Wills, Estates, and Trusts – Fall 2013

Freedom of Disposition1. Power to Transmit property at Death2. Mechanics of Succession

a. Probate and Nonprobate property – probate property is property that passes through probate under the decedent’s will or by intestacy. Nonprobate property is property that passes by way of a will substitute. (see below)

i. Inter Vivos Trust1. Property put in trust, trustee holds it for the benefit of one

or more beneficiaries.2. Testementary trust passes through probate, but property in

I.V. trust during the decedent’s life passes in accordance with the trust avoiding probate administration

ii. Life Insuranceiii. Pay-on-Death (POD) and Transfer-on-Death (TOD) Contractsiv. Joint Tenancy

1. Decedent’s interest vanishes at deathb. Probate terminology

i. Personal representative – a fiduciary who collects and inventories the property of the decedent (to be used in this class in lieu of executor/executrix, or other –tor/-trixes)

ii. Testate – her will names the person to execute the will (the executor)

1. Devise real property to devisees and bequeath personal property to legatees

iii. Intestate – court names a representative (administrator)iv. Probate is a type of court, or specialized court within the state

1. May have a subsystem of referees2. Can be analogized to bankruptcy case – judicially

supervised procedurec. Probate administration – serves 3 purposes 1) Evidence of transfer of title,

2) protects creditors, and 3) distributes the decedent’s propertyi. Opening Probate and Choice of Law

1. Primary or domiciliary jurisdiction – if where decedent domiciled at death

2. Ancillary probate – if real property is located in another jurisdiction

ii. Common Form and Solemn Form Probate1. Common form – ex parte proceeding in which no notice or

process was issued2. With a period of years, an interested party could file a

caveat, compelling probate of the will in solemn forma. Notice was issued

iii. Formal and Informal Probate (difference is lack of notice)

1. Informal probate used quite a bit, however claims can be filed up to 7 years later, can be unsupervised

iv. Supervised and Unsupervised Administration (everyone is notified, but not necessarily require that the PR constantly file with the court)

v. Barring Creditors1. Every state has a nonclaim statute, which requires creditors

to file claims within a specified time periodvi. Closing the Estate

vii. Note: cost of probated. Is Probate Necessary?

i. Probate is the process that determines “whose name should go on the ownership of title line”

e. Notes – Problemi. Aaron Green probate problem

1. Bunch of non-probate property will transfer immediately to Mrs. Green (probably a POD provision on mutual fund property). Personal property usually divided up the family. Probably don’t have to probate this estate

2. Owning a house worth 170K and lot worth 16K – means that we need to probate the estate to get the title in her name. can avoid by setting up a joint tenancy or IV trust

3. Professional Responsibilitya. Duties to Intended Beneficiaries

i. Simpson v. Calivas (1994)1. Drafting a will includes a duty to the beneficiaries of the

willb. Conflicts of Interest

i. A. v. B. (1999)1. Problem is that the wife’s property may transfer to the

illegitimate child of the husband2. (look up RPC 1.6 in Idaho) – follows the basic ABA rule

and so we cannot make this disclosure to the clienta. So withdraw from representation

Intestacy: An Estate Plan by Default1. Estate plan by default

a. Why do so many people die intestate?b. Purpose of Intestacy statutes

i. To carry out the probable intent of the average testatorc. Applicable Law and Uniform Probate Code

i. Non-community property and UPC1. If there are issue - Surviving spouse gets ½ to ¾ depending

on if the issue belongs to the decedent, plus another portion of the estate (might be $150K) - (essentially trying to give the entire estate to the spouse in a small estate)

ii. Community property state and UPC

1. Surviving spouse gets all the community property (retains ½ interest in community property and inherits the remaining half)

2. If there is separate property, the UPC provisions kick in for the remainder (more than $100K of non-community property left to others)

d. Heirship and Expectancy of an Heir Apparent2. Basic Structure of Intestate Succession

a. Surviving Spousei. Spouse’s share

1. Common that testator leaves the entire estate to the surviving spouse (better than 75% of those polled)

2. UPC and applicable law tries to reflect thisii. Domestic Partners and Same-Sex Marriage

1. WA state has revised intestate succession to take into account Domestic partnership (different than most states)

iii. Problem of Simultaneous Death1. Janus v. Tarasewicz

a. F: A couple was poisoned and the court is left to look at evidence to determine which person died first. Case involves Uniform Simultaneous Death Act (USDA)

b. I: Was there sufficient evidence that the wife survived the husband

c. R: d. A: Life Insurance passes to W (who dies) which

passes to her estate and her beneficiaries (here the father through the probate estate

e. Difficulty in this case comes from the determining of “sufficiency of evidence” used in the USDA language

f. Intent of legislature in USDA to avoid probate and confusion seen in this case

g. Notes: many states have repealed the USDA – and now follow the UPC defining survivorship as 120 hrs. (personal note: draft this into your will just in case the state you die in has different law)

b. Descendants (Issue) – persons related to you in a straight line of descenti. Representation (Know the difference for the final!)

1. Common law (English Per Stirpes)a. Children would take their share if alive (p. 82)b. Took care of vertical equality in the family

2. Old UPC (as in Idaho) a.k.a. Modern lawa. Goes to first living descendant (and generation) and

then more remote generations take according to representation

b. Wanted more horizontal equalityc. Good but tiny reform

3. New UPC (1990 reformed) – (a.k.a. per Capita at each generation)

a. Not adopted in Idaho, however Washington, Montana

b. Gets rid of the concept of representationc. Go to first level of living descendant, then treat the

shares as one big pot when you drop it downii. Representation in Wills and Trusts

c. Ancestors, Collaterals, and OthersAncestors – related straight line up (e.g. parents, grandparents, great-grandparents, etc.)Collaterals – related through a common ancestor

i. Parents1. UPC takes account when the decedent is not married and

has surviving parents and allows parents to take a portion of the estate

ii. Other Ancestors and Collaterals1. Parentelic system

a. Statute will look more like the UPCb. Always by representationc. Favors the relatives closest to the decedent by the

common ancestord. Most go to the level of great-grandparents before

cutting off2. Degree-of-relationship system

a. “Next of kin” used to identify the statuteb. Count the steps up from decedent to the claimant

i. Closest degree relative takes per Capita3. All states have a preference for a first-line collateral

a. They take everything, but in representationi. Goes to parents, then siblings and their issue

iii. Laughing Heirsiv. Stepchildren and in-Lawsv. Half-bloods

vi. Escheatd. Disinheritance by Negative Will

3. Transfers to Childrena. Adopted Children

i. Formal Adoption1. Hall v. Vallandingham (1988)

a. F: Four children are adopted after the death of their father upon their mother’s remarriage. After an uncle dies, they allege they should be given part of the estate

b. I: Did the trial court err in regarding natural inheritance by adopted persons in denying the Appellants right to inherit through their natural uncle

c. R: Adoption is treated as a “rebirth”, severing ties with both the natural parents and relatives.

