before or after the execution of the will or before or after the
testator’s death. The execution or revocation of another individual’s will is such an event.
PROBLEMS
The validity of the provision is not changed by the fact that the contents of the drawer or safe deposit box can be
changed. But with the drawer, the courts might be split. If it was a locked drawer so that the testator
was the only one who had access to it, then there wouldn’t be many problems; if other people have
access to the drawer as well, then there might be a problem of proof as to what was really in the
drawer.
32
Yes, under Acts of Independent Sig., it’s okay for us to say that we don’t know what the exact charity is that he
will designate, but whichever one he chooses will receive the disbursement. If Barney survives Sarah
he wouldn’t have set up the trust, so Barney has the power of appointment and can determine in his
will where that money will go. Once he chooses the charity, the money will go there.
SECTION D. CONTRACTS RELATING TO WILLS
1.
A person may enter into a contract either to make a will or not to revoke a will. In these situations, the
agreement is covered by contract law rather that the law of wills.
If a testator dies with a will that does not comply with a valid and binding contract, the will is probated
but the contract beneficiary may enforce the contract by having a constructive trust impressed for his
benefit upon the estate or devisee of the defaulting party.
2.
1.
Contracts to Make a Will
1.
2.
Many states require a contract to make a will be in writing.
Where a promisee is not entitled to specific performance (because the will is not in writing), he is still
entitled to quantum meruit, the value of services rendered. Courts may consider the value the decedent
placed on the services in the oral agreement when determining the reasonable value to award the
promisee.
Some states allow an oral contract to be specifically enforced if the terms are proven by clear and
convincing evidence, the rendition of services is wholly referable to the contract, and the services are
of such peculiar value to the promisor as not be estimated or compensable by monetary standards.
3.
PROBLEMS
Problem 1
Problem 2
Contract to make a will may be unenforceable for lack of consideration where the promisee already has a legal
duty to perform the specified services. Borelli v. Brusseau, Cal. 1993.
2.
Contracts Not to Revoke a Will
In a joint will, two or more people dispose of the property in their estate. As each one of these people dies, the
will is admitted to probate to figure out the disposition of the property.
Mutual wills are also referred to as reciprocal wills. They are so named because they are parallel in terms of the
dispositions they make. Again, it can be more than two parties, but typically they are between husband
and wife. The typical disposition is where the husband says in his will “I leave everything to my wife,
and if she dies before me, everything in equal shares to my children.” The wife puts “I leave
everything to my husband, and if he dies before me, everything in equal shares to my children.” That’s
very standard.
The UPC tells us and in general the majority of jurisdictions will follow, that the fact the H&W make mutual or
reciprocal wills does not give rise to any presumption that there was a contract between them to
dispose of the property that way. The mere making of mutual wills does not give rise to the
presumption of a contract. However, the author rightly tells you that good practice is to insert a clause
in the will that says, “We are making mutual wills but we are not doing so pursuant to contract; it is
done voluntarily and each person has the right after the other’s death to amend their will.”
In Putnam, there was a contract running here in making their mutual wills.
Via v. Putnam (Fla. 1995):
Edgar & Joann Putnam make mutual wills.
The “contract” at play in this case: The survivor will not change the manner in which the residuary estate is to be
distributed, and neither party will do anything to disturb the distribution set forth herein. So the Putnams had an
agreement that whoever survives will leave in tact the plan of distribution such that everything goes to their
children.
33
Edgar remarries and does not change his will. The will, of course, has no provision for the second wife. So when
Edgar dies, the second wife (Rachel) relies on a state statute to file petition to either take an elective share or to
get what she is entitled to as a pretermitted spouse.
The elective share says when you’re omitted from a will, you are entitled to take 30% of the net estate.
The pretermitted spouse statute applies when the spouse (Edgar) made a will prior to marriage and does not leave
anything to the later spouse, and gives the surviving spouse gets what she would have received through
intestacy. Under intestacy laws, because Rachel is the second spouse and Edgar had children from the prior
marriage, Rachel is entitled to half of his estate. There are three or four exceptions given to the pretermitted
spouse statute. None of these exceptions applies to Rachel. Thus, she meets the requirements for the
pretermitted spouse per state statute and is entitled to 50% of the estate.
The will, as it reads, would give Rachel nothing and would leave to the children the entirety of the estate. The
children thus claim that they are third-party beneficiaries and creditors of the contract between their parents, and
that their claim should then come before Rachel’s. If the court allowed that, Rachel wouldn’t get much.
While we want to preserve peoples’ freedom of contract, there is a strong policy between the elective share and
pretermitted spouse statutes to protect the surviving spouse of the marriage that exists at the time of death. As
far as Florida is concerned, that is the primary policy goal here, as opposed to upholding the contract.
Thus, Rachel wins. She gets 50% and the kids have to share the other 50%.
Notice that Florida here runs contrary to California, New York and Illinois, which favor the third-party beneficiaries
of the contract. So this kind of situation can be avoided and it should be avoided; we live in a society where
remarriage is common. So to avoid this situation we should either have the couple getting married for the
second time fill out ante-nuptial agreements so it is understood that Edgar can make a will giving his kids all of
his estate, or provide something for her but less than the pretermitted spouse statute.
Edgar could also have set up a trust for Rachel, giving her the income for the rest of her life and then giving the
contents of the trust to the children upon her death.
NOTES AND PROBLEMS
1.
Suppose the majority rule is followed in this state… In states where they uphold the contract to make
the type of wills Joann & Edgar made, Edgar basically gets a life estate in the property, and as life
tenants, he must protect the property so that it is available to the remaining persons. Can Edgar buy
Rachel a diamond bracelet or take her on a round-the-world cruise?
a. Well, if you’ve got a disputatious family and the kids don’t like the new wife, they can take him to
court over that. It is very important to have clients put in the provision that a mutual will is not
contractual, and if they want to make it contractual, explain to them the pitfalls that may befall
them later on.
CHAPTER 5: WILL SUBSTITUTES: NONPROBATE TRANSFERS
SECTION A: CONTRACTS WITH PAYABLE-ON-DEATH PROVISIONS
Wilhoit v. Peoples Life Insurance Co. (7th Cir. 1955):
Insurance company accepts her counteroffer for how they will keep the money she inherited from her husband. Her
brother dies and Mrs. W lives for another 19 years after the brother. Then there is a fight over who gets the
$5,000. Does it go to the brother’s son, because brother was designee, or does it go to who Mrs. W designated
in the will?
This case was decided long before statutes were passed making POD beneficiary designations possible, and this is
viewed as making a testamentary disposition executed without the formalities of a will statute. So the court
gives it to Mrs. W’s son, because they don’t want to give weight to the informal testamentary distribution of the
POD contract.
Estate of Hillowitz (N.Y. App. 1968):
Guys with investment club… Mrs. H gets check for her late husband’s interest in the partnership. The determination
that she was to get the money happened during the husband’s lifetime; he signed an agreement saying she
should get the value of the interest when he died. It didn’t have to be executed with the formalities of a will; it
was done in a way that was simply by contract. The court upholds it and says it’s fine as a contract and not a
testamentary disposition. The point is, the law has definitely swung in terms of the 1968 case from New York.
34
Most places in the US and for many of these transfers, you can transfer property to someone at your death by
means of a contract during life. That’s how securities work, and how life insurance works. We fill out forms
that show who’s supposed to get it when we die, and we do not have two witnesses attesting to it. We are
moving away from disposing of all our property by will.
Cook v. Equitable Life Assurance Society (Ind. Ct. App. 1981):
If complying with the terms of an insurance policy, which names a certain beneficiary, is contrary to a testator’s
intent as expressed in his will, the court is to abide by the terms of the insurance policy contract.
The general rule followed in Indiana is that an attempt to change the beneficiary of a life insurance contract by will
and in disregard of the methods prescribed under the contract will be unsuccessful. Three exceptions to this
rule:
If society (insurance company) has waived a strict compliance with its own rules
If the insured is unable to comply literally with the rules
If the insured has done everything he can to change the beneficiary but dies before the change occurs
It is in the interest of all parties to comply with the insurance contract. Insurance company wants to pay to the
contract beneficiary rather than trying to comply with other documents (e.g., wills) that they may not even know
about. Beneficiaries want prompt payment from the insurance companies & don’t want the company to delay
payment for fear of paying the wrong person. Society’s interest is in the conservation of judicial energy and
expense.
“Public policy requires that all parties should be able to rely on the certainty that policy provisions pertaining to the
naming and changing of beneficiaries will control except in extreme situations.” (p. 343)
NOTES AND QUESTIONS
1.
2.
3.
4.
5.
6.
7.
UPC § 6-101 allows the contract owner to change the beneficiary by will only if the contract permits it. If the
contract is silent as to whether this power is retained, §6-101 is likewise silent on whether or not the beneficiary
may be changed by will.
In most states, a divorce revokes a will in favor of a spouse, but does not revoke any designation of the spouse
as life insurance beneficiary.
UPC §2-804 allows a divorce to revoke the designation of the divorced spouse as beneficiary of an insurance
policy or pension plan or other contract. However, a 1991 8th Circuit case held a similar state statute
unconstitutional, as retroactive application disrupted the insured’s expectations and impaired his contract rights.
Federal government permits a death beneficiary to be put on a U.S. savings bond, retirement plans, pension and
profit-sharing plans, 401(k) plans, and IRAs.
The UPC allowed POD designations beginning in 1969.
The Uniform Transfer-On-Death Registration Act (1989) permits securities to be registered in a transfer-ondeath (TOD) form, and the Act has been adopted in a substantial number of states.
Superwill. Instrument that would annull the beneficiaries named in various nonprobate instruments (other than
a joint tenancy) and name a new beneficiary.
SECTION B. MULTIPLE-PARTY BANK ACCOUNTS
1.
2.
3.
True Joint Tenancy Account: Either A or B has power to draw on the account and the survivor owns the
balance of the account
P.O.D. Account Disguised as Joint Account: B does not have power to draw upon the account during A’s life,
but is entitled to the balance upon A’s death
Agency Account Disguised as Joint Account: B has power to draw upon the account during A’s life but is not
entitled to the balance at A’s death
Franklin v. Anna National Bank of Anna (Ill. App. 1986):
Frank Whitehead = Deceased
Enola Stevens Franklin = executor of Frank Whitehead’s estate, asserts money in bank goes to Whitehead’s estate
Cora Goddard = interpleaded by Bank, asserting right to money as surviving joint owner
Whitehead died 12/22/80, wife Muriel died previously in 1974. Goddard was Muriel’s sister.
35
Goddard moved in with Whitehead in 1978 after he had eye surgery, to help take care of him. Bank account was put
in both their names so she could access his money. Muriel’s signature was whited out from the bankcard and
Goddard’s was added.
Later in 1978, Franklin cared for Whitehead. In January 1979, Whitehead attempted to put Franklin’s name on the
account.
The Court reasons that while an instrument creating a joint tenancy account presumably speaks the whole truth, if
sufficient evidence of a lack of donative intent relating back to the time the instrument was created is presented,
then that presumption may be rebutted.
Note that a later decision of the donor, after the account is created, to keep the money as his own will not, by itself,
defeat the joint tenancy account.
HELD: Whitehead viewed the account and its funds as his own; he allowed Goddard and Franklin as signatories to
the account for his own convenience, but without the intent to give the money to either of them. Thus, the funds
should be placed in his estate, not with Goddard as a surviving tenant.
NOTES AND PROBLEMS
1.
2.
3.
4.
5.
6.
7.
8.
A payable-on-death account is invalid in some states, and even in states where they are permitted, banks
strongly encourage clients to use joint bank accounts instead.
Several courts have recently held that a joint bank account conclusively establishes a right of survivorship, and
evidence to the contrary is not admissible.
Savings account Trust (Totten trust): Functions as a P.O.D. account, where O makes deposits into the
account in the name of “O as trustee for A.” O retains the right to revoke the trust, and A is entitled to the
amount on deposit at O’s death. This type of account has been accepted in a large majority of jurisdictions.
The beneficiary of a Totten trust may be revoked by will and a new beneficiary named.
UPC §§6-201 & 6-227 authorize joint tenancy account with right of survivorship, agency account, and P.O.D.
account. Totten trusts are abolished and treated instead as a P.O.D. account.
UPC §6-211 holds that joint account belong to the parties during their joint lifetimes in proportion to each
person’s contributions to the account, unless clear and convincing evidence of some other intent is given.
UPC places a requirement of survivorship on beneficiaries of P.O.D. accounts and securities in T.O.D.
registration, but NOT on beneficiaries of P.O.D. contracts.
UPC does not allow a P.O.D. beneficiary to be changed by will.
UPC’s Anti-Lapse Provision: Under the common law, the P.O.D. lapses if the beneficiary doesn’t survive,
and the property that was supposed to be paid to the deceased beneficiary would go to the decedent’s estate.
But that’s exactly what the decedent wanted to avoid by making it P.O.D. So to prevent gifts from lapsing and
going to the decedent’s estate, the UPC has an anti-lapse statute that tells us where the property is to go in case
the designated beneficiary dies before the owner of the P.O.D. account. UPC §2-507 tells us that if the
beneficiary is a close relative (at least as close as a grandparent or descendant of the grandparent) then the
property gets distributed to that beneficiary’s descendants by right of representation. If the beneficiary is not
that close, then the property just goes to the decedent’s estate.
SECTION C: JOINT TENANCIES
1.
2.
3.
A joint tenancy or tenancy by the entirety in land is a common and popular method of avoiding probate.
Common law views the decedent’s interest as simply vanishing at death, leaving nothing to be put through
probate.
Three features of a joint tenancy:
a. Creation of a joint tenancy in land gives the joint tenants equal interests upon creation, and once property is
transferred into a joint tenancy, one tenant cannot revoke the other tenant’s interest in it. Thus, joint
tenancies are not revocable or changeable as are other beneficiary designations (on a life insurance policy,
for example).
b. Joint tenant cannot devise his share by will. He would have to sever the joint tenancy during life and then
will his interest to someone else.
c. Creditor of a joint tenant must seize the joint tenant’s interest during life; once that tenant dies, his interest
vanishes, leaving nothing for his creditors to seize.
36
P.O.D. Bank Acct.
Insurance
P.O.D. (Other
contracts/Securities)
Joint tenant acct.
(real estate)
Revocable Trusts
Must beneficiary survive?
(If they don’t does it go to
their estate, or does it go
to alternate takers?)
Yes, under UPC §6-212
Change by Will?
Creditors’ Rights after Death
No, per UPC
UPC is silent.
But in the insurance
contracts, it’s clear that
the beneficiaries must
survive to take or else it
goes to alternate takers.
Yes, under UPC.
UPC is silent.
State law says NO. (See
Cook v. Equitable Life)
Creditors can attach the total
amount I’ve deposited less the
amounts I’ve withdrawn plus
the interest accumulated.
Very limited.
Policy proceeds if payable to
child or spouse generally are
not subject to creditors.
By definition, you cannot
take without surviving the
other tenant.
UPC is silent.
UPC is silent.
UPC contemplates that if
the party you contract with
(the investment company)
says you can change it via
your will, then UPC is fine
with it. If the K you have
with the parties is silent
about changing via will, the
UPC doesn’t help you out.
No, not without severing
joint tenancy during life
Yes, per UPC.
None after death; creditors can
reach up to 50% of joint
tenancy property during life
Yes, per UPC.
UPC is silent.
(As a practical matter you
cannot change your
revocable trust by will
because it becomes
irrevocable when you die.)
Generally, you cannot change non-probate transfers by will. That is usually the practical result as typically the
parties with whom you contract won’t allow you to change them by will.
In terms of creditor rights, they do have the right to go after most of the non-probate transfers. That’s both by
statute and by case-law.
In terms of the beneficiary surviving, even if they have to survive to take, the UPC has an antilapse statute in there,
so it ends up going to the beneficiary’s descendants if they fit within the proper relationship (grandparent or
descendant of grandparents) which is how most people choose to dispose of their property anyway.
SECTION D: REVOCABLE TRUSTS
1.
Introduction
(a) A revocable inter vivos trust is the most flexible will substitute because the donor can draft the dispositive
provisions and the administrative provisions exactly to his liking.
(b) Deed of Trust. Document by which the trust settlor (donor) transfers legal title to property to another
person as trustee. The trustee must be someone other than the settlor (if they’re the same person, see
“Declaration of trust,” below)
(c) Declaration of trust. The written instrument in which the terms of the trust are specified and whereby the
settlor also being the trustee.
(d) Donor typically retains the power to revoke, alter or amend the trust, as well as the right to trust income
during his lifetime.
(e) All jurisdictions recognize the validity of a revocable trust.
37
(f) Revocable Declaration of Trust. The settlor declares himself trustee for his own benefit during his life,
with the remainder passing to others at his death. The validity of these trusts is sometimes questioned
because there is little change in the owner’s relation to the property during his lifetime.
