Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
QUESTION 1
In 2007 Samantha moved from Florida to California and was engaged to Alan.
In 2009, Samantha executed a valid testamentary trust, naming Alan as trustee.
In 2010, Samantha died.
The terms of the trust state:
(1) My residence is to be transferred to Alan;
(2) All net income is to be paid to Bill, Samantha’s nephew, for life;
(3) Alan may invade principal for Bill in such amounts as Alan, in his sole and
absolute discretion, determines;
(4) The trust terminates on Bill’s death and any remaining principal is to be
distributed to Alan and the Red Cross equally;
(5) The interests of the beneficiaries are inalienable and not subject to the claims
of creditors.
In 2011, Lender obtained a judgment against Bill for an unpaid credit card bill that
includes charges for flat screen TV, groceries, and a computer for school.
Lender seeks an order of this court directing Alan to turn over all future distributions of
any trust income to Lender Bill until the judgment is satisfied.
Silvia, Bill’s former spouse, seeks a court order directing Alan to pay all future
installments of trust income to her rather than Bill because Bill is delinquent in making child
support payments.
Bill wants Alan to invade the trust principal so Bill can promote a newly-formed rock
band, but Alan has refused. Bill now requests a court order directing Alan to invade the trust
principal.
Because of Alan’s refusal to invade the trust principal, and because Red Cross is
concerned over Bill’s debt difficulties, Bill and Red Cross wish to terminate the trust in order to
divide the trust principal, but Alan has refused. Both Bill and Red Cross now request a court
order terminating the trust.
How should the court rule on the requests made by Lender, Silvia, Bill, and Red Cross?
Identify and discuss all relevant issues, including the creation of an inter vivos trust; spendthrift
provisions; rights of preferred creditors; discretionary trust provisions and their terminations.
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
ISSUE SHEET
Question 1
A valid inter vivos trust was created since Samantha (S), the settlor, had an immediate intent to
create a trust for a legal purpose, and delivered a presently existing res, title property interest, to
Alan (T), the trustee, for the purposes of management for the benefit of the beneficiaries Bill (B)
and Red Cross and Alan.
A trustee is a fiduciary relationship with respect to property where a settlor transfers
property to a trustee who holds the property for the benefit of named beneficiaries, for a
valid trust purpose. On the facts, Samantha executed a valid express testamentary Bill has a life
interest in the trust and Alan and Red Cross share a remainder interest.
Request by Lender
The express trust created creates a spendthrift clause. As a general rule,
a beneficiary’s interest is both voluntarily and involuntarily alienable as a property right.
Involuntary alienation allows a creditor to attach to the beneficiary’s rights to future
payments by obtaining a judgment.
A spendthrift clause is designed to protect the beneficiary from their spendthrift ways
by prohibiting both voluntary and involuntary alienation of the beneficiary’s right to future
payments. Thus the spendthrift clause created prohibits Lender from attaching to
Bill’s future payments of income. The provision explicitly state’s that the beneficiaries’
interest is inalienable and not subject to creditor’s claims. All distributions, both income and
principal, are subject to a spendthrift provision. This prevents creditors from attaching and
beneficiaries from voluntarily assigning their rights. This is held as valid restraint. There are,
however, exceptions to the creditor’s rule discussed below. Exceptions for creditors are made for
the following creditors: government creditors, tort judgments, spousal or child support, alimony,
necessities and surplus above station.
However, the courts recognize exceptions to the protection provided by spendthrift
provisions including where a creditor has provided necessaries to the beneficiary.
Necessaries include items such as food, clothing, shelter and medical care.
Applying these facts, Lender provided Bill with tuition, groceries, and TV equipment.
A court would likely find that only the groceries were necessaries and would order that
Lender is entitled to payment for the groceries from the income of the trust. Thus a court would
likely grant Lender’s requested order for payment of Bill’s grocery debt.
With respect to the TV and tuition, Lender could seek recovery based on surplus.
The concept of surplus is recognized in some jurisdictions and allows a creditor to attach to
future payments to the beneficiary despite a spendthrift clause where the income to be paid
exceeds the beneficiaries‘ station in life, thus resulting in a surplus. On the facts it is unclear
what income is produced in relation to Bill’s station in life. In making the determination as to
whether surplus exists the court will only consider Bill’s reasonable expenses. If Lender can
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
establish surplus, a court would likely grant his requested order and direct Alan as trustee to pay
future installments of surplus to Lender to satisfy Bill’s debt.