d. A: In an effort to avoid double-dipping, the courts in effect say that a child’s right to inherit goes to the new step-dad, and not the bio-dad

e. C: Adoption eliminates the adopted child’s right to inherit from the natural parent. – Judgment affirmed

f. Question of inheritance “from” Dad and StepDad versus “Through”. Going to intent of average testator

g. Hall is not the majority approach anymore, as most state’s allow “double-dipping”

h. 2008 Amendments of the UPC – in effect the court needs to determine if there was a parental relationship with the child

ii. Adult Adoption1. Becoming a tool used to create familial relationships

(starting primarily in the 1980’s). Popularity blossomed in Gay/lesbian communities.

iii. Adoption and Wills and Trusts1. Minary v. Citizens Fidelity Bank & Trust (1967)

a. F:b. I: Did an heir’s adoption of his wife make her

eligible to inherit under the provisions of his mother’s will (inheriting from a trust)

c. R: An adult person may be adopted in the same manner as provided by law for the adoption of a child with the same legal effect

d. A: However, the adoption of an adult for the purpose of bringing that person under the provisions of a preexisting testamentary instrument when he clearly was not intended to be so covered should not be permitted

e. C: Judgment is reversediv. Equitable Adoption

1. O’Neal v. Wilkes (1994)b. Posthumous Childrenc. Nonmarital Childrend. Reproductive Technology and New Forms of Parentage

i. Posthumously Conceived Children1. Woodward v. Commissioner of Social Security (2002)

a. I: Married couple has sperm preserved to help them have children in the future. Man dies and then woman uses his sperm to have children. Are the children able to enjoy inheritance rights of natural children under Mass. State law?

b. R: Balancing test - best interests of the children balanced against other state interests (children alive or already conceived, reproductive choices of the individual, and notice given to that effect - consent)

c. C: In certain limited circumstances, a child resulting from posthumous reproduction may enjoy the inheritance rights of “issue”

ii. Posthumously Conceived Children and Wills and Trusts1. In re Martin B (2008)

iii. Surrogacy and Married Couplesiv. Assisted Reproduction and Same-Sex Couplesv. 2008 Amendment to the UPC

e. Advancements and Hotchpoti. Advancements at Common Law

ii. Hotchpotiii. Advancements in Modern Law

1. Uniform Probate Code (1990)a. §2-109 Advancements

f. Guardianship and Conservatorship of Minorsi. Guardian of the Person

ii. Property Management Options1. Guardianship of the Property2. Conservatorship3. Custodianship4. Trusteeship

4. Bars to Succession – these apply to both intestate and testate successiona. The Slayer Rule

i. In re Estate of Mahoney (1966)1. F: Vermont in 1960’s had a separation of law and equity in

courts still and probate court was a court of law, thus did not have equity jurisdiction. Wife was convicted of manslaughter of her husband and father of decedent was appointed administer of the estate

2. I: Whether a widow convicted of manslaughter in connection with the death of her husband may inherit from his estate. Jurisdiction issues as well as Probate court could not order a constructive trust (equity remedy) which would be the best course here.

3. R: Due to the nature of the crime, a constructive trust is the most equitable solution in a slayer case as a 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

4. C: Reverse the decision of the probate court5. Remedy in this case was a constructive trust

a. Equitable remedy in which wrong owner was forced to convey property to the true owner. Only courts can order constructive trusts (they are NOT real trusts)

6. UPC – a slayer who “feloniously and intentionally” kills the decedent is barred from inheriting

a. Don’t need a criminal conviction, burden is a preponderance of the evidence

b. We treat the slayer as if they predeceased the decedent for the purpose of determining who inheritance

ii. Application of the law of restitution and unjust enrichmentb. Disclaimer – two reasons

i. From Common law to statutory law1. Common law – renunciation2. Statute- disclaimer

ii. Avoiding taxes1. Limit tax exposure, avoid estate tax

iii. Avoiding creditors 1. Ordinary creditors

a. Property jumps over A to B (A’s child), meaning that A’s creditors can’t attach to it

2. Federal Tax Lieniv. Disclaimers to qualify for Medicaid

1. Scenario: A is disabled, 75 y.o., receiving care in a facility paid for by Medicaid

2. Almost all states have passed statutes requiring A to spend down the inheritance until they qualify for Medicaid, disclaimer is not typically effective as the person is still treated as having the inheritance

a. In Idaho, you CANNOT disclaim and retain Medicaid

Wills: Formalities and FormsQuestion: What could the estate planner have done? Litigation is based more often on failure to plan

1. Execution of Wills – rules as they pertain to 1) attested wills, 2) holographic wills, and 3) notarized wills

a. Attested Willsi. Core Formalities

1. Writing2. Signature3. Attestation

a. Depends – i. SoF (1677) – 3 witnesses

ii. Wills Act (1837) – 2 witnessesiii. UPC (1990) – 2 witnesses and signaturesiv. UPC (rev.2008) – 2 witnesses signatures or

notarizationii. Functions of Formalities

1. Four policiesa. Evidentiary b. Protective c. Rituald. Channeling

2. Classification of Gratuitous Transfers3. Substantial Compliance with the Wills Act

iii. Strict Compliance Rule1. In re Groffman (1969)2. Stevens v. Casdorph (1998)

a. F:b. I: Whether a will is valid if it was not witnessed

properly by the witness?c. R: Testamentary intent and a written instrument,

executed in a manner provided by statute, existing concurrently, are essential to the creation of a valid will

d. Meaning of “Presence” – policy – need more than a gut feeling . Both old and new UPC have presence requirement if someone is signing for the testator

i. Line of Sight1. Can argue conscious presence. Case

law moving more toward a more expansive definition

ii. Conscious Presence1. Doesn’t require you to see pen touch

paper and comprehends the act of signing

iii. Uniform Probate Code §2-502(a)e. “Signature” Requirement

i. Signature by Mark, with Assistance, or by Another

ii. Order of signingiii. Subscription and addition after signatureiv. Delayed attestationv. Meaning of Writing and Video or Electronic

Willsiv. Interested Witnesses and Purging Statutes

1. Estate of Morea (1996)

a. Tradition dictated that you needed disinterested witnesses.

b. Purging provision applies, the will stands and the interested witness is taken out of having any interest in the will.

c. Here, there were two good witnesses, who receive no beneficial disposition

2. Need 2 witnesses under UPC, but they do not need to be disinterested anymore

v. Model Execution Ceremony – p. 1671. Where client is domiciled at death governs the will, so

following the model execution ceremony should comply with all state statutes.