(g) TERMINOLOGY:
a. Settlor (a.k.a. grantor or trustor): The person establishing the trust and transferring property to it
b. Trustee: Holds legal title to the trust corpus (trust property) and manages it for the benefit of the
beneficiaries
i. Duty of loyalty to the beneficiaries
ii. Duty of prudence in the investments made with the trust property
c. Beneficiaries: Hold equitable title to the trust corpus (they’ll get the economic benefit of the trust
property)
d. Income beneficiaries: Get the income from the property in the trust
e. Remainder beneficiaries: Get what’s left over when the trust terminates
Farkas v. Williams (Ill. 1955):
Decedent = Albert B. Farkas, died intestate
Δ = Richard J. Williams, employed by Farkas in his veterinary practice for many years
Four times, Farkas bought stock and through a writing to the company instructed that they be issued to “Albert B.
Farkas, as trustee for Richard J. Williams.” Farkas also signed four separate, identical declarations of trust
declaring the trust fully revocable by Farkas.
ISSUE: Were the trust instruments executed by Farkas valid inter vivos trusts such that Williams receives title to
the stock at Farkas’ death?
SUB-ISSUE 1: Did Williams have any interest in the subject of the trusts upon execution of the trust instruments?
HELD: Yes. Farkas intended for Williams to obtain some interest in the stocks, even though the trust
document conditioned Williams’ benefits on survivorship.
If Williams had no interest in the stocks prior to Farkas’ death, then it was an attempted testamentary
disposition and is invalid because it did not comply with will formalities.
SUB-ISSUE 2: Did Farkas retain such control over the stocks so as to make the trusts actually attempted
testamentary dispositions?
HELD: No. A trust is not invalid simply because the settlor retains a lot of power over the trust property.
If the trust beneficiary would have a valid claim against the settlor’s estate for damage to the trust property,
then it’s probably a valid trust and not a testamentary disposition, as a legatee/devisee would not have a
claim against a testator’s estate (because they had no interest in any of the property prior to testator’s
death).
NOTES AND PROBLEM
A trust is a management relation whereby the trustee manages property for the benefit of one or more
beneficiaries. Trustee holds legal title to the property and typically has discretion over its disposition (such
as the decision whether to sell the property and replace it with more desirable property). Trustee’s actions
are restricted by the fiduciary duties he owes to the beneficiaries.
Beneficiaries’ interest in a trust is “equitable title.” This equitable interest is enforceable against the trustee.
The trustee may be a trust beneficiary. However, no trust exists where the trustee is the only trust beneficiary
because the trustee would owe no duties to anyone but himself.
Merger of Equitable and Legal Titles. Thus, if a settlor is also the trustee, the key determination for whether
a valid revocable declaration of trust exists is whether fiduciary duties are owed by the trustee to anyone
but himself. If not, then no equitable interest exists in anyone but the settlor, who then remains the absolute
owner of the property. If the trustee is the settlor and the only beneficiary, then his equitable title and legal
title merge and there is no trust.
A trust may be validly formed even where the property for the trust is not yet owned by the settlor, so long as
the settlor intends to acquire, and actually does acquire, that property. This is true even where the settlor is
also the trustee and beneficiary.
Norman F. Dacey: author of controversial and popular book, How to Avoid Probate, in which he recommends
that a person declare himself trustee of his own property using a revocable declaration of trust, with the
trust property passing to chosen beneficiaries upon the person’s death.
38
In re Estate and Trust of Pilafas (Ariz. Ct. App. 1992):
Appellants = Remainder beneficiaries under an inter vivos trust, including 8 non profit organizations
Decedent = Steve J. Pilafas
FACTS:
Trust executed by Pilafas on 08/30/82, with himself and others as beneficiaries, and himself as trustee. Trust
was funded by Pilafas’ residence and his interest in a note and deed of trust on a mobile home park to
himself as trustee under that trust agreement. Other property acquired on 06/02/88 was added to the Trust.
Trust initially included non-profit organizations, his wife, brother, sons and granddaughter, and specifically
omitted three of his children. It contained a revocation provision allowing revocation or amendment by
writing.
Pilafas amended the trust twice, including once after his divorce, when he simultaneously executed a will and a
trust amendment that excluded his ex-wife and increased the shares going to the organizations.
Decedent’s relationship with his three omitted children thereafter improved, and his attorney prepared a revised
estate plan to include those children.
Pilafas died 09/28/88, and his son James (one of the originally excluded children) searched his house and
property for the original will and trust documents, which he was unable to locate. James and Nicholas
(another originally excluded son) testified that their father “fastidiously saved” important papers, was
unlikely to have just lost them, but had been known to tear up and discard papers that “offended him.”
ISSUE 1: Did Decedent revoke his will?
HELD: Yes. Court relied on the common law presumption of revocation when the will is last seen in testator’s
possession but cannot be found after his death. Appellants offered no evidence to rebut that presumption.
ISSUE 2: Did Decedent revoke his inter vivos trust?
HELD: No. The difference between a will and a trust is that the creation of a trust involves the present transfer
of property interests in the trust property to its beneficiaries, but a will creates no property interest in the
devisees/legatees until it “speaks” at the testator’s death.
Thus, the interests created in the beneficiaries by the trust document cannot be revoked unless the power of
revocation is specifically reserved in the document.
If a trust settlor reserves the power of revocation by a certain manner, then the trust cannot be revoked by any
other manner or circumstances besides that specified.
THEREFORE… the common law presumption used for wills does not hold for trusts; Pilafas did not revoke the
trust in writing, as specified in the trust document.
PROBLEMS
1.
2.
3.
Suppose Pilafas had executed a will expressly revoking the trust, and that will was found among his papers
after his death. Does it revoke the trust? Has it been delivered to the settlor-trustee? If he has prepared the
will and it revokes the trust, that would serve in most states as a writing that he would have delivered to
himself, because after all, who would hold the will but Steven Pilafas, who is the trustee here? So this
would satisfy the requirement and would treat it as though he revoked the trust with the signed writing
(will). What if a bank were the trustee?
Uniform Trust Act § 602(c)(2) provides that a revocable trust may be revoked by will or any other method
manifesting clear and convincing evidence of that intent, unless its terms make any specified method of
revocation exclusive.
Undue influence is not relevant to trusts. A settlor of a revocable trust has an absolute right to revoke the
trust so long as he is competent, regardless of the presence of some undue influence.
State Street Bank & Trust Co. v. Reiser (Mass. App. Ct. 1979):
RULE: “[W]here a person places property in trust and reserves the right to amend and revoke, or to direct
disposition of principal and income, the settlor’s creditors may, following the death of the settlor, reach in
satisfaction of the settlor’s debts to them, to the extent not satisfied by the settlor’s estate, those assets owned by
the trust over which the settlor had such control at the time of his death as would have enabled the settlor to use
the trust assets for his own benefit.” (See bottom of p. 370)
First, we take a moment to revel in the fact that this case takes place in the Year of the Birth of One Ms. Rissa
Bracke. Now, let us proceed to the enthralling facts of this fine case.
Decedent = Wilfred A. Dunnebier, created inter vivos trust 09/30/1971 consisting of the capital stock of five
closely-held corporations. Dunnebier also executed a will with his residuary estate going to the trust.
39
In about October of 1972, Dunnebier applied to State Street Bank for a $75,000 working capital loan, and he told the
bank he had controlling interests in the corporations which owned most of the assets appearing on the financial
statement he filled out. On 11/1/72, Dunnebier signed a personal demand note to the bank.
Around March of 1973, Dunnebier died in an accident and his estate had insufficient assets to pay back the entire
loan. The bank petitioned the court to allow it to reach the corpus of Dunnebier’s trust to get the money owed
to it under that loan.
ISSUE: Is the bank, as a creditor, able to reach the corpus of Dunnebier’s trust?
HELD: Yes. If Dunnebier were still alive, the bank would have access to the trust assets. Thus, when a person
creates for his own benefit a trust for support or a discretionary trust, his creditors can reach the maximum
amount which the trustee, under the terms of the trust, could pay to him or apply for his benefit.
In this case, because all of the principal and income of the trust were at Dunnebier’s disposal during his life, the
bank is able to reach that amount as well.
Court says it violates public policy to allow someone to live on the trust assets but then make those assets
untouchable to creditors after his death.
NOTES AND PROBLEMS
1.
2.
3.
4.
5.
2.
Tort creditors may also reach the assets of a revocable trust after settlor’s death. In re Estate of Nagel,
Iowa 1998.
Child support may also be drawn from a revocable trust’s assets after the settlor’s death. In re Marriage of
Perry, Cal. App. 1997.
Medicaid benefits may also be recovered from the assets of a revocable trust after settlor’s death. Belshe v.
Hope, Cal. App. 1995.
Some nonprobate assets are not available to creditors: life insurance proceeds, retirement benefits, and U.S.
savings bond with payable-on-death beneficiaries are usually exempt.
UPC § 6-215 allows creditors to reach P.O.D. bank accounts and joint bank accounts, where the estate is
insufficient.
Pour-over Wills
1.
2.
3.
4.
5.
A pour-over will is a means by which probate assets can be “poured” into an inter vivos trust established
during the testator’s life, which would allow the testator to merge after his death his testamentary estate,
insurance proceeds, and other assets into a single receptacle subject to unified trust administration.
For example: O creates a revocable inter vivos trust with X as the trustee and funds the trust with O’s
stocks and bonds. O then executes a will devising the residue of his estate to X, as trustee, to be held under
the terms of the trust.
Two theories contributed to the development of pour-over wills:
a. Incorporation by reference, where a will incorporates the trust instrument in existence at the
time of the will execution and makes it part of the will document. However, if the trust is
incorporated into the will, then the trust is testamentary, and having an inter vivos trust and a
testamentary trust can be complicated and add extra fees—having just one unified trust is better.
b. Independent significance, where the trust instrument doesn’t have to exist when the will is
executed, but the trust must have some property in it before the testator dies.
c. The main difference between the two theories is that the former requires the trust instrument exist
at the time the will is executed, whereas the latter requires the inter vivos trust have assets in it
before the settlor dies.
Because of the complications and difficulties of the two theories, a new theory—pour-over wills—was
developed to allow a will to “pour over” probate assets into an inter vivos trust as amended on the date of
death.
All jurisdictions recognize this, either through state statutes or through the Uniform Testamentary
Additions to Trusts Act.
Uniform Testamentary Additions to Trusts Act
UPC § 2-511. Testamentary Additions to Trusts
(a)
A will may validly devise property to the trustee of a trust established or to be established (i)
during the testator’s lifetime by the testator, by the testator and some other person, or by some other person,
40
including a funded or unfunded life insurance trust, although the settlor has reserved any or all rights of ownership
of the insurance contracts, or (ii) at the testator’s death by the testator’s devise to the trustee, if the trust is identified
in the testator’s will and its terms are set forth in a written instrument other than a will, executed before,
concurrently with, or after the execution of the testator’s will or in another individual’s will if that other individual
has predeceased the testator, regardless of the existence, size or character of the corpus of the trust. The devise is
not invalid because the trust is amendable or revocable, or because the trust was amended after the execution of the
will or the testator’s death.
(b)
Unless the testator’s will provides otherwise, property devised to a trust described in subsection
(a) is not held under a testamentary trust of the testator, but it becomes a part of the trust to which it is devised, and
must be administered and disposed of in accordance with the provisions of the governing instrument setting forth the
terms of the trust, including any amendments thereto made before or after the testator’s death.
(c)
Unless the testator’s will provides otherwise, a revocation or termination of the trust before the
testator’s death causes the devise to lapse.
Note that there is a “magical transformation” that takes place per the Uniform Testamentary Additions to Trusts Act:
the trust established at death by the pour-over is treated as an inter vivos trust that came into existence before
the testator’s death.
The will may also devise a pour-over to a trust that does not exist at the time of the will execution, so long as the
testator does later create that trust.
QUESTIONS, PROBLEM, AND NOTE
While the general rule is that trusts cannot dispose of property acquired after the trust is executed which is not
transferred to the trust, the pour-over will allows the testator to circumvent this general rule and pour-over even
after-acquired assets to the trust.
Clymer v. Mayo (Mass. 1985):
Decedent = Clara A. Mayo, died 11/21/1981. Married to James P. Mayo Jr. & divorced in 1978, never had children.
Her heirs at law are her parents, Joseph & Maria Weiss.
BASIC TIMELINE:
1963—Clara executes will with James as principal beneficiary.
1964—Clara names James beneficiary of group annuity life insurance contract
1965—Clara makes James beneficiary of her Boston Univ. retirement annuity contracts
1971—Clara’s parents gift $300,000 to James & Clara
02/02/1973—Clara & James execute new wills & indentures of trust with each making the other person their
principal beneficiary. James was to receive Clara’s personal property and the residue of her estate would
“pour over” into the inter vivos trust created that same day.
Clara’s trust named her & John Hill as trustees, and she retained the right to amend or revoke the trust
through a written instrument delivered to the trustees. If James survived Clara, the trust was to be
divided into Trust A and Trust B.
Trust A was the “marital deduction trust” to be funded with an amount equal to 50% of Clara’s adjusted gross
estate, and James was the income beneficiary of Trust A and was allowed to reach the principal at his
request or at the trustee’s discretion.
Trust B was to be funded by the balance of Clara’s estate, or (if James did not survive her) her entire estate.
Five specific gifts of $45,000 each were to be taken out of Trust B and any remaining trust assets were to
be held for James’ benefit for life. Upon James’ death Trust B’s assets were to be held for Clara’s
nephews and nieces living at the time of her death, and the trustee had discretion to spend the income &
principal for their comfort, education and support. When the nieces & nephews turned 30, Trust B would
expire and its remaining assets would go equally to Clark Univ. & Boston Univ.
02/02/1973—Clara changed the beneficiary of her Boston Univ. retirement annuity contract from James to
the trustees.
03/1973—Clara changed the beneficiary of her retirement annuity contracts from James to the trustees.
1975—James leaves the marital home
06/1977—Clara changed the beneficiary of her Boston Univ. life insurance policy from the trustees to
Marianne LaFrance, who lived with Clara since 1972.
09/09/1977—James files for divorce
41
01/03/1978—Divorce decreed and the property settlement agreement stated that James waived all rights to
Clara’s securities, savings accounts, savings certificates, retirement fund, furniture, furnishings & art.
08/28/1978—James remarried & executed new will in favor of his new wife.
11/21/1981—Clara dies.
ISSUE: What was the effect of the divorce on the dispositions of Clara’s will and trust?
Validity of Pour-Over Trust: Per state statute, a trust is valid regardless of the “existence, size or character of the
corpus of the trust.” Thus, as the court points out, “The act does not require that the trust res be more than
nominal or even exist.” Therefore, Clara’s pour-over trust was valid even though it was completely unfunded
throughout her entire life and became funded only upon her death.
Termination of Trust A: The purpose of Trust A was to qualify for an estate tax marital deduction. Because
Probate Courts are allowed to terminate a trust where its purposes have become impossible to achieve, and
because Clara certainly did not contemplate Trust A’s continuation where she & James were not married, the
court terminated Trust A.
James’ Interest in Trust B: First judge upheld James’ interest in Trust B. The appellate court disagreed. Where a
revocable pour-over trust funded entirely at the time of the decedent’s death exists, state statute revokes the
divorced spouse’s interest in that trust. Court emphasized that while a trust document has independent
significance, Clara’s trusts had no practical significance until her death. Clara’s estate plan must be considered
as a whole, with the will and the trusts being considered together. The trust was unfunded until her death, and
because it and the will were “integrally related components of a single testamentary scheme,” the trust, like the
will, “spoke” only at the time of Clara’s death. Court holds that the legislative intent under state statute (G.L. c.
191, § 9) was that a divorced spouse should not take under a trust executed in these circumstances, absent some
express contrary intent.
Clara’s Nephews & Nieces: When trust was executed, the only nephews & nieces Clara had were James’ nephews
and niece; Clara had no siblings. Thus, Clara clearly intended to provide for these nephews and niece, and she
never revoked this intention during life. The state statute discussed above does not provide a basis for
terminating the interest of a divorced spouse’s relatives where those relatives are given gifts by a decedent, and
there is no evidence of legislative intent to that effect. Thus, the nephews and niece may retain their interest in
the trust.
NOTES AND PROBLEM
1.
2.
3.
4.
5.
An unfunded life insurance trust exists where a settlor names the trustee of her inter vivos trust the
beneficiary of her life insurance policy and does not add any other funds or assets to the trust.
a. The trust res is the trustee’s contingent right to receive the proceeds of the insurance policy
b. Has independent significance because it disposes of nonprobate assets (the insurance proceeds)
A funded inter vivos trust exists where the settlor names the trustee of her inter vivos trust the beneficiary
of her life insurance policy and does add other assets or funds to the trust.
a. Has independent significance because the trust disposes of the assets transferred to the trust during
life.
Revocation by divorce: some state statutes provide that divorce revokes any provision in a revocable trust
for the spouse, who is deemed to have predeceased the settlor.
a. UPC § 2-804 revokes all provisions for a divorced spouse and revokes any provisions for relatives
of the divorced spouse.
No contest clauses may be valid in a trust as they would be in a will.