Request by Silvia: Preferred Creditor
In addition to the two exceptions noted in relation to Lender, the courts have also
recognized an exception for preferred creditors. A court will disregard a spendthrift clause and
allow a preferred creditor to attach to the beneficiary’s future income payments from the trust.
Preferred creditors include government debt and outstanding child and spousal support and
alimony payments.
On the facts, the beneficiary Bill has failed to make child support payments to his
former spouse Silvia for the support of his child. Thus Silvia is a preferred creditor and is
entitled to attach to Bill’s right to future income from the trust to satisfy the delinquent child
support.
Therefore, a court would likely grant Silvia’s request and order Alan to pay trust
income to Silvia in satisfaction of Bill’s outstanding child support obligation until the
arrearages are eliminated.
Request by Bill - Discretionary Trust Provision
Under the terms of the will, Alan has sole and absolute discretion to determine
whether or not to invade the trust principal for Bill’s benefit. Alan as trustee has all
express powers as set out in the trust and all implied powers required to exercise the
express powers. As a fiduciary, Alan has an obligation to exercise his discretion in good
faith. On the facts, there is no indication that Alan’s refusal to invade the trust principal
to allow Bill to promote the rock band was made in bad faith.
Therefore, based on the facts, the court would not interfere with Alan’s discretion
as explicitly set out in the trust and would deny Bill’s request. The court would not
therefore order Alan to invade the trust principal.
Request by Red Cross & Bill - Termination
A court will not order a termination of a trust even with the consent of all
beneficiaries where such termination would be in violation of the trust purposes and would be
contrary to the testator’s intent. Alan did not ask for termination.
The trust established by Samantha evidences a clear intent to provide for Bill during his
lifetime. This is a valid trust purpose which continues until Bill’s death. On the facts, Bill
is still alive and thus the trust purpose is ongoing. As well, the termination of the trust
would destroy Samantha’s intent to provide for Bill throughout Bill’s life.
In addition, the trust has not become passive as Alan, the trustee, still has active
duties in maintaining and managing the trust. Nor have circumstances changed such that the
doctrine of changed circumstances would apply to modify the trust terms.
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
Therefore, the court would uphold Alan’s refusal to terminate the trust and would
deny Bill and Red Cross’s request since termination would destroy the settler/testator
(Samantha’s) intent. Alan would receive Samantha’s house if it exists at the time of the devise.
If so, Alan would receive the house free of trust.
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
QUESTION 2
In 1976, Tracey executed a will. The dispositive provisions of the will provided:
“1. $100,000 to my friend, Alice.
2. My residence on Ash St. to my sister Betty.
3. My ABC Corp stock to my brother Casey.
4. The residue of my estate to ASPCA for lonely Boxers.”
In 1999, Tracey had a falling out with Alice and executed a valid codicil that expressly
revoked item 1 of the will but made no other changes.
In 2000, Tracey reconciled with Alice and told several people, “Alice is back in my will;
I’ve provided for her.”
In 2001, Betty died intestate, survived only by one child, Nancy, and two grandchildren,
Dan and Eddie, who were children of a predeceased child of Betty. Also in 2001, Tracey sold
her ABC Corp stock and reinvested the proceeds by purchasing BCSCorp stock.
Tracey died in 2005. At the time of Tracey’s death, his estate consisted of $100,000 in
cash, the residence on Ash St., and the BCSCorp stock.
The will and codicil were found in her safe deposit box. The will was in the box and the
codicil was found. The codicil had the words “Null and Void” written across the text of the
codicil in Tracey’s handwriting, followed by Tracey’s signature.
Tracey was survived by Alice, Casey, Nancy, Dan, and Eddie.
What rights, if any, do Alice, Casey, Nancy, Dan, Eddie, and ASPCA have in Tracey’s
estate? Discuss. Answer according to California law.
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
ISSUE SHEET
Question 2
Alice
Alice was initially provided with $100,000 under the valid 1976 will.
Codicil
A codicil is a supplement to an existing will executed with full formalities according to the
statute of wills that revokes only inconsistent provisions of the prior will and adds new
provisions. Both the codicil and prior will (consistent) are valid and deemed executed as of the
date of the codicil.
Thus, by executing a valid codicil in 1999, T revoked the inconsistent paragraph 1. At
common Law T may have been required to also make additions, but that is not the law in
California.
Revocation
A will, and codicils, can be revoked expressly by a subsequent will or by physical act.
Express
A will can be revoked by a subsequent holographic express revocation. For a valid
holographic will the Testator must sign and the material provisions must be in T’s
handwriting.
Here, Tom wrote the words “null and void” in his own handwriting and signed the codicil.