2. Always want 3 witnesses to comply with the strictest requirements

3. Self-proving affidavit a. At the time of signing the will, you want the testator

and witnesses to sign a separate affidavit, swearing to the execution.

b. People sign twice and affidavit notarized.c. Make sure the affidavit follows the statutory formatd. Some try to combine the affidavit and the will, but

to be in full compliance, a separate affidavit is best.4. Safeguarding a will

a. Only one original will, but can make clear copies of the will

b. Put the original in a firebox or someplace accessible.

c. Give copies of the will to important peoplevi. Ad Hoc Relief from Strict Compliance

1. In re Pavlinko’s Estate (1959)a. A couple mistakenly signed each other’s copy of the

will.b. There was no need to probate the first decedent’s

will since the spouse was still alive, so the mistake went unnoticed.

c. Court did not allow the wills to stand, in part because the wills did not match, and court would have to make more changes to have the will make sense

2. In re Snide (1981)a. In this case, the wills were mirror images. However

this case is in the minority3. Black letter rule – There is no doctrine of mistake in wills!

a. Harder to show what the testator’s intent

b. Relatively small amount of errors and clear evidence of intent may be able to overcome the problems with the will – determined by statute though.

vii. Substantial compliance Doctrine1. Near miss rule – requires you to show that you almost

complied2. Only about three or four states adopted it. But courts really

had a hard time determining where the line is for compliance.

viii. Harmless Error Rule – “Dispensing power”1. Uniform Probate Code (1990, amended 1997)

a. Allows the court to dispense with some of the formalities in presence of strong intent

b. CA has adopted the Harmless Error rule.c. MT has the Harmless Error rule

2. In re Estate of Hall (2002)a. Described in the case as “joint will” – contract

implied in fact to not revoke the will.b. Do not execute a joint will in your practice!c. Needed clear and convincing evidence that decedent

intended that will to be his will.i. Here, they ripped up the previous will, had

the draft notarized.3. In re Probate of Will and Codicil of Macool (2010)

a. Problem was a gap in the evidence between handwritten note and “rough” will that the decedent never physically saw prior to death.

b. Notarized Willsi. In ’08 UPC state, notarization is enough to constitute a valid will

ii. In most other states, notarization is not enough to validate the willc. Holographic Wills – key requirement is that it is not witnessed! Material

portions must be in testator’s handwritingi. Discerning Testamentary Intent

1. In re Kimmel’s Estate (1924)2. Question of testamentary intent

a. Did the testator mean for this letter to be a will, as in did he intend for this letter to be the document to dispose of their estate

ii. Preprinted Will Forms1. In re Estate of Gonzalez (2004)2. New UPC states that material portions must be in testator’s

handwritinga. Attempt to get out of hyper-technical analysis

iii. Signature and Handwriting1. Signature

2. Extent of the Testator’s Handwritinga. First Generation: “Entirely written, signed, and

dated”b. Second Generation: “Material Provisions”c. Third Generation: “Material portions” and extrinsic

evidence allowedd. Extrinsic evidence

i. In re Estate of Kuralt (2000)2. Revocation of Wills

a. Revocation by writing or by Physical act – wills are ambulatory – meaning it can walk around. Not enforceable at time of execution, but rather upon the testator’s death.

i. Express and Implied Revocatory writings1. States permit revocation by:

a. Subsequent writing with Wills Act formalities, andb. A physical act such as destroying, obliterating, or

burning the will2. Express revocation – A writing executed with Wills Act

formalities may revoke the will in whole or in part by using express revocation

a. Must meet the requirement of the Wills Act!3. Later Inconsistency – Will use the inconsistency of a

comprehensive later will to revoke or partially revoke the earlier will

4. Act to the Document and Intent to Revoke – burn it up, tear it up, etc.

ii. Formalities, Writings, and Physical Acts1. Thompson v. Royall (1934)

a. F: Verbal statement in front of witnesses that she wants to revoke the will, plus a notation on the back that declared the will void and signed by testator

b. Court goes to “intent to revoke” – test of intent to revoke – The act had to touch and concern the words of the will.

c. Writing on the back was not enough. Here there was no harmless error rule. May have been different if she had handwritten the notation (express written holographic revocation)

2. In re Estate of Stoker (2011)a. F:b. Here the court applies the harmless error doctrine

iii. Presumption of Physical Act Revocation1. Harrison v. Bird (1993)

a. F: Court found the attorney’s destruction of the will was not sufficient (outside of her presence)

b. Presumption (weak)–(1) in her possession, (2) not in her affects after death or found among the affects destroyed. Burden shifts to the other party, but can be rebutted by preponderance of evidence

c. Can rebut the presumption by showing other people had access to the will. Or by statements of the testator around the time of death indicating a belief they had a will

d. Alabama rule – when you revoke a will, you revoke the will and all copies and codicils

2. Lost Wills and Presumption of Revocationiv. Partial Revocation by Physical Act

b. Dependent Relative Revocationi. Elements: Where T has a will, there is a presumption against

intestacy. 1. (executed codicil) and revoked the earlier will based on

mistake of lawii. LaCroix v. Senecal (1953)

1. Had a will leaving a portion of her estate to her nephew and friend. Then a few years later she had a codicil revoke the previous portion of the will and restating it to more correctly identify her nephew. – but the codicil is ineffective since it was a spouse who witnessed the will.

2. So the codicil revokes the clause, and then the codicil fails as to Aurea

3. MISTAKE – can apply DRRa. Policy reason –

4. And so we undue the revocation.c. Revival of Revoked Wills –

i. §2-509 Uniform Probate Code (1990)1. (a) – if a subsequent will that wholly revoked the previous

will is itself revoked by physical act, the presumption is that the previous will remains revoked

2. (b) if a subsequent will the partly revoked the will is itself revoked, the presumption is that the previous will is revived.

ii. In re Estate of Alburn (1963)d. Revocation by Operation of Law

i. Divorce 1. In all but a handful of states, statutes provide that a divorce

revokes any provision in a decedent’s will for the decedent’s divorced spouse.

2. In the remainder, revocation occurs only if the divorce is accompanied by property settlement

ii. Marriageiii. Birth of Children

3. Components of a Willa. Integration – all papers present at the time of execution and are intended to

be part of the will are treated as part of the willi. In re Estate of Rigby (1992)

1. F: Two pages presented for probate. The first appears to be testamentary while the second is offered as part of the will.

2. I: Can the second page be treated as part of a valid holographic will?

3. R:b. Republication by Codocil

i. A validly executed will is treated as re-executed as of the date of the codicil.

ii. Idea of updating the execution of the entire willc. Incorporation by Reference

i. Existing Writings1. Clark v. Greenhalge (1991)

a. F:b. I:Whether a document may be incorporated by

reference into a will if the will refers to the document even though it may not be in the same form as stated in the will, but serves the same function as the document stated in the will, and was in existence at the time the codicils to the will were created.

c. R: A document may be incorporated into a will by reference if (1) the will makes reference to the document, (2) the document existed at the time the will was created, and (3) is the document sufficiently identifiable in the will.

d. Court held yes.2. Again, the writing must (1) predate the will and be (2)

clearly referenced in the will.3. §2-513 list: Tangible Personal Property

a. Not available in all jurisdictionsd. Acts of independent significance

i. UPC 1990 (§2 – 512) – Events of independent significance1. 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.