Means of creating a unified trust of life insurance proceeds and probate assets:
a. Unfunded revocable life insurance trust coupled with a will pouring over probate assets into that
trust
b. Create a trust in the will and designate as the beneficiary of insurance proceeds “the trustee named
in my will.” This creates a testamentary trust rather than an inter vivos trust, and the insurance
proceeds would be paid to the trustee as named in the will rather than to the executor of the estate.
3. Use of Revocable Trusts in Estate Planning
(To be covered “briefly” in class)
a.
Introduction
42
b.
Consequences During Life of Settlor
1.
Property management by fiduciary. Relieves settlor of the burdens of financial management, but may
make it more difficult to conduct some transactions where the title to the property is vested in a trustee as
opposed to a private individual.
Keeping title clear. Keeps separate that property husband & wife want to prevent from getting
commingled with their other assets, such as the property each spouse owned prior to the marriage.
Income and gift taxes. Assets in a revocable trust are treated as being owned by the settlor, so there are no
federal tax advantages to creating a revocable trust.
Dealing with incompetency. Settlor may be a co-trustee with the trust designating that either trustee may
act alone on behalf of the trust, such that when settlor becomes incompetent, the other trustee can take over.
2.
3.
4.
c.
Consequences at Death of Settlor: Avoidance of Probate
1.
Costs. Trustee’s fees may be payable if a third-party trustee is named, but those fees will be much smaller
than the costs associated with probate. However, lawyers charge more to draft a revocable trust than to
draft a will, especially when pour-over documents are involved.
Delays. While the typical probate takes 18 to 24 months to settle, a revocable trust may allow
disbursement of income and principal quickly.
Creditors. The statute of limitations period for creditors to a revocable trust is the normal one applicable
to the claim; there is no short-term statute of limitations as there is for a probated estate.
Publicity. An inter vivos trust is not recorded in a public place, whereas a will is a public record.
Ancillary probate. Land in other states outside the settlor’s domicile can be transferred to the trust,
allowing title to be vested in the trustee during the owner’s life. This avoids having to probate that land in
a state separate from the decedent’s domicile.
Avoiding restrictions protecting family members. A spouse’s elective share may be defeated where the
other spouse creates a funded revocable trust in another state that does not recognize the spouse’s right to
reach the trust. A funded revocable trust may also be used to put assets beyond the reach of an illegitimate
child who would otherwise collect under pretermission statutes.
Avoiding restrictions on testamentary trusts.
Choosing the law of another jurisdiction to govern. In general, the settlor of an inter vivos trust may
choose the state law that governs that trust.
Lack of certainty in the law. Problems arising with revocable trusts may be less certain that where
problems arise with wills, since wills have been around that much longer.
Avoiding will contests. It is more difficult to get a trust than a will set aside for lack of mental capacity or
undue influence.
Estate taxation. No federal tax advantages to revocable trusts.
Controlling surviving spouse’s disposition.
Custodial trusts. Provides a statutory trust for the support of the beneficiary; designed for elderly persons
of modest means who consult attorneys not specializing in estate planning and who want an inter vivos
trust for asset management in the event of incompetence or incapacity.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
CHAPTER 6: CONSTRUCTION OF WILLS
SECTION A: ADMISSION OF EXTRINSIC EVIDENCE
1.
Interpretation of Wills
Majority Rule: “Plain Meaning Rule.” A plain meaning in a will cannot be disturbed by the introduction of
extrinsic evidence that another meaning was intended.
Mahoney v. Grainger (Mass. 1933):
Decedent = Helen A. Sullivan
Sole heir at law at Helen’s death was her maternal aunt, Frances Hawkes Greene.
The residuary clause of Helen’s will stated that the residue of her estate was to go to “my heirs at law living at the
time of my decease, absolutely; to be divided among them equally, share and share alike.” When Helen had
43
spoken to her attorney about preparing her will and he asked her to whom she wanted to leave her estate’s
residue, she had replied that she had about 25 first-cousins and that they should share it equally.
ISSUE: Can extrinsic evidence of the testatrix’s true intent be introduced where even though the will itself is not
unclear or unambiguous, the evidence indicates that the testatrix’s true intent would not be served by probating
the will as it stands?
HELD: No. “Where no doubt exists as to the property bequeathed or the identity of the beneficiary there is no room
for extrinsic evidence; the will must stand as written.” (See p. 411, bottom) The fact that a will is prepared
such that it does not conform to the testatrix’s instructions, or that a mistake was made in its preparation, does
not give the court power to change the will as it was executed.
THUS: Even though Helen intended for her 25 first cousins to share in the residue of her estate, by the words and
plain meaning of her will as written, her sole heir at law, her aunt, gets the whole residue.
Estate of Russell (Cal. 1968):
Decedent = Thelma L. Russell, died 09/08/1965 with a validly executed holographic will written on a small card
indicating that everything she owned was to go to Chester H. Quinn (her longtime friend) and Roxy Russell (her
pet dog), except for a $10 gold piece and diamonds, which were to go to Georgia Nan Russell Hembree, the
appellant here.
Appellant = Georgia Nan Russell Hembree, Thelma’s niece and only heir-at-law, challenging the lower court’s
ruling that the residue of Thelma’s estate was to go to Chester H. Quinn.
The introduction of extrinsic evidence is appropriate to show that a will’s seemingly clear and plain meaning
actually embodies a latent ambiguity. Once such an ambiguity is shown to exist, it may be settled by extrinsic
evidence.
Unlike the Mahoney court, this court holds that it is inappropriate for a court not to consider extrinsic evidence, as
such must be considered in order to determine the true meaning of the will and what the parties actually meant
by the language used in the will.
A determination that a will’s language is clear and plain can only be properly made when the circumstances
surrounding its making and execution are known.
Here, the court determined that Thelma intended to leave her estate to Chester and Roxy in equal shares as tenants in
common, but because an attempted to gift to a dog is void, that gift lapses and that portion goes to the heirs-atlaw.
Quinn should not have been able to introduce to the lower court his extrinsic evidence indicating that Thelma
wanted him to get her entire estate and to use whatever portion thereof as necessary for the care of her pet, as
the terms of the will “are not reasonably susceptible of” that reading.
NOTES, QUESTIONS AND PROBLEMS
1.
2.
3.
4.
5.
6.
2.
A latent ambiguity is one that does not appear on the face of the will but appears when the terms of the
will are applied to the testator’s property or designated beneficiaries.
A patent ambiguity is one that appears on the face of the will.
Whether an ambiguity is patent or latent may differ depending on the reader’s interpretation.
Equivocation exists where a description in a will fits two or more external objects equally well, such as
where a gift is left to “my niece Alicia,” when the testator actually has two nieces by that name. This is
considered a latent ambiguity, and direct expressions of the testator’s intent are admissible for clarification.
Oral declarations of intent to the scrivener of the will are admitted in most jurisdictions.
A mere false description of property or person does not make the will inoperative; it is a latent
ambiguity. The false description may be stricken from the will.
Malpractice? Attorneys may be liable to the testamentary beneficiaries if those beneficiaries clearly
designated by the testator lose their legacy as a direct result of the attorney’s negligence, but the attorney is
not typically liable for malpractice for drafting an ambiguous document. A California court noted that
holding to the contrary would create a duty of drafting litigation-proof documents, which would be an
“intolerable burden” on the legal profession.
Correcting Mistakes
Erickson v. Erickson (Conn. 1998):
44
2 days prior to testator’s marriage he makes upa will giving all of his estate to the woman who would become his
wife in two days, and she is even named as the executor of the will. CT has a statute saying that if you get
married after you make a will and you’ve made no provision in the will itself for any contingency regarding the
marriage, the will becomes void when you get married. So here’s this will the testator signed and executed 3
days prior to marriage leaving everything to his bride-to-be, and naming her the executor of the will, and it
comes up against this CT statute saying that because it didn’t even mention the contingency of the marriage in
the will, the will is revoked. The kids are in favor of revocation because otherwise the kids get nothing.
At the trial court, they say it’s clear he set up the will so that he was giving to his wife, and he had taken the
contingency of marriage into account. After all, why would you prepare the will giving 100% of your property
to your fiancée two days before the marriage if you weren’t thinking about the contingency of marriage?
The CT Supreme Court steps in and says that holding is incorrect.
The CT Courts are going to be willing to correct mistakes in a will that are brought about by the scrivener error.
The main policy reason the court advances for this is that we allow extrinsic evidence when a testator signs a
will induced by fraud, duress or undue influence, and it is not any different to show that the testator wouldn’t
have signed if it hadn’t been but for the scrivener’s mistake, the execution was induced by that mistake.
Court says it’s a very limited exception in correcting mistake: must be a scrivener’s error that the testator relied upon
in executing the will. Then extrinsic evidence will be allowed in to show what the testator’s intent actually was.
This must be shown by clear and convincing evidence.
QUESTION AND NOTES
1.
2.
3.
The rule that courts must not correct mistakes in wills is consistently attacked by commentators and the
drafters of Uniform Laws and Restatements. After all, courts cure will mistakes in other situations, such as
striking out a false description, holding as an ineffective insane delusion some mistaken belief about the
testator’s family, and using the doctrine of dependent relative revocation to remedy a mistaken revocation
of a will.
Some recent cases have allowed courts to remedy errors made by the scrivener.
Gifts by implication: New Jersey uses a doctrine of probable intent to fill “gaps” in wills, which may be
found where a particular contingency that occurs was not provided for by the will’s language. The court
examines the family circumstances and testamentary disposition plan and attempts to determine how the
testator would want his property distributed in the unplanned-for circumstance.
Restatement (Third) of Property, Donative Transfers, § 12.1 (T.D. No. 1, 1995)
§ 12.1. Reforming Donative Documents to Correct Mistakes
A donative document, though unambiguous, may be reformed to conform the text to the donor’s intention
if the following are established by clear and convincing evidence:
(1)
that a mistake of fact or law, whether in expression or inducement, affected specific terms
of the document; and
(2)
what the donor’s intention was.
Direct evidence of intention contradicting the plain meaning of the text as well as other evidence of
intention may be considered in determining whether elements (1) and (2) have been established by clear and
convincing evidence.
SECTION B. DEATH OF BENEFICIARY BEFORE DEATH OF TESTATOR
1.
2.
3.
All devises made by will are subject to the requirement of survivorship unless the testator specifies to the
contrary. Thus, if a devisee does not survive the testator, the devise lapses.
Antilapse statutes have been enacted in almost all states which, under certain circumstances, substitute
another beneficiary for the predeceased devisee.
Common law (default) rules for lapsed devises:
a. Specific or general devise: devise falls into the residue.
b. Residuary devise: If the devise of the entire residue lapses, the heirs of the testator take by
intestacy. No residue of a residue rule: If only a share of the residue lapses, the lapsed share
passes by intestacy to the testator’s heirs; that share does not go to the remaining residuary
devisees. This rule is “clearly on its way out” since it does not carry out the intent of most
testators.
45
4.
5.
c. Class gift: Surviving members of the class divide the gift.
d. Void devise: Where a devisee is dead at the time the will is executed, the devise is void.
Antilapse statute applies to a lapsed devise only if the devisee bears the particular relationship to the
testator specified in the statute: usually the descendants of the testator or of the testator’s grandparents, or
the kindred of the testator. The UPC antilapse statute applies to devises to a grandparent or lineal
descendant, and was amended to include devises to stepchildren.
Where applicable, the antilapse statute supersedes the common law rules; however, it is still (like common
law) a default position, meaning that it applies only if the testator has not specified an alternative.
UPC § 2-605. Antilapse; Deceased Devisee; Class Gifts.
If a devisee who is a grandparent or a lineal descendant of a grandparent of the testator is dead at the time of
execution of the will, fails to survive the testator, or is treated as if he predeceased the testator, the issue of the
deceased devisee who survive the testator by 120 hours take in place of the deceased devisee and if they are all of
the same degree of kinship to the devisee they take equally, but if of unequal degree then those of more remote
degree take by representation. One who would have been a devisee under a class gift if he had survived the testator
is treated as a devisee for purposes of this section whether his death occurred before or after the execution of the
will.
Allen v. Talley (Tex. Ct. App. 1997):
ISSUE: Whether decedent’s will contains words of survivorship which preclude application of the antilapse statute.
HELD: Yes. Affirmed judgment of trial court.
Decedent = Mary Boase Shoults
When Mary executed her will, she had 3 brothers and 2 sisters living. When she died only one brother (Claude) and
one sister (Lera) were living. All the predeceased siblings left living children, including a nephew, Lewis Jr.
Lera contended that Mary’s will contained words of survivorship, giving her and Claude the entire estate, but
Lewis Jr. contended there was no condition of survivorship, giving the siblings’ children shares of the estate by
representation.
The court held that the phrase “to my living brothers and sisters” must be construed in light of the will as a whole
and the sentence as a whole, and that the words must be given their common and ordinary meaning absent some
contrary expression in the will. Thus, Lera’s interpretation of the will is correct, and she and Claude share the
estate equally.
EXAMPLE (IN CLASS)
“I give my Rolex watch to my nephew, Michael.” Michael predeceases the testator. What result?
Common Law
Devise lapses.
Where a specific bequest fails, it
passes with the residue of the estate.
UPC
Devise lapses.
UPC’s antilapse statute states that
the watch will go to Michael’s issue
by representation (because he is a
descendant of my grandparents).
If there are no living descendants of
Michael, then the gift fails
completely, and the gift goes to the
residue of the estate.
Texas
(See footnote, page 442)
Devise lapses.
Because Michael is a descendant of
my parents, the TX antilapse statute
applies and the watch goes to
Michael’s descendants by
representation.
“I give my Rolex watch to my cousin, Michael.” Michael predeceases the testator. What result?
Common Law
Devise lapses.
Devise lapses.
UPC
Where a specific bequest fails, it
passes with the residue of the estate.
My cousin is the child of my aunt or
uncle, who is the descendant of my
46
Texas
(See footnote, page 442)
Devise lapses.
grandparent. So under the UPC
Michael meets the relationship test
such that his descendants may take
by representation.
My cousin does not descend through
my parents, as TX requires. Thus,
the gift fails completely and is
passed through the residue of the
estate.
PROBLEMS AND NOTES
1.
2.
3.
4.
Contrary Intent: An antilapse statute, being a “default rule,” applies only where the testator fails to
evidence a contrary intention. The majority rule is that an express requirement of survivorship states an
intent that the antilapse statute not apply and no devisee substitution occur (e.g., “To X if he survives me”
would express a “contrary intent” sufficient to prevent the application of the antilapse statute).
The UPC disagrees with the majority rule. It states that absent additional evidence, phrases like “if he
survives me” or “to my surviving children” are not sufficient indications of contrary intentions, and the
antilapse statute would still apply.
a. For the purposes of this class, we will use the old version of the UPC for contrary intent; that is,
when “if he survives me” or “to my surviving children,” then we’ll assume that’s sufficient
contrary intent to defeat the application of an antilapse statute.
Drafting Advice: You should never rely upon presumptions when drafting a will. Make the client’s intent
clear and provide for contingencies, such as the situation where the intended devisee does not survive the
testator.
Nonprobate Transfers: Does the antilapse statute apply? Case authority is slim.
a. Payable on Death Designations. Governed by the law of contracts, third-party beneficiaries of
contracts are not required to survive the benefactor, and the beneficiaries’ heirs may inherit their
portion. However, the UPC specifies that beneficiaries of P.O.D. bank accounts must survive the
depositor.
i. In practice, most contracts with death beneficiaries state a survivorship requirement in
their text.
b. Revocable Trusts. Traditionally, no requirement of survivorship is implied when a remainder
interest is created, as is the case with revocable trusts, which create contingent remainders.
c. Joint Tenancies. No antilapse statute applies to joint tenancies.
Jackson v. Schultz (Del. 1959):
“There being a recognized rule of construction permitting ‘and’ to be read as ‘or’ when so to do will carry out the
testator’s intent … the total testamentary background calls for a finding of intent that a subtitutionary gift over
to the testator’s stepchildren be made in the event of his wife’s death prior to his own.” (Bottom of p. 448)
PROBLEM, page 449
H devises 3/4 of his estate to W and 1/4 to charity. H’s two children are mentioned but not provided for in H’s will.
W predeceases H. Who takes H’s estate?
Because W is H’s spouse, then the antilapse statute does not apply (because she’s not a descendant of his parents or
grandparents…we hope). Thus, that 3/4 of the estate must go with the residue of the estate. There is a rule now
in the UPC & majority of jurisdictions that if a gift to a residuary beneficiary fails, which it does here, then it
goes to the other residuary beneficiaries in equal shares. So…the charity ends up getting 100% of the estate.
Simultaneous Death:
Under the Old Act where there is no evidence to the order, the presumption is that the beneficiary predeceased the
testator. So W would be assumed to have predeceased H.
Class Gifts. The test of whether a gift is to a class or a group of individuals is often said to be whether the testator is
“group minded.” Labeling a class gift as such is not necessary, though it is one factor a court may consider.
Dawson v. Yucus (Ill. Ct. App. 1968):
47
A gift to a class may be defined as a gift of an aggregate sum to a body of persons uncertain in number at the time
of the gift, to be ascertained at a future time and who are all to take in equal or in some other definite
proportions, the share of each being dependent for its amount upon the ultimate number of persons.