Therefore he likely revoked the codicil expressly.
By Physical Act
Tom also may have revoked by physical act, which can be done by crossing out language
of the existing will or writing null and void so long as language of the revoked instrument
is touched.
Here T wrote the words across the face of the codicil touching the language and therefore
it likely also could be interpreted as revocation by physical act.
Therefore the codicil was validly revoked. . . .
Revival
Where a codicil to a will is revoked the validly executed will remains valid. Whether the
inconsistent provisions are thus revived depends on evidence of the intent of the testator.
Alice will point to the statements by Tom to several people that T said, “Alice doesn’t need to
worry, I’ve provided for him.”
However, SU will likely argue it is unclear whether these statements were made near time
that T revoked the codicil. They were made, however, after T and Alice reconciled, so likely
Alice can use these statements and their later reconciliation to show he intended to revive the
will.
Dependent Relative Revocation
T likely cannot rely on Dependent Relative Revocation, which provides that where the T
revokes a will under mistaken belief that a prior gift is valid the revoked Will will be revived.
This does not aid Alice because he does not want the gift in the codicil revived, as there is no
gift for him there.
Therefore, if the codicil is revoked, Alice likely prevails under the existing valid will and will get
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
the $100,000.
Casey
The Stock
Whether Casey will take the BCSCorp stock depends on whether T’s initial gift was
specific or demonstrative, because specific gifts generally are deemed if they do not exist
when the T dies.
Specific vs. Demonstrative
Specific gifts are gifts of specifically identified property, like a piece of real estate or a
watch. Demonstrative gifts are a hybrid of specific and general in that the T intends to
make a general devise but identifies the source from which the devise should come.
Stock has proved difficult to characterize. Gifts of “my 100 Shares of ABC” are generally
deemed specific, while ‘100 shares of ABC’ are demonstrative.
Here, T gives Casey ‘his BCS Stock’. This is more like a specific devise because it
is phrased in the possessive which suggests T intends to give specific stock.
Ademption
Under the doctrine of ademption specific devises that are not present when T dies are
adeemed by extinction. This rule of ademption is not applied to demonstrative gifts.
Instead, such gifts are satisfied out of other property.
Here, the BCSCorp stock has been sold and thus not present when T dies. Thus, if this
is a specific devise, the gift to Casey is adeemed.
Change In Form, Not Substance
Carl may argue that the gift is not adeemed because it is still present. He could argue that
Tom’s purchase of the ABCCorp stock with all the proceeds was a change in form not
substance.
Intent of the Testator
Carl could also argue that in California if the T did not intend ademption to apply it will not
be applied. Here, Casey is T’s brother, a natural object of T’s bounty and there is no
indication of bad blood between the then. Therefore it can be argued there was no attempts to
adeem.
Acts of Independent Significance
Casey may also argue that the doctrine of Acts of Independent significance applies. This
allows blanks in a will to be filled in by acts that are not primarily testamentary. Selling
stock has a lifetime motive and thus is not primarily testamentary. However, there is no
blank in the will here, which expressly identifies BCSCorp stock, not just ‘my stock.’
Therefore this argument will fail.
Nancy, Dan & Eddie and The Residence
Lapse
Under the common law doctrine of lapse, a beneficiary who predeceased the testator did
not take the gift. It lapsed. Here, Betty died in 2001, four year before T. Under common
law her gift would lapse.
Anti-Lapse Statute
In California, there is an anti–lapse statute that will save gifts to beneficiaries who
predecease if:
1) they are related to T or to T’s spouse;
Wills & Trusts
Spring 2011 – Final (100%)
Ventura Campus
Prof. Terri Hilliard
2) they leave issue.
Here, Betty is T’s sister and thus is related. Further, she leaves issue, one child, Nancy, and
two grandchildren, Dan and Eddy, who are the children of her predeceased sister.
Therefore, California’s anti-lapse statute applies.
Under California’s anti-lapse statute, the gift goes directly to the decedent beneficiary’s
issue, not to devisees under the will.
Here, Betty’s issue are Nancy and Dan and Eddie (the issue of her issue). Under California
intestacy law, which applies Modern Per Stirpes, the gift would go to Betty’s issue.
Dan and Eddie may then take by representation for their deceased parent. Thus Nancy would
take ½ and Dan and Eddie would split ½, for 1/4 each.
Remainder/ASPC
ASPC will take all the remainder of the estate less costs for administration, etc. Here, if Eddie’s
gift is adeemed, ASPC takes the ABCCorp stock. If Alice’s gift in the will is not revived
somehow, ASPCA takes that as well.