Wills: Capacity and Contests1. Capacity to make a will

a. Mental Capacity – Traditional 4 part test: the testator must be capable of knowing (1) the nature and extent of his or her property, (2) the natural

objects of his or her bounty [the people who take the testator’s estate], and (3) the disposition that he or she is making of that property, and must be capable of (4) relating these elements to one another and forming an orderly desire regarding the disposition of the property.

i. In re Wright’s Estate (1936)1. F: An old man left an unusual will. Various witnesses

claimed he was of unsound mind will the will was executed. The witnesses ranged from testimony devoid of fact to those who gave specific details of quirks or unusual behavior

2. I: Whether there is a good contest of this will by claiming the testator was of unsound mind during the execution of the will.

3. R: Legal presumption is always in favor of sanity, especially after attestation by subscribing witnesses. It is the duty of the witnesses to be satisfied of the testator’s sanity before they subscribe the instrument (the latter seems to be a stretch by the court)

4. Testamentary capacity cannot be destroyed by showing a few isolated acts unless they directly bear upon and have influenced the testamentary act.

5. C: The will was held to be validii. Wilson v. Lane (2005)

1. F: the woman was showing signs of senile dementia. 2. I: Was there enough evidence of mental incapacity to

invalidate her will3. R: The will standard is lower. There needs to be evidence

of mental incapacity during the execution of the willb. Insane delusion – held that “idiots and persons of non-sane memory”

could not make wills, but accepted as valid the will of the testator who met the four elements, but was crazy. To be considered “insane” - 1) False conception of reality, 2) will related to the insanity as the causation element

i. In re Strittmater’s Estate (1947)1. F: Woman appeared to be a crazy man hater (may have

been justified, with appropriate facts) and left her estate to the national woman party

2. I:3. R:

ii. Breeden v. Stone (2000)1. F: Man was paranoid about the government and went on a

drug binge. Executed a holographic will, killed his dog, and then killed himself.

2. I:3. R: Defined insanity “belief w/ no existence in fact – adhere

to it against all the evidence”

4. However, the entire will does not fail if only part of it are affected by delusion.

2. Undue Influencea. What is undue influence? (Use both approaches when analyzing) First

question though, ask if the testator had free agency .i. Influence exerted over the donor overcame the donor’s free will

and caused the donor to make a transfer that the donor would not have made otherwise

1. Approach 1 – a. Show confidential relationshipb. Suspicious circumstances

i. Unexpected disposition of the estate (i.e. bulk of the estate going to a non-relative)

ii. Strange facts in the execution of the estatec. Raising the prior two facts raises the presumption of

undue influence – rebuttable presumption2. Approach 2 - Inference of undue influence from

a. Donor was susceptible to undue influenceb. Alleged wrongdoer had opportunity to exert undue

influencec. Alleged wrongdoer had a disposition to exert undue

influence,(Bad motive) ANDd. There was a result appearing to be the effect of the

undue influence (usually this means a benefit)b. Undue influences in cases

i. Estate of Lakatosh (1995)1. Suspicious circumstances offered in the Restatement 3d p.

290ii. In re Estate of Reid (2002)

1. Cupit had many methods to try to get the property (adoption, holographic will, having it deeded to him)

2. R: Look to the factors of a confidential relationship. Once a confidential relationship is found, the burden shifts to the beneficiary to disprove the presumption of undue influence by clear and convincing evidence.

3. To over the presumption, proponents must show 1) good faith on the part of the beneficiary, 2) grantor’s full knowledge and deliberation of the consequences of her actions, and 3) the grantor’s independent consent and action

4. Independent counsel – key aspect of rebutting the presumption

iii. Lipper v. Weslow (1963)1. Attempts to prevent will from being contested

a. Includes a “no contest” clauseb. Explanation about the disinheritance

i. Problem here, makes it look like the lawyer drafted it, not the client

ii. Potential factual inaccuraciesiv. Bequests to lawyers and fiduciary appointments

1. Lawyers cannot be a beneficiary (“shall not”)a. 1.8 cannot solicit a gift or draft an instrument

c. Planning for and Avoiding a Will Contesti. Warning signs

1. Disinheriting objects of natural bounty2. Significant changes in the estate plan3. Relationships outside the box (outside the typical family)

ii. Strategies1. A letter to the lawyer with explanation of disposition

wishes2. No contest clause3. Video recording or dictation to stenographer4. Family meeting where testator explains why they have

dispositive plan and rationale5. Professional examination of client’s capacity before

executing the will or trust6. Inter vivos trust or gifts7. Write a check on the day of the will execution to potential

contestants. (gimmicky)3. Duress

a. Latham v. Father Divine (1949)i. R: Where a devisee under a will already executed prevents the

testator by fraud, duress, or undue influence from revoking the will and executing a new will in favor of another or codicil, so that the testator dies leaving the original will in force, the devisee holds the property thus acquired upon a constructive trust for the intended devisee

ii. Remedy in an equitable remedy (can’t happen in probate court) – constructive trust. Difficulty is that this imposes a constructive trust on the innocent people as well as the fraudfeasers

4. Fraud – has to be pled with specificity and has proof requirement of “clear and convincing” evidence (just not preponderance). Usually requires an affirmative act of wrongdoing. 3 types of “information failure” – intentional tort, and need evidence of scienter

omission (usually not actionable as fraud)half-truth (true but misleading, more info left unsaid, again not usually actionable as fraud), affirmative misrepresentation (said something not true, are generally actionable as fraud).a. Fraud in the executionb. Fraud in the inducement

5. Tortious interference with an expectancy

a. Schilling v. Herrera (2007)i. Ct. points out that person must exhaust his remedies in probate ct.

before a tortious interference claim can be madeii. Here, brother was entitled to notice (due to his being able to take

through intestacy)iii. Necessary elements for intentional interference:

1. Existence of an expectancy2. Intentional interference with the expectancy through

tortious conduct (show conduct and intention)3. Causation4. Damages

Probate Court Phases1. Admission - Proving due to Execution2. Construction –

Contests occur during construction phases – “is this what the testator intended?”Goes to intent – allows extrinsic evidence

Or (not really a big chasm between these two, but if possibly frame as a contest)Construing Document – limits on extrinsic evidence

Note: There is a distinction in types of mistake – different rules for mistake in execution/formation and mistake in the will’s written words/construction

Wills: Construction1. Mistaken or Ambiguous language in wills

a. Plain Meaning and No Reformationi. Mahoney v. Grainger (1933)

1. F: “to my heirs at law living” to be shared equally. Meant to include her first cousins and her aunt.

2. Under parentalic system, the aunt takes all. In degree of relationship, she is the closest step-wise.

3. I: Can we get evidence in to interpret the term “heirs at law”

4. R: The letter of the law is that the will is taken as it is written and thus heirs at law cannot be construed to include persons beyond the actual heirs at law.