In Dawson, the common characteristic shared by the members of the alleged class was their relation to the
decedent’s husband. However, there were other people who equally fit that characteristic who were specifically
not named in decedent’s will. Court uses this point to support their holding that it was not a class gift.
In re Moss (Ct. App. England 1899):
Where a testator devises a gift to a named individual and a class, where the testator contemplates the individual
taking the same share as each member of the class, the gift shall be read as a prima facie class gift.
Thus, where the named individual in such a scenario predeceases the testator, that individual’s portion of the gift is
shared by the rest of the class members.
COMPARE TO:
American Law of Property § 22.13 (1952):
A gift to a named individual and a class is a gift to one individual and a class, absent other factors.
Thus, if the named individual predeceases the testator, the individual’s share lapses and is not shared by the class.
Application of Antilapse Statutes to Class Gifts. Almost all states apply antilapse statutes to class gifts.
SECTION C: CHANGES IN PROPERTY AFTER EXECUTION OF WILL
SPECIFIC AND GENERAL DEVISES COMPARED
1.
2.
Ademption by Extinction: Doctrine applicable to specific devises of real and personal property by which
a devise is “adeemed” (taken away) if the specific property is not owned by the testator or is not in
existence when the testator dies.
Ademption does not apply to general or demonstrative devises, only to specific devises.
a. specific devise: disposition of a specific item, e.g., “my three-carat diamond ring given to me by
my Aunt Jane”
b. general devise: testator confers a general benefit but does not give a particular asset, e.g.,
“$10,000 to A.”
c. demonstrative devise: hybrid of specific and general; it is a general gift payable from a specific
source, e.g., “the sum of $10,000 to be paid from the proceeds of sale of my General Motors
stock.”
Wasserman v. Cohen (Mass. 1993):
ISSUE: Does the doctrine of ademption by extinction apply to a specific gift of real estate contained in a revocable
inter vivos trust?
HELD: YES. When a testator disposes of the subject of a specific devise during his lifetime, that devise is
considered adeemed, regardless of the intent or motive of the testator.
IDENTITY THEORY: The focus is not on testator’s intent. While the doctrine of ademption attempts to give
effect to the testator’s probable intent of extinguishing the specific gift when that property is disposed of by the
testator during his life, the focus of the inquiry is on whether that specific property exists and is within the
testator’s ownership at the time of his death.
The proper first step in the inquiry is determining whether the devise is specific or general.
Will & Trust as Comprehensive Scheme: Using the rule propounded in Clymer v. Mayo (see above), court holds
that when a trust and a will are executed as part of a comprehensive estate plan, the trust is properly construed
according to the same rules applied to the will. Thus, the rule of ademption applies, even though the property
was to be conveyed under a trust rather than the will.
Plaintiff = Elaine Wasserman
Defendant = David Cohen, surviving trustee
Decedent = Frieda M. Drapkin, settlor & trustee of the Joseph & Frieda Drapkin Memorial Trust (created 12/1982)
Wasserman requested that Cohen be ordered to pay her the proceeds of the sale of an apartment building that
Drapkin’s trust would have conveyed to Wasserman had it not been sold by Drapkin prior to her death. Probate
judge refused, and this court affirms that decision.
Drapkin sold the property at issue on 9/29/1988 without ever having put title to that property in the name of the
Trust; died on 03/28/1989.
48
NOTES AND PROBLEM
1.
2.
3.
4.
Escape routes to avoid ademption:
a. Classify the devise as general or demonstrative.
b. Classify the inter vivos disposition as a change in form, not substance (see “Stock Splits,” below)
c. Construe the meaning of the will as of the time of death rather than as of the time of execution.
d. Create exceptions. For instance, ademption requires the testator’s voluntary act; thus, if the
subject of the devise is disposed of by someone other than the testator or if the testator was
incompetent at the time, then the gift may not be held as adeemed.
Where a testator bequeaths his bank account to A, and then later closes that account and purchases
Certificates of Deposit with its contents, the gift is generally held to be adeemed and A has no claim to the
Certificates.
Stock Splits: The basic nature of a stock split is a change in form, not substance. The owner’s
proportional ownership remains the same before and after the split. Thus, most courts hold that absent a
contrary showing of intent, a devisee of stock is entitled to additional shares received by the testator as a
result of a stock split.
UPC: The 1969 Code followed the “identity theory” with five exceptions. The 1990 Code abandoned the
identity theory and adopted the “intent theory” which holds a “mild presumption” against ademption and
places the burden of proof for rebutting that presumption on the part claiming ademption occurred.
UPC §2-606. Non-ademption of Specific Devises; Unpaid Proceeds of Sale, Condemnation, or Insurance; Sale
by Conservator or Agent.
(a) A specific devisee has a right to the specifically devised property in the testator’s estate at death and:
(1)
any balance of the purchase price, together with any security agreement, owing from a purchaser
to the testator at death by reason of sale of the property;
(2)
any amount of a condemnation award for the taking of the property unpaid at death;
(3)
any proceeds unpaid at death on fire or casualty insurance or on other recovery for injury to the
property;
(4)
property owned by the testator at death and acquired as a result of foreclosure, or obtained in lieu
of foreclosure, of the security interest for a specifically devised obligation;
(5)
real or tangible personal property owned by the testator at death which the testator acquired as a
replacement for specifically devised real or tangible personal property; and
(6)
if not covered by paragraphs (1) through (5), a pecuniary devise equal to the value as of its date of
disposition of other specifically devised property disposed of during the testator’s lifetime but only to the extent
it is established that ademption would be inconsistent with the testator’s manifested plan of distribution or that
at the time the will was made, the date of disposition or otherwise, the testator did not intend that the devise
adeem.
(b) If specifically devised property is sold or mortgaged by a conservator or by an agent acting wihin the
authority of a durable power of attorney for an incapacitated principal, or if a condemnation award, insurance
proceeds, or recovery for injury to the property are paid to a conservator or to an agent acting within the authority of
a durable power of attorney for an incapacitated principal, the specific sale price, the amount of the unpaid loan, the
condemnation award, the insurance proceeds, or the recovery.
(c) The right of a specific devisee under subsection (b) is reduced by any right the devisee has under
subsection (a).
PROBLEMS AND NOTE
1.
Under UPC § 2-606(a)(5), dealing with replacement property, if T executes a will bequeathing “my Ford
car” to A and later sells the Ford and buys a Rolls-Royce, is A entitled to the Rolls?
a. Suppose T sold the Ford and bought two cars, a Honda and a Rolls-Royce. What result? Suppose
T sold the Ford and bought a motorcycle. What result?
b. If T devises Blackacre to A and sells it and buys Whiteacre with the proceeds, is A entitled to
Whiteacre?
49
2.
3.
Aunt Fanny’s snuff bottles… What are Wendy’s rights under the common law identity theory? Under UPC
§ 2-606(a)(6)? Don’t worry about it; Prof. said to ignore this problem.
UPC §2-606(a)(6) has been criticized for abandoning the identity theory because it may increase litigation
and allow a bequest to be changed from “my diamond ring” to “my diamond ring or its equivalent value,”
rendering a devise the testator may not have intended. This section has been enacted only in CO, MI, MT,
and UT.
NOTE: MORE ON SPECIFIC & GENERAL DEVISES
1.
2.
3.
Abatement arises when the estate has insufficient assets to pay debts as well as all devises, requiring that
some devises be abated or reduced. Devises abate in the following order, unless the will specifies
otherwise:
a. Residuary devises
b. General devises
c. Specific and demonstrative devises, reduced pro rata.
Exoneration of liens: When a will makes a specific disposition of real or personal property that is subject
to a mortgage to secure a note on which the testator is personally liable, it is presumed, absent contrary
language in the will, that the testator wanted that debt, like other debts, paid out of the residuary estate.
a. A number of states have statutorily reversed this common law presumption, such that a bequest of
real property passes subject to any mortgages or liens.
Satisfaction of general pecuniary bequests, also called the doctrine of satisfaction or ademption by
satisfaction, applies when the testator makes a transfer to a devisee after executing his will and creates a
rebuttable presumption that the gift is in satisfaction of the gift made by will.
a. Applies only to general pecuniary bequests, not to specific. Where specific property is given
during testator’s life, there is ademption by exemption (because once the testator gives the
property away, he no longer owns it).
b. Satisfaction depends upon the testator’s intent.
c. Some states require a testator’s intent to adeem by satisfaction be evidenced in writing.
CHAPTER 7: RESTRICTIONS ON THE POWER OF DISPOSITION
PROTECTION OF THE SPOUSE & CHILDREN
SECTION A: RIGHTS OF THE SURVIVING SPOUSE
1.
Introduction to Marital Property Systems
Two basic marital property systems:
1. Separate Property
a. Husband and wife own separately all property each acquires except for whatever items each
spouse agrees to put into joint ownership with the other.
b. Whatever the worker earns is his or hers; there is no sharing of earnings
c. Almost all separate property states allow the surviving spouse an elective or forced share in the
deceased spouse’s estate to protect against disinheritance.
2. Community Property
a. Husband and wife own all acquisitions from earnings after marriage in equal undivided shares
b. Husband and wife are seen as a marital partnership; earnings are used together and are shared
c. Property acquired by each spouse before marriage, or during the marriage by gift, devise or
descent, is owned by that spouse separately.
3. Uniform Marital Property Act
a. Adopts community property principals, but uses the term “marital property” instead.
2.
Rights of Surviving Spouse to Support
a.
Social Security
50
The social security system incorporates community property principles in that the earnings are to be shared by the
spouses. The wage-earner has no right to shift the survivor’s benefit to anyone else.
b.
Private Pension Plans
ERISA, amended by the Retirement Equity Act of 1984, requires an employee’s spouse to have survivorship rights
if the employee predeceases the spouse.
Pension paid must be paid as joint and survivor annuity to the employee and spouse, unless the non-employee
spouse consents to some other form of payment.
ERISA preempts state law relating to spousal rights to pension plans.
A spouse may waive her rights to benefits under the pension plan, but ERISA discourages waiver by requiring strict
rules for waivers to be valid.
Premarital agreements cannot waive ERISA rights.
PROBLEM
W designates H as the death beneficiary of her employer’s pension plan. Subsequently, W divorces H. Upon W’s
death before retirement, is H entitled to the death benefits? What would be the result if W had remarried?
What would be the result if W had changed the death beneficiary to her sister S after the divorce?
c.
Homestead
Almost all states secure the family home from creditor claims through homestead laws.
The decedent has no power to dispose of a homestead so as to deprive the surviving spouse of statutory rights to it.
d.
Personal Property Set-Aside
A surviving spouse may set aside certain tangible personal property of the decedent up to a certain value, including
household furniture and clothing, and possibly car and farm animals.
e.
Family Allowance
Every state statutorily authorizes the probate court to award a family allowance for maintenance and support of
the surviving spouse and dependent children. The allowance may be limited to a fixed time period.
UPC §2-404 allows a reasonable allowance not to exceed one year if the estate is inadequate to pay creditors. Once
the estate is closed, no further maintenance and support is available.
English System provided that the decedent’s property must continue to be used to support his dependents. This
system is largely rejected by American courts because it gives too much discretion to probate judges, and
because it is inconsistent with the notion of a surviving spouse getting an elective share of the marital economic
gains.
f.
Dower
At common law, a widow had dower (a life estate in 1/3) in all of her husband’s land acquired during marriage and
which was inheritable by the issue of her and her husband.
The right of dower applied when the husband acquired title or upon marriage, whichever happened last.
No purchaser may cut off the wife’s dower without her consent.
Curtsey was a common law notion of a husband having support interests in his wife’s land, and it survives in a
couple states as a label given to the support interest of the husband which has actually been made identical to
the wife’s common law dower.
In most states retaining dower, the survivor must elect to take it, or to take a statutory share in the estate, or to take a
share under the decedent’s will. Dower is rarely chosen.
PROBLEMS
51
1.
2.
3.
H, married to W, buys Blackacre, taking title in “H for life, remainder to H’s daughter D.” Subsequently H
buys Whiteacre, taking title in “H and D as joint tenants with rights of survivorship.” H dies. Does W
have dower in Blackacre or Whiteacre? Suppose that D had died before H. Would D’s husband have
dower in Blackacre?
W, a real estate developer, wants to be able to buy land and sell it without the consent or interference of her
husband. The jurisdiction has common law dower for husbands and wives. W consults you. What do you
recommend?
Rights of Surviving Spouse to a Share of Decedent’s Property
a.
The Elective Share and Its Rationale
Elective or Forced Share All separate property states except Georgia give the surviving spouse a share in the
decedent’s property, as well as any support rights.
In some states the elective share is limited to a life estate in 1/3 or 1/2 of the decedent’s estate.
Statutes providing that elective shares are satisfied by giving the survivor life income from a trust reflect a view that
the law should force the decedent to provide his surviving spouse with lifetime support but should not force him
to give a share of ownership in the fruits of the marriage.
Demonstrates that it is the support rationale winning out—to support the surviving spouse—rather than the
partnership theory, which would entitle the survivor to 1/2.
UPC Art. II Part 2: General Comment: The Partnership of Marriage
The partnership theory of marriage is the presumed intent of husbands and wives to pool their fortunes on a equal
basis. Each spouse is entitled to compensation for non-monetary contributions to the marriage.
In community states, each spouse is granted an immediate half-interest in property immediately upon its acquisition,
recognizing the marriage is a collaboration.
Elective-share laws do not quite capture that same idea, since the elective share is only 1/3 of the estate, rather than
1/2.
The 1990 UPC gives the surviving spouse a sliding-scale percentage of the elective share amount depending on the
length of the marriage, plus a $50,000 supplemental elective-share amount as a means of ensuring the survivor
is entitled to some amount, regardless of the marriage length.
In most states the right to an elective share is personal to the surviving spouse and cannot be exercised by someone
else after the surviving spouse’s death.
NOTE: MUST THE SURVIVING SPOUSE ACCEPT A LIFE ESTATE?
(a) A spouse is usually credited for the value of all interests given to her by the will when figuring her elective
share. If the amount given to the surviving spouse in the will does not satisfy the elective share, the difference
must be made up by pro rata contributions from the other beneficiaries (majority rule & UPC) or from the
residuary estate (minority rule).
(b) If the surviving spouse is left a life estate, in most states, if she renounces that and wants the share in fee simple
she is not charged for the value of the life estate.
(c) In the 1969 UPC as amended in 1975, the spouse is charged for the life estate’s value, which basically forces
the spouse to take the life estate. The aim of this amendment was to cause as little distortion in the decedent’s
estate plan as possible, but it received a lot of criticism.
(d) The UPC was changed again in 1993 and the life estate was again not charged against the surviving spouse’s
share.
The Uniform Probate Code, 1969 and 1990 Versions
Other Statutes
c.
Waiver
UPC §2-213. Waiver of Right to Elect and of Other Rights
52
1.
2.
3.
4.
The right of election of a surviving spouse and the rights of the surviving spouse to homestead allowance,
exempt property, and family allowance, or any of them, may be waived, wholly or partially, before or after
the marriage, by a written contract, agreement, or waiver signed by the surviving spouse.
A surviving spouse’s waiver is not enforceable if the surviving spouse proves that:
a. he did not execute the waiver voluntarily; or
b. the waiver was unconscionable when it was executed, and before execution of the waiver, he:
i. was not provided a fair and reasonable disclosure of the property or financial obligations
of the decedent;
ii. did not voluntarily and expressly waive, in writing, any right to disclosure of the property
or financial obligations of the decedent beyond the disclosure provided; and
iii. did not have, or reasonably could not have had, an adequate knowledge of the property or
financial obligations of the decedent.
An issue of unconscionability of a waiver is for decision by the court as a matter of law.
Unless it provides to the contrary, a waiver of “all rights,” or equivalent language, in the property or estate
of a present or prospective spouse or a complete property settlement entered into after or in anticipation of
separation or divorce is a waiver of all rights of elective share, homestead allowance, exempt property, and
family allowance by each spouse in the property of the other and a renunciation by each of all benefits that
would otherwise pass to him from the other by intestate succession or by virtue of any will executed before
the waiver or property settlement.
Estate of Shannon (Cal. Ct. App. 1990):
Lila, 2d wife of decedent, argues that she is a pretermitted spouse under state statute and as such, is entitled to that
share of the estate accounting for community property.
To be a pretermitted spouse, the will must be executed before the marriage and the will must not provide for that
spouse. If it appears from the will that decedent intentionally omitted her, or if decedent provided for her
outside the will and intended that to be in lieu of a will disposition, or if she made a valid waiver, then she may
not receive a share as a pretermitted spouse.
Court says that public policy in Cal. is basically that we want to support the surviving spouse and they will be
provided for if they had been omitted from a will executed prior to the marriage. There is a presumption in
favor of the spouse being an omitted spouse and being able to take the property as indicated. The other side
may overcome that presumption by showing one of the three exceptions (given above) existed.
Beatrice (decedent’s daughter) argues that Lila was independently wealthy and as such decedent wanted Beatrice to
have the whole estate. All Lila got outside of the will was $2,000 from a retirement fund, and the court said that
was not sufficient to evidence an intention to disinherit Lila from any will testament. Beatrice also says that a
phrase in the will intentionally excluding everyone but Beatrice from the will evidences an intention to
disinherit Lila, but Court disagrees.