5. The first cousins did not get any shares -court says this mistake cannot be fixed – no ambiguity

ii. In re Estate of Cole (2001)1. F: Will had an error in amount bequested (written out sum

of two hundred thousand and numeric sum of 25K).2. I: Can extrinsic evidence be allowed to clarify a patent

ambiguity in the will?3. R: If, after examining the surrounding circumstances at the

time of the will’s execution an ambiguity or inconsistency

persists, we may resort to extrinsic evidence and the rules of will construction

4. Court fixes the mistake and creates a distinct between patent and latent ambiguity

a. Patent – on its face a mistakei. Stuck with the four corners of the will, not

allowed to alter the written will and NO extrinsic evidence

b. Latent – only when the will is applied to the factsi. Sometimes allowed extrinsic evidence

5. Are the words reasonably capable of meaning what the contestant says – usually how you prove the ambiguity

b. Ad Hoc Relief for Mistaken Termsi. Arnheiter v. Arnheiter (1956)

1. F: Mistake in the construction of the will because an address did not match the property owned by the devisor

2. I: Can relief be granted when the property devised does not match the property actually owned by the testator

3. R: Doctrine of Falsa demonstratio non nocet – where a description of a thing or person consists of several particulars and all of them do not fit any one person or thing, less essential particulars may be rejected provided the remainder of the description clearly fits.

4. Court fixes the mistake - ii. In re Gibbs’ Estate (1961)

1. F: Mistake of identity where two persons share the same name with different middle initials. Meant to give property to “w” not “j”, and gave the wrong address.

2. I: Can the court fix the mistake by allowing extrinsic evidence

3. R: Uses the “false description” doctrine.4. Court fixes the mistake.

Case Mistake Intent Court fixes? DoctrineMahoney “Heirs at law” Cousins No No ambiguityCole “two hundred

thousand (25,000)”

Twenty five thousand

Yes Patent/Latent ambiguity

Arnheiter “304 Harrison” 317 Harrison Yes False description doctrine

Gibbs Robert J of 4708 Robert W of somewhere else

Yes False description doctrine

The Court is more willing to cross out words than to add words to the willCourt may require evidence of intentCourt may require clear and convincing evidence of mistakeCourt has mostly abandoned patent/latent distinction

c. Openly reforming Wills for Mistake

i. UPC §2-805 – court may reform terms of a governing instrument, even if unambiguous, to conform to the testator’s intention if it is proved by clear and convincing evidence what the transferor’s intention was and that the terms of the governing instrument were affected by a mistake of fact or law, whether in the expression or inducement

1. Note that is doesn’t have a procedural component. (no initial proffer)

ii. In re Estate of Herceg (2002)1. F: the residual clause is incomplete. There is a prior will

that has a complete residual2. I: Can the court fix the mistake3. R: Court looks at intention and requires clear and

convincing evidence that there is a mistake of fact or law4. Court fixes the mistake

2. Death of Beneficiary before Death of Testatora. Lapsed and Void Devises

i. Specific or General Devise – if a specific or general devise lapses, the devise falls into the residue

ii. Residuary Devise – If the residuary devise lapses, the heirs of the testator take by intestacy. If only a share of the residue lapses, such as when one of two residuary devisees predeceases the testator, at common law the lapsed share passes by intestacy to the testator’s heirs rather than to the remaining residuary devisees.

1. “No-residue of a residue” ruleiii. Class Gift – If a devise is to a class of persons, and one member of

the class predeceases the testator, the surviving members of the class divide the gift

iv. Void Devise – if a devisee is already dead at the time the will is executed, or the devisee is a dog or cat or some other ineligible taker, the devise is void. Same rules that apply to a lapsed devise apply to a void devise

1. In re Estate of Russell (1968)a. F: Testator left a residuary clause that devised a

portion of her estate to her dog and to Chester, a friend.

b. Possible solutions – i. Give to Chester – to take care of Roxy

ii. Chester gets ½ and partial intestacyiii. Chester gets it all

c. Court decides to give Chester ½ and the rest passed through intestacy to a niece

d. Court applied the “no residue of a residue” rule – so no gift over to Chester

Note for exams: devise (real property) or bequest (personal property) – verb for bequest is “to bequeath”

b. Antilapse Statutes – does not prevent lapse but rather substitute other beneficiaries if certain requirements are met - UPC §2-605

(1) Who is covered? – grandparent or lineal descendant of GP(notice spouse is not covered)

(2) Substitute beneficiaries – issue of the deceased relative

i. Presumed Intent – for certain predeceasing devisees, the testator would prefer a substitute gift to the devisee’s descendants rather than for the gift to pass in accordance with the common law of lapse

ii. Scope – applies to a lapse devise only if the devisee bears the particular relationship to the testator specified in the statute

1. Some apply to descendants2. Others are broader, applying to grandparents or to all

kindred of the testator (occasionally to kindred of testator’s spouse as well)

iii. Default rules1. Designed to implement presumed intent, they are default

rules that yield to an expression of the testator’s actual intent that is contrary to the statute

iv. Words of survivorship – “To A, if he survives me” – may accidently draft out of antilapse statute, and maybe even out of “survive longer than 120 hrs”

1. Ruotolo v. Tietjen (2006)a. F: will contained the words “if X survives me”. TC

held the words as a contingency.b. I: Did TC err in construing words as words of

survivorshipc. R: Antilapse statutes provide that there is a

presumption of intent of testator to avoid intestacy or disinheritance

d. Court emphasizing the avoidance of passing through intestacy. Words like “if he survives me” are in many case surplusage

e. Burden is on the people who want the bequest to lapse

c. Class Giftsi. What is a class? – problems: is this meant to be a group bequest?