If you were going to disinherit someone you would be marrying, you must indicate clearly either that this will is
supposed to be valid in spite of any subsequent marriage, or you must name the individually you are
disinheriting and specifically state your intention to disinherit that person.
Elective Shares vs. Omitted Spouse Shares
Elective shares include the non-probate transfers of the augmented estate, whereas an omitted spouse statute may
only allow access to the probate estate.
SECTION B: RIGHTS OF ISSUE OMITTED FROM THE WILL
No state except Louisiana gives a child statutory protection against disinheritance by a parent.
However, because judges and juries are usually sympathetic to a disinherited child, it is not advisable to cut a child
out a will without careful estate planning.
Azcunce v. Estate of Azcunce (Fla. Ct. App. 1991):
ISSUE: Whether a child born after the execution of a father’s will but before the will’s codicil is entitled to a
statutory share of the estate under a pretermitted child statute.
53
HELD: The child is not “pretermitted” where the child is living when the codicil is executed and that codicil
expressly republishes the original will, which did not provide for the child. Thus, the child is not entitled to the
statutory share.
Decedent = Rene R. Azcunce, executed will on 05/04/1983 providing for spouse & three then-born children, with no
provision for after-born children. Codicils on 08/08/1983 and 06/25/1986 did not change this disposition and
also failed to provide for after-born children.
Patricia Azcunce born 03/14/1984.
Rene died 12/30/1986.
Court determined that while Patricia was a pretermitted child at her birth, prior to the second codicil, her status as
such was destroyed when her father executed the second codicil which specifically stated that it was
republishing the will and first codicil.
Patricia argued that (1) there was ambiguity which would allow the introduction of parol evidence and (2) the will
should be void for scrivener’s error. Court said that (1) there was no ambiguity and (2) even if there was an
error in not alerting the testator of the need to expressly provide for Patricia in the 2d codicil, that is not a
mistake sufficient to void the will.
Restatement (Third) of Property, Wills and Other Donative Transfers (1999)
§ 3.4. Republication by Codicil
A will is treated as if it were executed when its most recent codicil was executed, whether or not the codicil
expressly republishes the prior will, unless the effect of so treating it would be inconsistent with the testator’s intent.
Espinosa v. Sparber, Shevin, Shapo, Rosen & Heilbronner (Fla. 1993):
ISSUE: May a lawsuit for malpractice be brought on Patricia Azcunce’s behalf against the draftsman of her father’s
second codicil?
HELD: No. “An attorney’s liability for negligence in the performance of his or her professional duties is limited to
clients with whom the attorney shares privity of contract” (top page 542). To have standing for a malpractice
claim, a plaintiff must be in privity with the attorney OR must be an intended third-party beneficiary, and
Patricia is neither.
EXCEPTION: The exception to the above rule for will drafting exists where it is demonstrated that the client’s
intent in engaging the lawyer’s services was to benefit a third party, but there are evidentiary problems with
proving a deceased party’s intent. Courts are supposed to honor the will as it is written, as allowing extrinsic
evidence may disrupt the testator’s intent and encourages the manufacture of false evidence.
Lawyer who drafted will = Howard Roskin.
Article 17 of the will listed Rene’s current three children and stated that all references to his “issue” were to be
construed to mean those three children and their lineal descendants.
After Patricia’s birth, Rene contacted Roskin because he wanted to provide for Patricia. A second will was drafted,
but Rene and Roskin disagreed over the amount of available assets, so Rene never actually executed that second
will. Instead, the second codicil was executed which changed a co-trustee and co-personal representative, but
which still did not provide for Patricia.
CHAPTER 8: TRUSTS: CREATION, TYPES & CHARACTERISTICS
SECTION B: CREATION OF A TRUST
1.
Intent to Create a Trust
1.
2.
3.
4.
Creating a trust requires no specific words, but merely the manifestation of the intent to create a trust
relationship.
The conveyance of property to be held “for the use and benefit” of another has been considered a sufficient
manifestation of the intent to create a trust.
Private express trust = “Express” indicates the settlor has expressly stated his intention that there be a trust.
“Private” because there are no charities as beneficiaries.
In order to express that intent, the settlor must:
a. Divide title into legal and equitable title
b. Impose fiduciary duties on a trustee.
54
5.
With a declaration of trust, no writing or delivery is required. However, with a deed of trust (where
someone other than the settlor is the trustee) there must be delivery of either the deed or the property to the
trustee.
Jimenez v. Lee (Ore. 1976):
Defendant = Jason Lee
Plaintiff = Jason’s daughter Betsy Lee, who wants Jason to account for assets she claims he held as a trustee for her.
ISSUE: Was a transfer of property to Jason Lee made with the intent to vest beneficial ownership in Betsy, such
that a trust was formed?
HELD: Yes.
1945 = Paternal grandmother gives $1000 savings bond to Betsy and/or her mother and/or her father. Gifts of $500
per each of three children were given in 1956 by Mrs. Diercks and deposited in a savings account in the
children’s names and in Jason’s name. 1960 = Jason cashed the savings bond and invested the proceeds in the
stock of a bank as “Jason Lee, Custodian…for Betsy Lee.” The account containing Deircks’ gifts was also
closed and the $1000 in it was invested in the same stock.
The gifts were made for the educational needs of Betsy. Jason once wrote a letter to his mother in which he referred
to the gifts as being a “trust” for Betsy, and court presumes he was using the term in its usual legal meaning
since Jason was a lawyer.
Doctrine of Merger Ineffective: Jason contended the doctrine of merger defeated the intent to create a trust because
Betsey acquired both legal and equitable title, but court holds to the view that both trustees (one of whom is the
beneficiary) hold the property as joint tenants in trust for that beneficiary.
Betsy was entitled to a constructive trust or equitable lien on her portion of the stock, as well as any dividends or
increment in the value of her portion of the stock interest.
Jason is entitled to deduct the amount he spent out of the trust for the intended purpose (Betsy’s educational needs).
However, Jason, as the trustee, has the duty to identify those expenditures and prove their purpose.
Presumptions Against Trustee: A trustee “is bound to keep clear and accurate accounts, and if he does not the
presumptions are all against him, obscurities and doubts being resolved adversely to him.” (block quote p. 570)
Difference between Custodian & Trustee: Custodian would not be required to account for his stewardship of the
funds unless a petition for accounting was filed within 2 years after the end of the minor’s minority. Trustee
has the power to use the trust only for its intended purposes and must render a clear and accurate accounting.
Defendant’s “Accounting” Insufficient: Summary prepared for court did not meet the requirement of maintaining
records of transactions complete and accurate enough to “show by them his faithfulness to his trust.” (p. 572)
A letter Jason sent to Betsy in 1966 also insufficient because it was not complete and it was inaccurate,
undervaluing Betsy’s trust amount.
Case remanded for an accounting predicated upon trustee’s duty to account, with all doubts being resolved against
Jason, who maintained an inadequate accounting system.
NOTES
1.
2.
Precatory Language: Language indicating a moral obligation, but one unenforceable at law, is called
precatory language, and courts sometimes find “precatory trusts” where such language was used in an
attempt to establish an ultimately unenforceable trust. Typical language would be, “I give to A with the
hope that A will care for B…” and “I give to C with the wish and desire that D be able to use the property.”
The proper way to clearly delineate a moral obligation from an attempted legal one is to spell it out: “I
wish, but do not legally require…”
Equitable Charge: Where a testator devises property to a person subject to the payment of a sum of
money to someone else, an equitable charge is created rather than a trust. An equitable charge creates a
security interest in the transferred property, but there is no fiduciary relationship established.
The Hebrew University Association v. Nye (Conn. 1961):
Decedent = Ethel Yahuda, surviving wife of Prof. Abraham Yahuda, a distinguished Hebrew scholar, who died in
1951, leaving his extensive library to Ethel with her purchasing other books from the library from her husband’s
estate; Ethel died on 03/06/1955.
ISSUE: Was ownership of the library sufficiently transferred to The Hebrew University during Ethel’s life?
55
HELD: Not through a trust; no trust was established because Ethel did not manifest any intention to hold fiduciary
duties to the University. An oral declaration of a trust may be valid. However, even where a person declares
himself a trustee, if no fiduciary duties are undertaken, the attempted trust fails.
“A gift which is imperfect for lack of a delivery will not be turned into a declaration of trust for no better reason than
that it is imperfect for lack of delivery. Courts do not supply conveyances where there are none.” (bottom p.
577)
January 1953 = Ethel travels to Israel and made plans with University officials to give the library to them. This
intent was announced at a luncheon on 01/28/53 and in a newspaper released signed by Ethel.
1954 = Ethel began arranging and cataloguing the material in the library to be crated and shipped to the University,
but never shipped any of the material to them prior to her death.
The Hebrew University Association v. Nye (Conn. 1966):
ISSUE: Was this a gift inter vivos based on constructive or symbolic delivery?
HELD: Yes.
At the luncheon where Ethel announced the gift to the University, she provided a memorandum of the library
contents to the University.
Constructive delivery requires as nearly perfect and complete a delivery as possible under the specific
circumstances, and may arise especially where manual delivery is impractical or inconvenient. Delivery of the
memorandum along with Ethel’s declaration of intent show an intention to divest herself of all ownership in the
library in favor of the University—it was symbolic delivery. Symbolic delivery tends to be court-accepted
when the property is very far away or very inaccessible. The court would accept a deed of gift in substitution
for actual delivery.
Formalism does not defeat this gift, as the public and rather formal method through which the gift was announced
(luncheon and newspaper along with memorandum) sufficiently substitute for a formal instrument.
A court of equity should not allow a decedent’s intention to be quashed only because the rules so provide.
NOTES
1.
2.
2.
Majority Rule: Trust created by written instrument is irrevocable unless there is an express or implied
provision reserving the settlor the right to revoke.
Minority Rule (adopted by Uniform Trust Act): A trust is presumed revocable unless otherwise
declared.
Necessity of Trust Property
1.
2.
A trust requires three elements: (1) trustee, (2) beneficiary, and (3) property.
The property may be a miniscule amount of property, or it may be any interest in property able to be
transferred.
Unthank v. Rippstein (Tex. 1964):
Decedent = C.P. Craft, wrote letter to Iva Rippstein and included a note in the margin stating that Craft wanted to
bind his estate to make $200 monthly payments to Rippstein for the next five years. The writing was refused as
a holographic codicil to Craft’s will.
ISSUE: Whether the marginal note creates a declaration for trust in which Craft’s estate would be held in trust for
paying Rippstein.
HELD: No. There is not sufficient certainty in the note’s language to declare that Craft intended to put all of his
property into trust where only 10% of it was needed to discharge his promise to Rippstein. The most Craft did
was express his intention to make monthly gifts to Rippstein and unsuccessfully attempt to bind his estate to
that promise.
“The promise to give cannot be tortured into a trust declaration…” (p. 583)
QUESTION, PROBLEM AND NOTE
Difference between a Trust and a Debt: A trust involves a duty to deal with some specific property, kept separate
from the trustee’s own funds. A debt involves an obligation to pay a sum of money to someone else, but does
not require that the holder of the money keep it separate from his own.
56
NOTE: RESULTING AND CONSTRUCTIVE TRUSTS
1.
2.
3.
1.
2.
3.
4.
A resulting trust arises by operation of law:
a. where an express trust fails or makes an incomplete disposition
b. where one person pays the purchase price for property and titles it in someone else’s name who is
not a “natural object of the bounty” of the purchaser (purchase money resulting trust).
Resulting trusts are not subject to the Statute of Frauds because they arise from operation of law.
No ongoing fiduciary relationship is created in a resulting trust: once such a trust is found, the trustee must
convey the property to the beneficial owner upon demand.
A constructive trust arises by operation of law and is a flexible remedy imposed in a wide variety of
situations to prevent unjust enrichment.
NOTE: The requirements for the constructive trust are not necessary to know; the situations in which it
arises are necessary to know.
Requirements for a constructive trust:
a. confidential or fiduciary relationship
b. a promise, express or implied, by the transferee
c. a transfer of property in reliance on the promise
d. unjust enrichment of the transferee
Other situations in which constructive trusts are imposed:
a. where a person procures an inheritance through fraud
b. upon the estate of a person who breaches a contract not to revoke a will
c. to enforce an oral trust of land violating the Statute of Frauds
d. to a secret testamentary trust
e. where no confidential relationship or promise exists but the court has reason to prevent unjust
enrichment (e.g., slayer statutes)
f. Mistake (p. 284)
g. Medicaid
Austin W. Scott, Trusts
§ 31.4. Change of Position. A “change of position” by a donee in reliance on a gift may be sufficient to create a
constructive trust on the donor of the property lasting until the property has been conveyed. This is not
converting an imperfect gift into a declaration of trust but is preventing unjust enrichment by the transferee.
§ 31.5. Effect of Death of Donor. If a donor dies believing he has made an effective gift to a natural object of his
bounty (a spouse or child), the gift may be held as a constructive trust for the intended donee.
Brainard v. Commissioner (7th Cir. 1937):
ISSUE: Whether a taxpayer created a valid trust whose income was taxable to its beneficiaries where the taxpayer
promised to distribute any profits he made from trading in the stock market in 1928 in equal shares to his wife,
mother and two children.
HELD: A trust was created; however, the income was taxable to the taxpayer for the time between when the profits
came into existence and the time the taxpayer credited those profits to the beneficiaries in his account books.
The trust was effective after the subject matter of the trust (the stock profits) came into existence, but not before.
The trust was based on an interest that, at the time, did not yet exist. Taxpayer’s declaration to give profits to the
beneficiaries was gratuitous because it was not supported by valuable consideration. But once the profits came
into existence, the taxpayer was bound to carry out his declaration.
The act of acquiring the property intended to be the object of an earlier-created trust coupled with that earlier
declaration of trust may be sufficient manifestation of an intent to create a trust at the time the property is
actually acquired. However, the taxpayer had to take the extra step of crediting the beneficiaries with the profits
in his accounting books in order to create a “subsequent expression of intent” to become a trustee.
Speelman v. Pascal (N.Y. Ct. App. 1961):
ISSUE: Did the delivery of a letter purporting to give shares of as-yet unearned profits from a not-yet-produced
production operate to transfer an enforceable right to the letter recipient to the royalty percentages?
57
HELD: Yes. The author of the letter (Pascal) made an irrevocable transfer to Speelman of certain percentages of
his rights to royalties.
Courts enforce assignments of rights to sums expected to become due sometime after the assignment. See e.g., Field
v. Mayor of New York in which an assignment of $1,500 of any moneys that “might thereafter become due” was
upheld as creating an equitable title enforceable in court; Central Trust Co. v. West India in which property
consisting of securities which would come into existence if the concession holder performed the underlying
contract was upheld.
The delivery required will depend upon the subject property. The subject property need not be in physical existence
or in the possession of the donor so long as the donor expresses an intention that his title shall be presently
divested and presently transferred.
NOTES AND PROBLEMS
Majority View: A person may assign future earnings from an existing contract.
NOTE: TAXATION OF GRANTOR TRUSTS
1.
2.
3.
4.
5.
3.
Where a trust is created by which the settlor retains substantial control over the trust assets, the income
shall be taxable to the settlor, even if he assigns it through trust to other beneficiaries.
The spousal attribution rule states that a settlor is treated as holding any power or interest held by his
spouse if the spouse lives with him when the property is transferred into the trust.
Holding a reversionary interest in the corpus or income of a trust which at the inception of the trust
exceeds 5% of the value of the corpus or income will cause a trust to be treated as a grantor trust, except
where the trust is created for a minor lineal descendant and the reversionary interest takes effect only upon
that minor’s death.
Where the settlor or a non-adverse party is given discretionary power over income or principal exercisable
without the consent of an adverse party, the trust is a grantor trust, except where:
a. the discretionary power to distribute, apportion or accumulate income or to pay out of the corpus
is given to an independent trustee (no related or subordinate to the settlor), or
b. the distribution of the corpus and income are allowed to be made only pursuant to “reasonably
definite standards” set forth in the trust agreement.
A trust may be a grantor trust where there is a power exercisable by the settlor or a non-adverse party for
the benefit of the settlor rather than the beneficiaries.
Necessity of Trust Beneficiaries
A trust must have one or more beneficiaries, someone to whom the trustee owes fiduciary duties.
The beneficiaries may be unborn or unascertained when the trust is created, but must be ascertainable “enough” or
else the trust will fail “for want of ascertainable beneficiaries.”
Clark v. Campbell (N.H. 1926):
A phrase in the ninth clause of decedent’s will stated that the beneficiaries of an attempted trust were to be “such of
my friends as they, my trustees, shall select.”
ISSUE: Is the bequest of the decedent’s “friends” certain enough to allow it to stand, or must it fail?
HELD: It must fail. Whereas courts have allowed terms like “relations” to provide a certain group of beneficiaries
under a trust, the word “friends” has no accepted statutory or controlling limitations by which to define it, and
thus has no precise sense. The class of beneficiaries is incapable of delimitation, and the decedent provided no
sufficient criterion to govern the selection of individuals to fit that term.
Thus, the trustees hold title to the property the decedent attempted to put into trust, and that property will be
disposed of as the residue of the estate.
NOTE AND PROBLEM
A power of appointment, the discretionary power to convey property to any such members of a class as the donee
may select, is valid where the class of beneficiaries is described such that a person may reasonably be said to
answer the description. This power is not fiduciary; it is discretionary.
58
In re Searight’s Estate (Ohio Ct. App. 1950):
Decedent George Searight died 11/27/1948 and left his dog Trixie to Florence Hand and directed $1000 be
deposited in an account with 75 cents per day being paid to Florence for care of Trixie for Trixie’s life or until
the principal and income were spent. If Trixie died before the money was spent, the remainder was to be
distributed to five people.
ISSUES: (1) Is the testamentary bequest for the care of a dog valid as a proper subject of an honorary trust? (2)
Does it violate the rule against perpetuities?
HELD: (1) No. (2) No.
An honorary trust binds the conscience of the trustee but is not legally enforceable because there exists no
beneficiary capable of enforcing it.
Where no beneficiary with legal standing exists, the trust fails—even an honorary trust. However, the transferee has
the power to apply the property to its intended purpose, if she so wishes, so long as the rule against perpetuities
is not violated.
Here, the rule against perpetuities is not violated because there is a cap on how long the funds will last—no more
than about four years and a couple months, well within the allowable period of time.
NOTES
1.
2.
3.
Under the rule against perpetuities, an honorary trust to support a pet is void if it can last beyond relevant
lives in being at the trust’s creation plus 21 years. A wait-and-see doctrine allows an interest to not be
declared invalid until after the wait-and-see period expires. Thus, an honorary trust for the life of a pet
would be valid for about 21 years.
The Uniform Statutory Rule against Perpetuities provides a wait-and-see period of 90 years.
Several states have statutes permitting a trust for a pet to endure for a set period of time.
NOTE: SHAW’S ALPHABET TRUSTS
Shaw devised the residue of his estate to the will Executor for a 21-year trust for the purpose of developing a new
alphabet and lobbying for its adoption. Upon termination or failure to be recognized by judicial decision, he
divided it in thirds to a Museum, National Gallery of Ireland and Royal Academy of Dramatic Art.
The court held the trust could be treated as neither a private trust nor a charitable trust, and held the trust invalid and
failed.
4.
Necessity of a Written Instrument
Inter vivos oral declarations of trusts of personal property may be enforceable (see above sections).
Inter vivos trusts of real property must be in writing, per the Statute of Frauds.
Under certain circumstances a court may enforce an inter vivos oral trust of land or an oral trust arising at death.
a.
Oral Inter Vivos Trusts of Land
1.
2.
3.
O conveys real property to X upon an oral trust to pay the income to A for life and upon A’s death to
convey the land to B. That express trust is prohibited because under the Statute of Frauds it was not in
writing and therefore not valid.
While the majority of courts allowed X to retain the land when the trust failed, this view is losing ground.
The court may impose a constructive trust for the trust beneficiaries under three situations, and usually one
of these situations is present:
a. transfer was wrongfully obtained by fraud or duress
b. transferee was in a confidential relationship with the transferor
c. where transfer was made in anticipation of transferor’s death
People also frequently try to impose an oral trust for the benefit of the transferor, usually so the transferor
can avoid creditors, an ex-spouse, or to achieve some tax benefit. The transferor would transfer the land to
someone else with an oral promise that it would be re-conveyed to the transferor upon request or after a
certain period of time.
59
Hieble v. Hieble (Conn. 1972):
Π seeks reconveyance of real property transferred to Δ (Π’s son). Π claimed Δ promised to reconvey the property to
her if she recovered from a bout with malignant cancer, which she did.
ISSUE: Should a constructive trust be imposed where a grantee of real estate orally promised to reconvey the
property to the grantor and the grantee now refuses to keep that promise?
HELD: Yes, where the grantor and grantee were in a confidential relationship. A parent/child relationship is not
per se a fiduciary one but it generates a “natural inclination to repose great confidence and trust.” This
inclination along with Π’s condition (sickness, surgery, and her son’s reassurances of faithfulness) renders it a
confidential relationship.
05/09/1959 – Π transfers real estate, without consideration, to her daughter and son, with the children orally
agreeing that the transfer would be temporary, leaving Π in control of premises and responsible for payment of
all expenses, and when Π was no longer in terminal danger, the children would reconvey it to her.
1960 – Daughter agrees to relinquish her interest in the property; she & Δ through a strawman convey property to Π
and Δ in survivorship.
1964 – Π requests Δ reconvey property to her.
Δ refused to reconvey his interest and “feigned concern” over the boundaries of an adjacent property, and did finally
sign a mortgage for an improvement loan in 1965.
Δ promised he would not marry and would continue to live with Π.
1967 – Δ married and moved out.
Once a confidential relationship has been established, the party denying the relationship has the burden of proof to
show by clear and convincing evidence that it did not exist.
It is unnecessary to find fraudulent intent for a construct trust to be imposed, so long as the risk of unjust enrichment
of the grantee through the transfer is present.
NOTES AND QUESTION
Unclean hands: A constructive trust will not be imposed by a court when the transferor perpetuates some fraud
with the transfer, such as hiding assets from creditors or a spouse.
b.
Oral Trusts for Disposition at Death
Olliffe v. Wells (Mass. 1881):
Decedent = Ellen Donovan, died 1877 leaving residuary estate via will to Rev. Eleazer MP Wells with direction to
distribute it in his discretion to best carry out the wishes Ellen expressed to him. Wells claimed Ellen expressed
the wish to use her estate for charitable purposes.
ISSUE: Where an attempted trust in a will is too indefinite in its beneficiaries to be carried out, does the equitable
title of the devised property go to the next of kin/heirs, or does it go to the intended devisee/trustee?
HELD: The will establishes that legal title to the property goes to the intended trustee, but because the trust is too
indefinite to take effect, the equitable title goes by resulting trust to the next of kin as property not disposed of
by the will. The next of kin may not be deprived of this equitable interest by the introduction of extrinsic
evidence regarding the attempted trust.
NOTES AND PROBLEMS
1.
Olliffe v. Wells is the origin of the distinction between a secret trust and a semisecret trust, as followed by
many states (but rejected in England and several other states).
a. A secret trust exists where X devises property to A absolutely, and indicates nothing in the will
about a trust or promise by A to dispose of X’s devise in a certain manner. Evidence may be
admitted to prevent A from unjust enrichment if he would try to keep the devise rather than
disposing of it according to his promise. A constructive trust would be imposed on A for the
benefit of the party to whom A promised he would give the devise.
b. A semisecret trust exists where X devises property to A in the will and indicates that A is to hold
the devise in trust, but fails to identify the beneficiary of that trust. No evidence is admitted to
prevent unjust enrichment because the will establishes that X did not intend for A to keep the
property absolutely. The legacy fails.
60
2.
The Restatement (Second) of Trusts states that a constructive trust should be imposed in both secret and
semisecret trusts. The Restatement (Third) of Trusts agrees but notes that the current weight of authority
follows Olliffe v. Wells rather than imposing a constructive trust in semisecret trust situations.
SECTION C: DISCRETIONARY TRUSTS
1.
2.
Mandatory trusts require that the trustee distribute all income. The trustee has no discretion over the
amount to distribute or the party to whom it is distributed.
a. E.g., O gives property to X in trust with directions to distribute the income to A.
Discretionary trusts give the trustee discretion over payment of either the income, the principal, or both.
The trust document may give the trustee discretionary power to distribute principal to the income
beneficiary. The discretion granted may be limited by some measure, (“such amounts as are necessary to
support my wife in the style of living to which she has been accustomed”) or may not be limited by any
certain language.
a. E.g., O gives property to X in trust to distribute all the income to one or more members of a group
consisting of A, A’s spouse and A’s children in whatever amounts as the trustee determines.
Marsman v. Nasca (Mass. App. Ct. 1991):
ISSUE: Does a trustee with discretionary power over distribution of the principal for the “comfortable support and
maintenance” of a beneficiary have a duty to inquire into the financial resources of the beneficiary so as to
determine his needs? What is the remedy for failing to do so?
HELD: Yes. The language “as [the trustee] shall deem advisable for [the beneficiary’s] comfortable support and
maintenance” is sufficient to set an ascertainable standard. Additionally, the trustee in a discretionary trust
never has absolute discretion and he must handle the trust with “prudence and reasonableness” and a
“soundness of judgment which follows from a due appreciation of trust responsibility.” Thus, the discretionary
trustee has duties of inquiry and distribution. The proper remedy is to impose a constructive trust on the
amounts which should have been distributed to the beneficiary but were not, due to the trustee’s failure.
HERE: Decedent, Sara Marsman, died in September 1971, leaving 1/3 of her estate residue to Cappy, her husband,
in trust, with the trustee being her lawyer (and drafter of the will) James Farr. The will also had a provision
excusing the trustee from being held liable for anything but his own “willful neglect or default.”
EXCULPATORY CLAUSE? These provisions in a trust are generally given effect unless they are inserted as the
result of some overreaching or abuse of confidence. Because Sara was knowledgeable about finances and
because there was no evidence that Farr abused his confidential relationship with Sara to insert the clause, it
should be given effect. [Of course, this does not prevent the constructive trust from being imposed: remember,
a constructive trust is imposed to avoid unjust enrichment, not because of any particular intent on the part of
the trustee.]
NOTES, PROBLEMS, AND QUESTIONS
1.
2.
Where a trustee has total discretion, unqualified by the adjective “sole” or something similar, courts will
not substitute their own judgment for the trustee’s so long as the trustee acted in good faith, with proper
motives, and within the bounds of a reasonable judgment.
“No language, however strong, will entirely remove any power held in trust from the reach of a court of
equity…if it appears that [the trustee] has utterly disregarded the interests of the beneficiary, the Court will
intervene.” (Judge Learned Hand, see p. 627)
NOTE: NEW FORMS OF TRUSTS
1.
2.
3.
Discretionary trusts gained popularity because the trustee could pay some principal to the income
beneficiary, which means the trustee can allot some of the capital gains to the income beneficiary, rather
than allotting all of them to the remainder beneficiary.
Creating a unitrust is a method used by which the income beneficiary is entitled to income earned as well
as a fixed percentage of the value of the trust corpus, revalued each year. The trustee of a unitrust is
allowed to pursue the highest total return regardless of the form that takes.
Perpetual dynasty estates are also permitted in many states, through which the trustee has discretionary
powers to pay income or principal to the settlor’s descendants, generation after generation, forever.
61
SECTION D: CREITORS’ RIGHTS: SPENDTHRIFT TRUSTS
A spendthrift trust imposes a restraint on the beneficiaries (so that they cannot voluntarily assign their interests)
and on creditors of the beneficiary, prohibiting them from reaching the beneficiaries’ interests.
New York statutory law specifies that all trusts are spendthrift trusts unless otherwise expressly stated. Other
jurisdictions state that trusts are not spendthrift trusts unless expressly stated with a “spendthrift clause.”
Shelley v. Shelley (Ore. 1960):
ISSUE: Can an ex-spouse and children of a spendthrift trust beneficiary reach the income and corpus of the
spendthrift trust?
HELD: Yes, because refusing to allow them to reach those funds would be tantamount to allowing the beneficiary
to enjoy the benefits of the trust without having to provide for his children and former wife, which is against
social policy. Plus, if the beneficiary doesn’t provide support to the children and wife, the state may end up
having to do so, which is also bad social policy. Court says the question comes down to whether a person sould
be entitled to enjoy the benefits of a trust while at the same time refusing to pay his obligations arising out of
marriage.
Hugh T. Shelley created the trust, giving his estate to Δ bank to hold in trust and give the income therefrom to his
wife Gertrude for life, and then to his son Grant until age 30, at which time any part of the trust principal could
be given to Grant in the trustee’s sole discretion (unless Hugh’s brothers-in-law were living in which case
trustee needed their written permission). Trustee was also authorized to distribute the trust income or principal
for the benefit of Grant and his children in “case of emergency arising whereby unusual and extraordinary
expenses are necessary for the proper support and care…” The trust contained a spendthrift clause.
Grant married Δ Patricia Shelley and had 2 children with her, and divorced in 1951, when he was required to pay
child support to her but no alimony.
Grant married Π Betty Shelley and had 2 children with her, and divorced in 1958 with a decree requiring both
alimony and child support.
Then Grant “disappeared” and his whereabouts were not known at the time of the suit. Δ bank invested the trust
assets and undisbursed income in securities. Π Betty got an injunction restraining Δ bank from disbursing the
assets. Δ Patricia brought a garnishment proceeding against Δ bank for support required by her divorce decree.
Δ bank then brought a bill of interpleader.
Because disposing of property is a privilege rather than a right, there are many statutes and judge-made rules
limiting that privilege, including the power of a court to place restrictions on property disposition as are
consistent with “sound public policy” unless the legislature has stated to the contrary.
Public policy requires the interest of the trust beneficiary be subject to his children’s support claims so as to prevent
having to use the state welfare funds to support those children. And even though the spousal duties are “more
qualified” than paternal duties, the duty to support an ex-spouse should override a spendthrift provision so as to
prevent the state from having to support the spouse as well.
The claimants may reach that part of the income which the trial court deems reasonable in the circumstances,
considering the needs of all parties involved (husband, wife, children) and the amount of the trust income and
whether the corpus is available.
Because Grant’s right to receive the trust corpus did not arise until and unless the trustee exercised its discretion and
chose to “invade” the corpus, neither Π Betty nor Δ Patricia may reach the trust corpus either.
The court interprets the “emergency clause” to include the situation where Grant abandons them, so Grant’s children
may invade the trust corpus when it is found necessary to reach the trust income, and that income proves
insufficient. If the trustee refuses to exercise the discretion or if he does so unreasonably, the children may sue
him in equity.
NOTES AND QUESTIONS
1.
Exceptions to the spendthrift trust protections:
a. Self-settled trusts: A spendthrift trust cannot be set up by the settlor for his own benefit.
i. In a mandatory trust, creditors may reach the settlor’s full interest in interest and
principal.
ii. In a discretionary trust the creditors may reach the maximum amount the trustee could
pay to the settlor or for his benefit.
62
b.
2.
3.
4.
5.
Off-Shore Protections: Establishing a self-settled spendthrift trust in the Caribbean or South
Seas will receive the protection of local law and keep creditors from reaching the trust. Alaska &
Delaware allows similar protections for irrevocable trusts if the settlor is a discretionary
beneficiary and if the trust is not created with the intent to defraud creditors.
c. Child Support & Alimony:
i. In the majority of states, a debtor’s interest in a spendthrift trust may be reached to
satisfy child or spousal support judgments.
ii. In a small minority, they may not reach the trust.
d. Furnishing Necessary Support: Where someone furnishes necessary services or support, he may
reach a spendthrift trust’s beneficiary’s interest.
e. Federal Tax Lien: The U.S. or a state may reach the interest to satisfy a tax claim against the
beneficiary.
f. Excess over Amount Needed for Support: Several states allow creditors to reach the income in
excess of the amount needed for the beneficiary’s support and education. However, the stationin-life rule, accepted in several states, renders this rule pretty useless since spendthrift trusts are
usually established by wealthy persons whose beneficiaries are used to living in luxury.
g. Percentage Levy: A few states allow a creditor to reach usually between 10 and 30 percent of the
income of the trust beneficiary in a garnishment proceeding usually used for wage earners.
h. Tort Creditors: This is not settled, but commentators oppose the idea of allowing spendthrift
protections to shield trust beneficiaries from tort creditors.
Restraints on Remainders: In a majority of jurisdictions, remainder interests may be subject to
spendthrift protections as well.
Pension Trusts: Each ERISA-covered pension plan must prohibit assigning or alienation of plan benefits,
but the benefits may be reached for child support, alimony and marital property rights. The policy is that
retirement security should be protected even at the expense of current creditors.
Bankruptcy: A beneficial interest in a spendthrift trust (along with ERISA-covered pension plan benefits)
cannot be reached by bankruptcy creditors. Since the interest is inalienable, it does not pass to the
bankruptcy trustee.
Support Trusts: Require the trustee to pay income, and possibly principal, to the beneficiary in an amount
necessary for his education or support in accordance with an ascertainable standard. This is a gift of
support and is not alienable by the beneficiary. Only suppliers of necessaries may reach the beneficiary’s
interest.
U.S. v. O’Shaughnessy (Minn. 1994):
ISSUE: Does a discretionary trust’s beneficiary have “property” or a “right to property” in the undistributed
principal or income before the trustees exercise their discretionary powers of distribution?
HELD: No. A discretionary trust beneficiary has only an expectancy in the undistributed income and principal,
because the trustee has complete discretion to distribute all, some, or none of that income and principal. While
Lawrence P. O’Shaughnessy has an equitable interest in the 1951 Trusts that entitles him to bring suit
compelling trustees to perform their duties, to remove them, or to enjoin them from committing a breach of
trust, and the Trusts gave him a testamentary power of appointment, those interests do not rise to the level of a
property interest.