Was the testator group minded? Difficulty mixing named individuals and a group

1. §13.1 – Class gift defined2. §13.2 – class gift distinguished3. Dawson v. Yucus (1968)

a. F: Clause gave interest to two relatives. TC held it was a gift to individuals. Contention was that the bequest was a class gift.

b. I: whether the gift to the nephews was a class gift, so that the surviving nephew would take the other nephew’s share

c. R: Under the definition of the factors of a class gift, the clause cannot be construed as a class gift, but rather individual bequests.

d. C: the gift in the clause to the second nephew lapsed and passed into residue.

e. Court achieved a result contrary to the intention of the testator. No antilapse statute because they were not blood relatives

ii. Application of Antilapse Statutes to Class GiftsGreat diagram on p. 373 for lapse and antilapse

Types of Provisions in wills:Specific – leaving a particular item of property to a beneficiary (very particular and possessoryGeneral – Leaving more general portions of the estate (“leave ¼ of the estate to X.” or “Leave 10K to Y”)Demonstrative – A hybrid of specific and general, that becomes more of a general bequest (“sell my property and give the cash to X”)Residuary – leaving the residue of estate to a person, a catch-all clause

3. Changes in Property after Execution of Willa. Ademption by Extinction – only applies to specific bequests

i. In re Estate of Anton (2007)1. F: Old woman in nursing home who appointed her daughter

as durable power of attorney. The daughter sold off her home in order to pay for the woman to live at the nursing home. After the woman’s death, the son wanted the property devised to him (but it was sold), or the amount from the proceeds

2. I: Was the sale of property in this case an ademption by extinction

3. R: two theories – identity theory or modified intention theory

a. Identity theory – specific item gone, then the gift fails

b. Modified intention theory – meant to give the item, but if it is gone then the person will be its equivalent (usually in cash)

c. Rests on knowledge of the property being taken from the will

i. No knowledge – no ademption

4. Court tries to be more flexible, and ultimately gives half of the current remainder of the sale to each devisee (not the full value of the amount it sold for)

5. Held that the sale of the duplex did not cause ademption to the extent that there were specifically identifiable proceeds in the estate at the time of death

UPC §2-606 – Nonademption of specific devises, unpaid proceeds of sale, condemnation, or insurance, sale by conservator or agent (p. 380)

Planning practice – avoid specific bequests if at all possible – too many problems can arise. Instead do a separate memorandum(§2-15 list) to add to the will. Letter of last instruction to the PR

b. Stock Splits and Problem of Increase – better to use proportions instead of specific bequests

c. Satisfaction of General Pecuniary Interestsd. Exoneration of Liens – old law was that property had to be free of liens

(so residuary was reduced to pay down the mortgage), however the UPC reverses that rule

i. Check the state to see if there are ways to draft around thise. Abatement – abates reduce in order of 1) residuary, 2) general, and 3)

specific and demonstrativeHypo: will with following provisions

(1)Like the GC to care for and nurture my rare rose(2)The PR should sell all the art in my home and the home, and give proceeds of the sale to GC to care for the roses(3) rest and residue to the daughter

Facts: very involved in botanical gardens (may be the GC), had a prize winning roseOne year before testators death, daughter with POA sells the art, and reverse mortgage on the home, to pay for the testator’s care (mom in late 60’s, but in good health). An account with approx. 500K that was a common fund that mom used to pay for mom’s careBoth testator and daughter die in same care crash – testator dead at the scene, daughter kept on life support for 6 days, when spouse pulls the plugNo children of daughter – and she’s the only child

Limits on Freedom of Disposition: Protection of the Spouse and Children1. Protection of the surviving spouse

Community property states v. non-community property statesConcerns: (1) Avoid dependency (2) Marital equityLimits on Testamentary power (non-community property) and possible additional limitations

Community property Non-community propertyProperty interest acquired during marriage No particular property rights created by

– presumed to be CP, except when acquired by gift to one spouse, or inheritance. Present vested property interest – you can’t give away your spouse’s property interest

being in a marriage

No election statute generally- adopted quasi-community property – statutory legal fiction (would have been community property if acquired in a CP state) – leads to an election (but only against quasi-CP)

Limitations on testamentary power:Spousal Election statutes – spouse does not have to take

a. Elective Share of a Separate Property Surviving Spousei. Economic Partnership or Support Obligation

1. Spousal election statutesa. “sledgehammer”- both over inclusive and under inclusiveb. Spouse may “elect” to take a share,

i. Can be over-inclusive (disaffirm and disrupt a will)1. Despite it not accomplishing either of the

concerns (dependency, equity)ii. Can be under-inclusive

1. Most states it only applies to probatea. Can get around by creating Trusts,

POD accounts2. UPC Art II, Part 2

ii. Cohabitating Partners and Same-sex Marriageiii. Variation across the states

1. Must the surviving spouse accept a Life estate?2. Subsequently deceased surviving spouse3. Incompetent surviving spouse4. Abandonment

iv. Non-probate property1. Judicial responses

a. Sullivan v. Burkin (1984)i. F: Ct. looking at revocable inter vivos trusts. Main

reason is to have the remainder interests pass to a third party

ii. I:iii. R:

b. Other Judicial responses2. Statutory Reform

a. In re Estate of Myers (2012)i. F: Previously held that POD accounts were will

substitutesii. I:

iii. R:v. Uniform Probate Code

1. 1969 UPC – Augmented Estatea. Quasi-Community property – allows an election. Applies

in non-community property that have adopted the UPC.b. Wants to minimize the disruption of the testator’s estate

planc. Tries to address the over-inclusive/under-inclusived. Example - Steps:

i. Consider the probate estate, e.g. 500Kii. Add in non-probate transfers from the decedent to

the surviving spouse: Life insurance, Inter Vivos trusts, POD accounts, Joint and survivorship tenancy, large cash transfers close to time of death. E.g. another 500K

iii. Add in a third category: transfers decedent made to third party, where the D keeps control over the property during D’s life, but structured to pass outside of probate. Inter Vivos trusts to 3d parties, POD, large cash transfers close to death, J&S tenancy. E.g. another 250K

iv. So under UPC, we get a value of 1.25M for augmented estate. Surviving spouse gets 1/3 so 400+K

v. Next look at abatement statutes, and will1. E.g will grants SS 50K2. Go to second category – e.g. 500K3. Since SS share was 400+K, we’re done.

2. 1990 UPC and 2008 amendmentsvi. Waiver by premarital or Postnuptial Agreement

b. Community property – creates present vested interest in ½ undivided of the property acquired during marriage (except received through gift or inheritance). If we layer the law of wills on that, then each spouse has testamentary power over their ½ of the community property.

i. Spread of the Community property systemii. Management and disposition of Community property

1. Aggregate distribution in divorce of CPa. Negotiated for and so on

2. In contrast, the majority of CP states give each person ½ interest in each piece of property acquired

a. SS would have ½ interest as tenants in common with the beneficiary of the D’s estate. Partition may be forced

b. Common law doctrine “Widow’s election” (Separate from Spousal Election in the UPC – Do not confuse the two)

i. Based on law of equity not specific to CPii. Can either affirm the will and take the IV trust or

disaffirm the will, take ½ interest in the CP and run

c. Most court construe the will against an election (not giving more than the T’s interest)

Surviving Spouse Hypo1st characterize the assets (probate v. non-probate)

Probate – necessary to 1) clear title, and 2) huge annuity dumping into the estate

Non-probate

750 K annuity benefit (the original beneficiary died)500K in accounts (again, original beneficiary died)500K Montana real estate150K of personal property

Life insurance of 100K to Wileen

Community property Non-community propertyMost of the probated property would not be considered community property

Step 2 – Divide the Estate – Does Wileen have any claims?

He set up the trust to take care of the 2nd wife and wants the will to take care of the children. No she would not have a claim on the personal property in the estate

Does quasi-community property election apply? Do we go to the augmented estate?