Difference between a support trust and a discretionary trust: In a support trust, the trustee must distribute some
trust income or principal as necessary to support the beneficiary, so those trust benefits are considered
“available assets” when considering state-funded medical assistance. In contrast, though, beneficiaries of
discretionary trusts have no right to compel the trustee to distribute any income or principal, as the trustee is not
mandated to do so, and thus those benefits are not considered “available assets.”
FACTS: Lawrence P. O’Shaughnessy is a beneficiary of two separate identical trusts established by his
grandparents I.A. and Lillian O’Shaughnessy, in December 1951 for their then-16 grandchildren. Co-trustees
are First Trust National Assoc., Lawrence M. O’Shaughnessy, and Donald E. O’Shaughnessy. The trusts give
the trustee the discretion to pay all or any part of the principal or annual net income of the trust estate, and to
pay to or expend for the beneficiary any sum from the principal of his share of the trust as the trustees deem
wise. The trusts stated the trustees’ discretion would be absolute and binding. The Trusts also gave L.P.O. a
limited power of appointment through his last will & testament.
63
In 10/1989 a federal income tax deficiency of $412,921.27 was assessed against L.P.O. for 1983-1986. On
08/01/1990 First Trust was served with a Notice of Levy upon L.P.O.’s property, but at that time no distribution
of the trust benefits were pending.
1.
2.
3.
In some states, a creditor may receive an order directing the trustee to pay him before paying the
beneficiary, entitling the creditor to “first dibs” on any funds the trustee may decide in his discretionary
power to pay out to the beneficiary.
The lien attaches to the property when the property is credited by the trustee to the beneficiary, by putting it
in the beneficiary’s account in the trustee’s books, or by oral or written declaration. To avoid attachment of
the lien, the trust may specify that the funds can be paid “for the benefit of” the beneficiary, such that the
trustee can pay them directly to the beneficiary’s billers, thereby avoiding creating a property interest in the
beneficiary.
Note that the beneficiary of a testamentary discretionary trust does not have a legally ascertainable
pecuniary interest and therefore has no standing to challenge the probate of a later will.
NOTE: TRUSTS FOR THE STATE-SUPPORTED
1.
2.
3.
Qualifying for Medicaid:
a. For self-settled trusts, if they are revocable by the individual, then the trust corpus and income
are considered resources available. If the trust is irrevocable, then any income or corpus that
could, under any circumstances, be paid to the beneficiary or for his benefit shall be considered
available resources.
i. When someone puts his assets into a self-settled trust, the period of ineligibility for
Medicaid benefits may last up to six months.
ii. Two Exceptions:
iii. A discretionary trust created by a spouse’s will for the benefit of the surviving spouse is
not an “available resource.”
iv. Where a trust is established for a disabled individual from his property or by a parent,
grandparent, guardian, or court, and the trust gives all amounts remaining in the trust at
the beneficiary’s death to the state equal to the amount of medical assistance paid, the
trust shall not be an available resource.
b. Trusts established by a third person for the benefit of a Medicaid recipient:
i. Mandatory or support trusts, which give the beneficiary legal right to income, shall
treat the trust income as an available resource.
ii. Discretionary trusts, which do not provide the beneficiary a legal right to the income or
principal, is not considered an available resources, unless the trust was intended to be
used for the beneficiary’s support.
Reimbursement for state-supported trust beneficiaries:
a. Courts generally allow states to recover from self-settled trusts the maximum amount that could
have been paid to the settlor (usually the same amount deemed an “available resource” when the
individual applies for Medicaid eligibility).
b. Where the trust was established by a third party, the state can reach whatever portion of the trust
corpus & income as the individual has a right to reach.
c. Note that a spendthrift clause is unenforceable against a state where the state provides
necessary services (hospital services, for instance) to the individual.
Many trusts are hybrid trusts that combine a trustee’s discretion with the settlor’s intent to support the
beneficiary. A supplemental needs trust exists where the settlor of a hybrid trust intended to provide only
benefits the state is unable or unwilling to provide, and the state cannot reach those assets.
SECTION E: MODIFICATION AND TERMINATION OF TRUSTS
In re Trust of Stuchell (Ore. Ct. App. 1990):
If the settlor and all the beneficiaries consent, a trust may be modified or terminated.
ISSUE: If the settlor is no longer alive or is unwilling to consent to the change, what is the ability of the
beneficiaries to modify the terms or terminate the trust?
64
The court is permitted to allow deviation from a term of the trust if circumstances the settlor could not know or
anticipate have arisen which would defeat or substantially impair the trust purpose. However, a trustee is not
permitted to deviate from a term of the trust simply to be more advantageous to the beneficiaries.
NOTES AND QUESTIONS
1.
2.
3.
4.
1.
2.
A trust may be modified to achieve certain tax advantages so long as the donor’s probable intent is not
violated.
Drafting advice: A trust lasting into the unforeseeable future should probably include a power to modify
or terminate the trust given to a beneficiary life tenant or remainderman, or an independent third party, in
the form of a special power to appoint the property to, or modify the trust for the benefit of, anyone except
the donee.
Even where a widow cannot live comfortably on the income from a trust settled by her husband, courts
generally deny her the ability to invade the principal without such an express or implied term in the trust.
Where the trust is an annuity, courts generally deny any increase in its amount unless it is convinced that
the primary purpose of the annuity was support of the annuitant.
Deviation in exercising administrative powers: Administrative changes in a trust are far more common
and likely to be made by a court than substantive changes.
Claflin Doctrine: The majority of authority holds a trust cannot be terminated early even when all
beneficiaries consent, if termination would be contrary to a material purpose of the trust.
In general, trusts may not be terminated if:
a. it is a spendthrift trust,
b. if the beneficiary is not to receive the principal until a certain age,
c. if it is discretionary, or
d. if it is a support trust,
as these provisions are usually deemed to state a material purpose.
In re Estate of Brown (Vt. 1987):
ISSUE: Does any material purpose of the trust remain to be accomplished such that the trust may not be
terminated? (SIDE ISSUE [not decided]: Has the class of beneficiaries closed?)
HELD: Yes, a material purpose still exists, and the trust may not therefore be terminated.
Settlor = Andrew J. Brown, died 1977, settling entire estate in a trust which includes provision that the trust “shall
be used to provide an education…for the children of my nephew, Woolson S. Brown…Said trust to continue for
said purpose until the last child has received his or her education…[at termination] the income from said trust
and such part of the principal as may be necessary shall be used…for the care, maintenance and welfare of my
nephew, Woolson S. Brown and his wife Rosemary Brown, so that they may live in the style & manner to
which they are accustomed, for and during the remainder of their natural lives.”
06/17/1983: Lifetime beneficiaries petition for termination on grounds that sole remaining purpose of trust was to
maintain their lifestyle and distribution of the remaining assets was necessary. The children of the lifetime
beneficiaries consented.
Trust is not a support trust because the trustee is not limited to using only the extent of income and principal
necessary to support Woolson & Rosemary; he must pay at least all of the income to them. It is also not a
spendthrift trust as it lacks any intention to create such a trust.
The first purpose of the trust was education for the Brown children, and the second purpose was life-long income for
Woolson & Rosemary. This second purpose would be violated if the trust were terminated as the trust would at
that point no longer be providing life-long income to them.
NOTES
1.
2.
A few states statutorily permit courts to terminate trusts early.
A testamentary trust may be terminated early by compromise agreement between the beneficiaries and the
heirs, and that agreement would be governed under contract principles and is not at all testamentary.
NOTE: CHANGING TRUSTEES
65
1.
Unless the trustee has been guilty of breach of trust or unfitness, he generally cannot be removed or
changed. The fact that all the beneficiaries want the change is not typically enough to warrant it.
Uniform Trust Act (1999 Draft)
§ 706. Removal of Trustee
(a) A trustee may be removed by the court on its own initiative or on petition of a settlor, co-trustee or
beneficiary.
(b) The court may remove a trustee if:
(1) the trustee has committed a material breach of trust;
(2) lack of cooperation among co-trustees substantially impairs the administration of the trust;
(3) the investment decisions of the trustee, although not constituting a breach of trust, have resulted in
investment performances persistently and substantially below those of comparable trusts;
(4) because of changed circumstances, unfitness, or inability to administer the trust, removal of the trustee
would be in the best interests of the beneficiaries.
(c) Pending a final decision on a petition to remove the trustee, or in lieu of or in addition to removing a
trustee, the court may order such appropriate relief under Section 1102 as may be necessary to protect the trust
property or the interests of the beneficiaries.
CHAPTER 9: BUILDING FLEXIBIILITY INTO TRUSTS
POWERS OF APPOINTMENT
SECTION A: INTRODUCTION
1.
Types of Powers
1.
2.
3.
4.
5.
6.
7.
8.
9.
Powers of appointment in trust beneficiaries provide them the ability to deal flexibly with changing
circumstances in the future, such as births, deaths, marriages, the ability to manage property and
investments, etc.
Donor: person who creates the power of appointment, usually the settlor, or the testator who establishes a
testamentary trust
Donee: person who holds the power of appointment
Objects: persons in whose favor the power may be exercised
Appointee: person in whose favor the power is exercised (the object, post-exercise)
Takers in default of appointment: persons who take the property if the donee fails to exercise the power;
if the document does not name a taker in default the property passes back to the donor or donor’s estate
when the power is not exercised
General Power of Appointment: Power exercisable in favor of the donee, his estate, his creditors, and his
estate’s creditors.
Special Power of Appointment: Power exercisable in favor of anyone except the donee, donee’s estate,
donee’s creditors. The most common use of a special power is power to appoint among the issue of the
donee.
Testamentary power: Power of appointment exercisable only by will
POWERS OF APPOINTMENT HANDOUT
John Smith’s will contains the following clause:
First Version
I give the residue of my estate to Chase Bank as trustee of the Smith Family Trust. My trustee shall distribute the
income from the trust every quarter to my son, John Smith, Jr., for his life. Upon the death of my son, John, Jr.,
my trustee shall distribute the remainder of the trust to such persons and in such amounts as my son, John Jr.,
shall appointing in his will. In the event that my son shall fail to exercise this power of appointment, the trustee
shall distribute the remainder of the trust in equal shares to the children of my son, John Smith, Jr., by right of
representation.
66
1.
2.
3.
4.
5.
6.
The testator, John Smith, is the donor. He is creating the power over the remainder of his trust in his will. John
Smith, Jr., is the donee.
It is a general power of appointment because John Jr. can give it to anyone, including himself and his own
creditors and his estate.
It is a testamentary power of appointment.
The objects are pretty much whoever John Jr. decides they should be.
The takers in default are John Jr.’s children.
It would fall into the residue of the estate. It would basically escheat back to the settlor (or his estate).
Second Version
I give the residue of my estate to Chase Bank as trustee of the Smith Family Trust. My trustee shall distribute the
income from the trust every quarter to my son, John Smith, Jr., for his life. Upon the death of my son, John, Jr.,
my trustee shall distribute the remainder of the trust to one or more of the descendants of my son, John Jr., as
John Jr., shall appoint in his will. In the event that my son shall fail to exercise this power of appointment, the
trustee shall distribute the remainder of the trust in equal shares to the children of my son, John Smith, Jr., by
right of representation.
1.
2.
3.
4.
5.
The testator, John Smith, is the donor. He is creating the power over the remainder of his trust in his will. John
Smith, Jr., is the donee.
It is a special power of appointment because John Jr. can only give it to his descendants, not to himself, his
creditors or his estate.
It is a testamentary power of appointment.
The objects are John Jr.’s descendants.
The takers in default are John Jr.’s children.
Third Version
I give the residue of my estate to Chase Bank as trustee of the Smith Family Trust. My trustee shall distribute the
income from the trust every quarter to my son, John Smith, Jr., for his life. My trustee shall distribute as much
of the principal of the trust to my son, John Jr., as he may request in writing to the trustee. Upon the death of
my son, John, Jr., my trustee shall distribute the remainder of the trust to such persons and in such amounts as
my son, John Jr., shall appoint in his will. In the event that my son shall fail to exercise this power of
appointment, the trustee shall distribute the remainder of the trust in equal shares to the children of my son,
John Smith, Jr., by right of representation.
1.
2.
3.
4.
5.
The testator, John Smith, is the donor. He is creating the power over the remainder of his trust in his will. John
Smith, Jr., is the donee.
It is a general power of appointment.
It is an inter vivos and a testamentary power of appointment.
The objects of the power are John Jr., and anyone else he may select.
The takers in default are John Jr.’s children.
2.
Does the Appointive Property Belong to the Donor or the Donee?
1.
2.
Common Law: Property subject to a power of appointment is owned by the donor, and the power of
appointment is merely the authority of the donee to an act for the donor. Under the relation-back doctrine
the donee was viewed as having power to “fill in a blank” in the donor’s will.
The donee of a general power may be treated as owner for income, estate, and gift tax purposes.
Irwin Union Bank & Trust Co. v. Long (Ind. Ct. App. 1974):
02/03/1957 – Virginia Long (appellee) obtained judgment of $15,000 against Phillip Long from a divorce decree.
Virginia wanted her judgment satisfied out of funds from a trust set up by Phillip’s mother Laura.
Laura’s trust for Phillip gave him the ability, after age 21, to withdraw up to 4% from the principal each year.
ISSUE: Was the trial court in error to allow Virginia to reach 4% of the trust corpus in satisfaction of her judgment?
67
HELD: Yes, because Phillip did not have title to or interest in the trust corpus unless and until he made the
indicated withdrawal. Until then, he has no control over it and receives no economic benefit from it. Phillip
has a general power of appointment.
NOTES AND QUESTIONS
1.
2.
3.
4.
5.
Several states’ statutes allow creditors of a donee with general power of appointment, presently exercisable,
to reach the appointive property so long as they first exhaust the donee’s own assets.
Under the federal bankruptcy act, a general power presently exercisable passes to the donee’s trustee in
bankruptcy, but a special power and a general testamentary power do not.
If the donee of a general power is also the donor, the creditors may reach the appointive assets.
Spouse of the donee: The surviving spouse has a claim against the donee’s probate estate, but since the
appointive property are not part of the probate estate, the spouse may not reach them through elective share
statutes.
Special Powers: Creditors of the donee of special power cannot reach the appointive assets because the
donor never intended for those assets to be used for the benefit of the donee.
NOTE: TAX REASONS FOR CREATING POWERS
1.
2.
3.
4.
If a client wants to transfer property and avoid estate taxation at the donee’s death but still leave the donee
considerable control over the property, a special power of appointment should be created. The donor will
still be taxed at his death, but the donee will not then be taxed at her death.
Generation-skipping transfer tax advantages of special powers: A generation-skipping transfer tax is
imposed on the death of a life-tenant of a younger generation than the settlor’s. However, the generationskipping transfer tax does not apply to trusts established before 1986. Also, each transferor has a $1
million exemption from GST tax.
Property that passes to the surviving spouse in such a manner as to qualify for the marital deduction is not
taxable under the estate tax.
Malpractice Liability: An attorney who drafts wills and trusts is liable for malpractice if he does not
know the tax consequences of powers of appointment!
SECTION B: CREATION OF A POWER OF APPOINTMENT
1.
Intent to Create a Power
1.
2.
3.
2.
The creation of a power of appointment does not require any specific words, but merely the manifestation
of the donor’s intent to so create the power, either expressly or by implication.
Precatory words, those that merely express a wish or desire, do not create a power of appointment absent
other circumstances indicating a contrary intent.
A power of appointment cannot be created in a dead person.
Powers to Consume
Sterner v. Nelson (Neb. 1982):
Decedent = Oscar Wurtele, died 1955. Widow = Mary Viola. Oscar’s will executed 08/04/1939 giving Mary Viola
all his property “absolutely with full power in her to make such disposition of said property as she may desire,
conditioned, however, that if any of said property is remaining upon [her] death…[the remaining property] shall
vest in my foster daughter Gladys Pauline Sterner and her children.”
Mary Viola received 2 commercial buildings as surviving joint tenant, and 2 commercial buildings through Oscar’s
will, and $19,000 of personal property through the will. She sold the buildings in 1963 for a total sale price of
$70,000, not apportioned to each of the 4 separately. Mary Viola married Aaron Rose and then died in 1978.
The majority rule is that the rule against repugnancy declares where a deed or will conveys an absolute title in fee
simple, an inconsistent clause in the instrument attempting to limit that title or convey to the same person a
limited title in the same property will be disregarded.
ISSUE: Did Mary Viola hold the property in fee simple?
68
HELD: Yes, because Oscar gave her full power to dispose of the property however she desired, and he specified
that the ownership power was absolute.
NOTES AND QUESTIONS
1.
2.
3.
4.
Is the power in question limited by an ascertainable standard relating to the health, education, support or
maintenance of the decedent? If it is not, the property subject to the power is included in the donee’s gross
estate for tax purposes.
Limitation: “to maintain the standard of living to which the donee has become accustomed”
Not Limited: “for donee’s comfort, welfare, or happiness”
It is safer than giving the beneficiary the power to consume to merely give the trustee (who is not the
beneficiary) a discretionary power to use the corpus to maintain the beneficiary in the style of living to
which he is accustomed.
SECTION C: RELEASE OF A POWER OF APPOINTMENT
The donee of a testamentary power of appointment cannot legally contract to make an appointment in the future.
Allowing the donee to do so would basically allow him to exercise the power during his life by contracting to
exercise it, and that would defeat the donor’s intent.
The donee of a testamentary power of appointment may promise to exercise it in a certain way, and then may do so
in his will as promised.
A donee may obtain his desired outcome by releasing the power. All powers of appointment, except powers in trust
or imperative powers, have been made releasable in all jurisdictions by judicial decision or by statute. If, for
example, the takers in default of a power of appointment granted to A are A’s children, A could release her
power of appointment, giving her children an indefeasibly vested remainder interest in the property.
Seidel v. Werner (N.Y. 1975):
Πs =s trustees of Abraham L. Werner’s 1919 Trust; Steven Werner, decedent, was the life beneficiary and had
testamentary power of appointment. Πs seek declaratory judgment directing the disposition of trust benefits.
Harriet Werner = Steven’s 2d wife; Anna & Frank are their children. Edith Werner = Steven’s 3d wife.
Anna & Frank contend that they are entitled to Steven’s entire share of the trust because of a Mexican consent
judgment of divorce dated 12/09/63, which incorporated by reference a separation agreement dated 12/01/63
that stated that Steven promised to exercise in his will his power of appointment to create a trust for Anna &
Frank.
03/20/64 = Steven executed a will leaving everything to Edith, including the appointive property. Steven died in
April 1971.
ISSUE: Are Anna and Frank entitled to the entirety of the appointive assets by virtue of Steven’s promised as stated
in the divorce decree and separation agreement?
HELD: No, because contracts to exercise testamentary powers of appointment not presently exercisable are invalid,
and there is no evidence to suggest that Steven was attempting to release his power of appointment in the
divorce decree.
Contract to Exercise Power Invalid: Cardozo stated that the donor of a testamentary power of appointment
intends to give the donee the power to deal with the trust share up to the last moment of his life, and permitting
that power to be bargained away destroys the donor’s purpose.
Not a release: The agreement expressly contemplates a future action, not a present release. The effect of the
promised exercise of the power is very different than the effect of a present release of, or failure to exercise, the
power in that (1) the agreement provided greater principal for Anna & Frank than they would get in default of
appointment, (2) the agreement provides for property to be held in trust for Anna & Frank rather than allowing
them to have it in fee simple under default of appointment, and (3) the results of Anna & Frank failing to
qualify to take the principal are different under the agreement than under exercise of the power.
Anna & Frank may seek restitution against Steven’s estate for the value given by them in exchange for Steven’s
unenforceable promise, but they may not seek restitution from the trust funds since Steven did not actually own
those funds.
Steven exercised his power of appointment in favor of Edith in his 03/20/64 will, so Edith’s motion for summary
judgment was granted.
69
SECTION D: EXERCISE OF A POWER OF APPOINTMENT
1.
Exercise by Residuary Clause in Donee’s Will
Beals v. State Street Bank & Trust Co. (Mass. 1975):
Arthur Hunnewell died 1904, with residue of property in trust. Income was to be paid to his wife for life, and at her
death the trust was to be divided into equal portions for each surviving daughter and each surviving issue of any
deceased daughter. One daughter died before mother leaving no issue. Wife died 1930. Trust divided into 3
portions, one for each surviving daughter. Will directed that the income of each portion should be paid to the
daughter for life and at her death the portion’s principal should be paid and disposed of as she may direct and
appoint by her will.
One of the daughters, Isabella, requested the trustees to exercise their discretionary power to make principal
payments by transferring substantially all of her trust share to an office in Boston to be managed by her thenhusband Gordon Dexter. The trustees granted the request, transferring all cash and securities, but retaining
Isabella’s one-third interest in a mortgage and various parcels of real estate.
Isabella partially released her power of appointment, releasing the power to appoint anyone other than descendants
of Arthur Hunnewell.
12/14/68 Isabella died without issue and having outlived her husband. The residuary clause of her will disposed of
all “the rest, residue and remainder of [her] property” to the issue of her sister Margaret per stirpes.
ISSUE: Did the residuary clause of Isabella’s will exercise her power of appointment, such that the Blake children
receive the entire trust share, or should the Blake issue take by way of default of appointment 1/2 the share and
Jane (Isabella’s sister that survived her but has since died) get 1/2 by default?
HELD: Using the substantive law of the jurisdiction governing administration of the trust, the court held that the
residuary clause is properly presumed to have exercised her power of appointment, giving the Blake children
the entire share of the trust.
A general power of appointment is close to a property interest because it is virtually unlimited in power of
disposition and the person having a general testamentary power is likely to treat the property as his own.
Isabella’s request for transfer of the property gave her essentially the use and enjoyment of substantially all of her
trust share’s property. The gift under the residuary clause was also consistent with the partial release she
previously executed.
NOTES
1.
2.
3.
4.
5.
6.
The 7th Circuit held in 1982 that the law of donee’s domicile should govern issues concerning the donee’s
intention to exercise a power of appointment by will.
The large majority of jurisdictions hold that a residuary clause is presumed to not exercise the testator’s
power of appointment unless contrary intent is shown. Some courts look for such intent only in the will,
but other courts allow extrinsic evidence to prove contrary intent.
The minority of jurisdictions hold that a residuary clause is presumed to exercise the testator’s general
power of appointment unless a contrary intent affirmatively appears.
A few jurisdictions allow a residuary clause to exercise the testator’s special power of appointment if the
residuary devisees are objects of the power.
If the appointive asset is land, the law of the jurisdiction where the land is located shall govern.
If the appointive asset is personal property, the donor of the power may be able to select the governing law.
UPC § 2-608. Exercise of Power of Appointment
In the absence of a requirement that a power of appointment be exercised by a reference, or by an express or specific
reference, to the power, a general residuary clause in a will, or a will making general disposition of all the testator’s
property, expresses an intention to exercise a power of appointment held by the testator only if (i) the power is a
general power and the creating instrument does not contain a gift if the power is not exercised or (ii) the testator’s
will manifests an intention to include the property subject to the power.
UPC § 2-704. Power of Appointment; Meaning of Specific Reference Requirement
70
If a governing instrument creating a power of appointment expressly requires that the power be exercised by a
reference, an express reference, or a specific reference, to the power or its source, it is presumed that the donor’s
intention, in requiring that the donee exercise the power by making reference to the particular power or to the
creating instrument, was to prevent an inadvertent exercise of the power.
NOTE AND PROBLEM
1.
2.
3.
To prevent the unintentional exercise of a power of appointment, the donor may provide that the power can
be exercised only by an instrument executed after the date of the creating instrument that refers specifically
to the power.
Courts usually interpret the “specific reference” very strictly.
The use of blending clauses (saying “all property over which I have a power of appointment”) is held by
the UPC to be ineffective in exercising a power of appointment because it does not make a specific
reference. Extrinsic evidence is permitted to show the intent to exercise the power.
2.
Limitations on Exercise of a Special Power
3.
Fraud on a Special Power
4.
Ineffective Exercise of a Power
a.
Allocation of Assets
b.
Capture
SECTION E: FAILURE TO EXERCISE A POWER OF APPOINTMENT
Loring v. Marshall (Mass. 1985):
Does it go back to the donor’s estate, or is there some other appropriate disposition?
HELD: It would be appropriate to give it to Cabbot Jr.’s estate as he was the one permissive appointee of the
principal.
RULE: If the donee fails to exercise a special power of appointment and the donor did not list any takers in
default, as long as the class of objects of the power is small and well-defined the court will find there was an
implied gift in default and distribute the trust principal in equal shares to the members of that class.
CHAPTER 12: CHARITABLE TRUSTS
SECTION A: NATURE OF CHARITABLE PURPOSES
Shenandoah Valley National Bank v. Taylor (Va. 1951):
ISSUE: Did a will create a valid charitable trust where it devised the estate residue to the trustee in trust with the
directions that twice a year the net income should be distributed in equal parts to all first, second and third
graders at a particular school, to be used by such child in furtherance of his education?
HELD: No, because the trustee has no control over how the trust funds are actually used; “nothing toward the
advancement of education is attained by the ultimate performance of the trustee of its full duty.” (p. 863).
While the trust is benevolent and laudable, it is not for a charitable purpose, and as a private trust it is invalid
because it violates the Rule against Perpetuities.
Testator/Settlor = Charles B. Henry; will dated 04/21/49; died on 04/23/49 with no children or near relatives. The
trust attempted by the will was challenged by one of his next-of-kin.
RULE: If the testator/settlor’s dominant intent is charitable, the trust should be sustained, but if the intent is merely
benevolent, then the trust may only be sustained if it does not violate the Rule against Perpetuities.
Charitable purposes: (a) relief of poverty, (b) advancement of education, (c) advancement of religion, (d)
promotion of health, (e) governmental or municipal purposes, and (f) other purposes that benefit the
community.
71
Difference between Charitable and Benevolent Purpose: To be charitable, the purpose must be somehow public
in nature. Mere financial enrichment without regard to whether the party being enriched is poor or in need is
not charitable.
Where a trust is created with a class as beneficiary, which class generally contains needy persons, then we presume
the testator intended to make beneficiaries of those parties who are in need.
Charitable trusts are favored, and as such, courts will liberally interpret the trusts to effectuate them.
NOTES AND QUESTIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
In general, a charitable trust is exempt from the Rule against Perpetuities and may endure indefinitely,
whereas private trusts are subject to the Rule.
a. A majority of jurisdictions have modified the common-law Rule against Perpetuities and
adopted the wait-and-see doctrine by which a court waits to see if the trust does in fact last
longer than the perpetuities period allows (usually 21 years).
b. Jurisdictions adopting the Uniform Statutory Rule against Perpetuities use a wait-and-see
period of 90 years.
c. The Uniform Probate Code §2-907(a) allows a non-charitable trust to be performed for 21 years,
but no longer.
Professor Adam Hirsch describes the law as dividing bequests into three purpose-categories: (1)
charitable, (2) not charitable but not harmful, and (3) antisocial. The law treats each category differently.
To be classified as charitable, a trust for the benefit of a class rather than the benefit of the community at
large must be for the relief of poverty or the advancement of education, religion, health, or other
charitable purposes. Merely gifting to the benefit of a class does not, alone, make a gift charitable.
A trust may be a valid charitable trust even if the persons who directly benefit from it are limited in number
(e.g., scholarship trusts).
A trust to educate a particular person or named persons is not charitable. However, a trust for the
education of “young people” with preference being directed to descendants of the settlor’s grandparents
was held charitable.
Professor Mary Kay Lundwall suggests that “charitable gift” should be defined broadly because
charitable trusts can be used to try many experiments to which devotion of public funds would be improper
or that the public would not support until its success is proven.
Political Purposes: Charitable? It is against public policy to perpetually endow a political party, so a
trust to promote the success of a particular political party is not charitable. However, trust for the
improvement of the structure and methods of government advocated by a particular political party is
charitable.
A trust whose purpose is to bring about a change in the law may be charitable so long as it does not
advocate bringing about the change in law by illegal means.
Drafting Advice:
a. Get the exact legal name of the charity
b. If client wants an estate tax charitable deduction, find out whether the charity is tax-exempt
c. If the trustee is given discretion to “spray” the income among charitable organizations, draft the
trust to restrict the potential recipients to those qualifying as “charitable” under the Internal
Revenue Code.
d. Do not use the words “benevolent” or “philanthropic” in place of the word “charitable” as those
words are sometimes held to be broader, causing the trust to fail.
SECTION B: MODIFICATION OF CHARITABLE TRUSTS: CY PRES
Cy pres: Means “as nearly as possible.” Judicial doctrine of cy pres allows a court to modify the terms of a
charitable trust such that the settlor’s purpose may still be fulfilled even if the settlor’s expressed intent is
impracticable.
In re Neber (N.Y. Ct. App. 1939):
ISSUE: When compliance with the specific intent or direction of a settlor of a charitable trust is impracticable, may
the court execute cy pres and develop a scheme through which the settlor’s general charitable purpose is carried
out?
72
HELD: Yes, where the settlor’s primary intention was to give her property to a general charitable purpose rather
than to a particular charitable purpose, the court may use cy pres to fulfill the general charitable purpose even
where the settlor’s specific directions cannot be followed.
Testator/Settlor = Ella Neher. Gave her home and land to the Village of Red Hook as a memorial to her husband
Herbert. Instructed that the land was to be used to build a hospital and that the trustees of the Red Hook would
be the Board of Trustees for the hospital.
The trustees of Red Hook accepted the property on 09/01/1931 but in 03/1937 declared that they could not afford to
establish and maintain a hospital on that property, but that a modern hospital in the neighboring village of
Rhinebeck served the Red Hook community. Trustees wanted to erect and maintain an administrative building
for the Village and all it the Herbert Neher Memorial Hall.
Surrogate court denied it, and Appellate Division affirmed Surrogate’s decision. This court reversed.
Court found that Ella’s will showed an “absence of particularity” which indicated that her instructions (to build the
hospital) were not the substance of the gift, and that the gift’s substance was to be a charitable purpose
benefiting Red Hook. Thus, the administrative building should be allowed.
Richard A. Posner, Economic Analysis of Law:
A policy of rigid adherence to the letter of the trust may frustrate the donor’s purposes and waste resources. The
donor would rather see his gift contribute meaningfully to the general purpose he intended, rather than have it
used in a useless or futile way.
Suggested that a rational donor implicitly accepts a rule permitting modification of the terms of his bequest
because he knows his intentions may be thwarted by unforeseen and unpredictable circumstances.
“Where the continued enforcement of conditions in a charitable gift is no longer economically feasible, …[the court]
will authorize the administrators of the charitable trust to apply the assets to a related (cy pres) purpose.”
POWERS OF APPOINTMENT HANDOUT
Raymond has a general power of appointment. Marie is the donor, and Ray is the donee. Because he has the ability
to exercise it in favor of himself, his creditors, his estate and its creditors, it’s general. The remainder of the
trust goes to her three grandkids if he doesn’t exercise POA. Ray leaves the rest of his estate to his wife, or to
his three kids by representation if she dies first. No mention in his will of his POA in his residuary clause.
When he dies, Debra and his kids are all still alive.
(a) Under the majority rule, a general residue clause does not exercise a general power of appointment. So as a
result because Ray failed to exercise the general POA in his will the 1.5 million in trust goes to the default
takers, his children, who will split it three ways and each get $500,000 of the trust principal. Debra, being the
will beneficiary gets his $2 million probate estate.
(b) Under the minority rule (see Beales v. State Street), the jurisdictions say that a general residue clause does in
fact exercise a general POA. In the minority jurisdiction, Debra gets all the remainder of the trust in addition to
the probate estate.
(c) Under the UPC, look at the statute on pp. 694-695 of the book, §2-608. Nothing in Marie’s will says Ray has to
exercise the general POA by reference. The UPC allows the residuary clause to dispose of the POA if it is
general and if there are no default takers specified. Because Marie did specify default takers (Ray’s children),
Ray’s residuary clause does not exercise the power; it goes by default to his three children in equal parts.
What if Marie’s will had not specified takers in default? Would that affect your answers to any part of question 1?
In the majority and minority jurisdictions, it doesn’t matter whether or not default takers are specified. The majority
still says the general residuary clause does not exercise the general POA and the minority says it does.
Note that in the majority rule, the remainder of the trust would go back to Marie’s estate because there are no takers
in default to whom to give it.
However, if we take a look at the UPC, the statute tells us that where there is no requirement for a reference, it is
general, and there are no default takers, then the general residuary clause does exercise the power of
appointment. Thus, under the UPC the general residuary clause in Ray’s will is now sufficient to exercise the
POA. So in addition to getting Ray’s probate estate, Debra also gets the remainder of the trust.
Ray’s will states that the residue, including any property over which I hold a power of appointment, to my wife
Debra and to my kids if she predeceases me.
73
Now we don’t have a general residuary clause here. Now we have a “blending clause.” Whether you’re in the UPC
or in the majority or minority, since Marie’s will did not require anything more than this (it didn’t require
specific reference) that clause should be sufficient to exercise Ray’s general power of appointment.
Now assume Marie’s will says it goes to the people as Ray directs by specific reference… when she places that
requirement for specific reference, we have to see whether Ray’s residuary clause contains a specific reference.
He does not state where the power of appointment comes from in his residuary clause. Generally in all three
jurisdictions, a blending clause will not be sufficient where a specific reference is required. Therefore, Ray is
considered to not have exercised the power of appointment and the trust corpus goes to his kids as takers in
default.
Now Marie gets the trust money because he used a specific reference
This is like the Lorene case with a special power of appointment. If he fails to exercise it, there are no takers in
default. The courts will imply a gift and say that because Ray failed to exercise the power and the donor failed
to name anyone as alternate takers, the intention was that there should’ve been a gift in default to the three
children (the objects of the special power).
When we have a special power and the objects of it are a small, well-defined class, if the donee fails to exercise it
and the donor fails to list default takers then we’ll imply a gift to the object of the special power.
74