No, this would not have been CP in Wileen’s and Harry’s marriage

c. Migrating couples and multistate property holdingsTraditional conflict of laws rules used to determine which state law governs marital property are as follows:(1) Law of the situs controls problems related to land(2) Law of the marital domicile at the time that personal property is acquired controls the characterization of the property as separate or community(3) the law of marital domicile at the death of one spouse controls the survivor’s rights.

i. Moving from Separate property to Community propertyii. Moving from Community property to Separate property

d. Misc. additional rightsi. Social Security

ii. Pension and Retirement accountsiii. Homesteadiv. Personal Property Set-Asidev. Family Allowance

vi. Dower and Curtesy2. Intentional Omission of a child

a. American Lawb. Family Maintenance System of the Commonwealth

i. Lambeff v. Farmers Co-operative Executors & Trustees Ltd. (1991)1. F:2. I:

3. R:3. Protection against unintentional Omission

a. Spouse omitted from Premarital Willi. UPC §2-301 – Entitlement of Spouse, Premarital will

ii. Idaho statute §15-2-301iii. In re Estate of Prestie (2006)

b. Unintentional Disinheritance of a Childi. UPC §2-302 Omitted Children

ii. Gray v. Gray (2006)iii. In re Estate of Jackson (2008)

TRUSTSTrusts: Characteristics and creation

1. Trust in American Lawa. Origins of the Trustb. Sources of Lawc. Vocabulary, Typology, and Illustrative Uses (p 391)

i. Settlor, grantor, trustor – person who creates the trustii. Created during the settlor’s life – inter vivos trust

1. May be revocable or irrevocable depending on intent2. Created either by declaration of trust3. Created by deed of trust

iii. Created by a will – testamentary trust1. irrevocable

d. Bifurcation of Ownershipi. Assert Partitioning and the Rights of Third Parties

ii. Fiduciary Administration and Rights of the Beneficiariesiii. Four functions of trusteeship (396)

e. Trust Compared with a Legal Lifei. Legal Life Estate

ii. Equitable Life Estate – A Trustf. Business Trustsg. Foreign Trust Law

2. Creation of a Trusta. Intent to Create a Trust – need to have “To A for B”

i. Testamentary Trustii. Deed of Trust

1. Jimenez v. Lee (1976)a. F: grandma was the settlor, made the dad the trustee,

beneficiary was the daughter. Gma gave 1K bond, Mrs. D gave 500 for “Bitsy’s education”

b. I:Was a trust created?c. Dad wants this to be a custodial account because a statute

of limitations would apply (end when child turns 18).i. UGMA – not a good place to a good chuck of

change

d. R: it is enough if the transfer of property is made with the intent to vest the beneficial ownership in a third person

e. What responsibilities does Lee have a trusteei. Safeguard the trust property, keep the property

separate - Custodialii. Proper accounting and record keeping –

administrativeiii. Place them in investment, responsibility under

“prudent investor rule” – investmentiv. How he uses his discretion in distributing funds for

bitsy’s education – distributivef. Remedy in trusts – equitable remedy “Surcharge” –

personal liability for the trusteei. In this case, entitled to the present value in the

property (or cash substitute)iii. Declaration of Trust

1. Hebrew University Ass’n v. Nye (1961)a. F: Professor died and gave property of books to wife.

Wife promises library to Hebrew university. She catalogues it but never delivers it.

b. Wife is the settlor, Trust was created after Yahuda’s death, Wife is also trustee, Hebrew U is the beneficiary

i. Declaration of trust –c. I: Was this a gift or a trust

i. As a gift, it fails for want of deliveryii. Ct. said that she didn’t do anything that shows she

took on the trust duties in regard to the library1. However she repeatedly told people that the

books did not belong to herd. R:

2. Hebrew University Ass’n v. Nye (1966)3. Main requirement – need to declare an intent

b. Trust Property – there must be trust property (corpus or res)i. Unthank v. Rippstein (1964)

1. F: A letter sent that stated an intent to give 200 a month to a lady. She’s arguing it is a holographic codicil. (problem is that he is stating it will start now, not upon death, therefore not testamentary). She then argues it may be a trust

2. Upon trust theory, Craft is Settlor, Estate is trustee, and Rippstein is Ben.

3. R: An expectation or hope of receiving property in the future, or an interest that has not come into existence or has ceased to exist, cannot be held in trust.

ii. Can’t assign future profits or income into a trust. Must be present. However, designating a trust as the beneficiary of a life insurance policy is allowable (insurance is different, big exception to res requirement)

c. Ascertainable Beneficiariesi. Beneficiary Principle

1. Clark v. Campbell (1926)a. F: person left bric-a-brac in his estate to “among my

friends” as trustees to give b. I: Whether the bequest for the benefit of the “testator’s

friends” must fail for want of certainty of the beneficiariesc. R: The trust fails for lack of an ascertainable beneficiary

2. Power of Appointment – (Donor/donee, similar to a principle/agent relationship)

a. Property device – give the property to an individual with the power to give the property to someone else (fill in the blank)

b. Transferee has a nonfiduciary power of appointmentc. If the class of beneficiaries is described such that some

person might reasonably be said to answer the description, such a power is valid

d. Donee’s PoA - Can’t violate the scope, but not compelled to act

e. Can embed inside of a trustii. Pet and Other Noncharitable Purpose Trusts

1. Idaho Code - §15-7-601 “Purpose Trusts”a. Under (2), does not need a beneficiaryb. No definition of “noncharitable trust” and purpose is not

specifically defined either.2. In re Searight’s Estate (1950)

a. F: man bequests a pet and money to care for the pet to a friend.

b. I:c. R:

d. A written Instrument? No writing requirement for trusts. They come from property (real estate) and wills. Evidence though for oral trusts (creation and terms) only by clear and convincing evidence

i. Oral Inter Vivos Trusts of Personal Property1. UPC (2000) §407 Evidence of Oral Trust

a. Established by clear and convincing evidence2. In re Estate of Fournier (2006)

a. F: man gives cash in a box to two friends to hold for his sister

b. I: was there an oral trust?i. If there was, then Faustina gets it

ii. If not, then it goes into the estate and it’s splitc. R: Evidence must come in to prove the existence of a trustd. Ct. felt that there was sufficient evidence of a trust through

witnesses

e. Post-script – new evidence came in showing that he wanted to split the money

ii. Secret Testamentary Trusts and the Wills Act1. Olliffe v. Wells (1881)

a. F: 2 scenarios in example to help conceptualize this case– i. “Rest and residue to Frank.” On the side, a

conversation with Frank says “give the money to ACLU”

ii. “Rest and residue to Frank to do as I as instructed.” Same conversation with Frank.

iii. First scenario will pass the property to Frank (secret trust), the second is a “semi-secret trust”. Problem is that the second scenario does not pass in fee simple, nor have I specified the instructions

b. I:c. R: Semi-secret trusts are not enforceable

2. Writing requirement in wills creates the problem in Wells.iii. Oral Inter Vivos Trusts of Land and the Statute of Fraudsa

Nonprobate transfers and planning for incapacity1. Revocable trusts

a. Wills Act and Present Interest in the Beneficiaryi. R. trust may be created by a deed of trust whereby the settlor transfers to

the trustee the property to be held in trustii. Farkas v. Williams (1955)

1. F: Farkas is the settlor/trustee and sets Farkas as beneficiary for life, Williams beneficiary upon death. F reserved powers.

2. In property terms, Farkas has a life estate, and Williams has a contingent remainder

3. I: Why is this a revocable trust and not a will? What interest was given up?

4. Benefit was to disinherit the children and avoid probate5. Ct. found it was a valid inter vivos trust (now memorialized in

UTC)6. Present interest and control – to determine the validity of a trust,

the court applied 2 tests:a. Whether W. acquired a present interest when the trust was

createdb. Whether F retained so much control over the trust property

that he still owned it at death, rendering the trust testamentary

b. Abandoning the present interest fictioni. UTC §603 – Settlor’s powers – power of withdrawal

ii. Moon v. Lesiker (2007)1. F: Dad sets up trust to benefit family. Then he amends to transfer

stock to a new trust. Then sells airport stock for a loss, amend family trust (but does not include airport stock).

2. I:3. R: Contingent remainderman had no standing

c. Revoking or amending a Revocable Trusti. UTC §602 Revocation or Amendment of Revocable Trust

ii. Patterson v. Patterson (2011)1. F: Predominantly decided by the Utah UTC2. R:

Practice point – always good to have a back-up will. IV trusts are good for avoiding probate, and good if person has significant wealth, and/or minor children

Testamentary pour-over to an IV trust – 1) Will contains the pour-over (Do not say you have a pour-over trust) clause that leaves property to the trust (goes through probate). Usually in the residuary clause. 2) receptacle trust (IV trust) – receives property from the will, but often has other property (lifetime transfers)

d. Subsidiary Law of Willsi. State Street Bank and Trust Co. v. Reiser (1979)

1. F: man transfers stock in business to himself as trustee, Life Tenant, designating remainder to family members. Trust owns all the stock. The bank loans 75K to the man, unsecured, and then man dies 4 months later. Bank want to reach into the assets of the trust

2. Trust transferred to possession, vested outside of probate. Thus the assets

3. I: Can the bank reach into the assets of the trust to pay back the loan

4. R: A settlor of a trust who retains administrative powers (to revoke, to control beneficial enjoyment) “owns” that trust property and provides that it shall be included in the settlor’s personal estate

5. Consistent with UTC6. Where settlor reserved unfettered control over the property during

life = creditors may reach the property at death (IV trust is not a creditor avoidance tool)

ii. Clymer v. Mayo (1985)1. F: Woman was married, executed a will naming husband as

beneficiary. Created a new will and revocable trust (will was pour over into the trust) – H was beneficiary for life, remainder to nieces and universities. W gets divorced and changes beneficiaries except for trust (still left H, by accident?)

2. I: Does the divorce revoke the H’s interest in the trust3. R: Statute stated that the divorce revoke’s the ex-spouses interests

under a will. By extension, the statute revokes H’s interest under the trust

4. Policy – last thing a party wishes is for an ex-spouse to take under a will. And treating the components of the estate plan separately and not as part of whole bring about inconsistent results.

Trusts: Fiduciary Administration1. Limited powers to Fiduciary Administration

a. From Conveyance to managementi. Three types of trusts in practice

1. Business trustsa. For commercial deals – organizing a mutual fund or

facilitating asset securitizationb. Not donative in purposec. Involve an exercise of freedom of contract, not freedom of

disposition2. Revocable trusts

a. For nonprobate transfersb. Subject to the control of the settlor

3. Irrevocable trustsa. For ongoing fiduciary administration – by a trustee in

accordance with settlor’s intentb. Trustee’s powers

i. Permitting the settlor to incorporate by reference in the trust instrument all or some enumerated powers, or

ii. Changing the default law to give trustee’s a statutory list of powers, such as under the UTPA

c. Fiduciary Governance2. Duty of Loyalty – loyalty to beneficiary

a. Hartman v. Hartle (1923)i. F: Part of the Real estate was sold to the wife of one of the executors

ii. R: a trustee cannot purchase from himself at his own sale, and that his wife is subject to the same disability, unless leave so to do has been previously obtained under an order of the court

b. In re Gleeson’s Will (1955)i. F: Trustee was given land to hold and lease and leased the property to his

own partnership. ii. R: General rule is that a trustee cannot deal in his individual capacity with

the trust propertyNo-Further-Inquiry Rule: If a trustee undertakes a transaction that involves self-dealing or a conflict between the trustee’s fiduciary capacity and personal interests, good faith and fairness are not enough to save a trustee from liability. No further inquiry is made, trustee’s good faith and reasonableness of the transaction are irrelevant

Only defenses are: Settlor authorized the particular self-dealing The beneficiary consented after full disclosure Trustee obtained judicial approval in advance

Categorical exceptions: Most states allow corporate trustees – usually allow a dept. to handle

transactions Structural self-dealing

c. In re Rothko (1977)i. F: executors of a will rapidly disposed of the estate, selling paintings at a

very reduced rate to a couple of companies (who then sold them to further purchasers). At least one of the executors had a conflict of interest, another was gaining a personal advantage, and the third was not stopping the other two in their dealings with MAG and MNY

ii. There were procedural issues in not getting appraisal, moreover there was no opportunity for appraisal (sale in 3 weeks)

1. Flooding the market and may depreciate the valueiii. The actors and coexecutors:

Reis Stamos LevineCPA/ dir, Sec., Treas. MNY “not too successful

financially” artistCollege prof.

Consignment K with Rothko for 10%

Curry favor w/ MNY in order to sell his own paintings to MNY

Went along with the others

iv. R: a few rules from this case – 1. The duty of loyalty imposed on the fiduciary prevents him from

accepting employment from a third party who is entering into a business transaction with the trust

2. An executor who knows that his coexecutor is committing breaches of trust and not only fails to exert efforts directed toward prevention but accedes to them is legally accountable even though he was acting on the advice of counsel

3. If the only breach of trust is selling for less than value (and the person is authorized to sell), then the person is not chargeable with the amount of any subsequent increase in value of the property.

4. If a trustee in breach of trust transfers trust property to a person who takes with notice of breach of trust, and the transferee has disposed of the property…it seems proper to charge him with the value at the time of the decree, since if it had not been for the breach of trust the property would still have been a part of the trust estate

3. Duty of PrudenceUTC §804Trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distributional requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.

a. Distribution Function –In a mandatory trust – trustee must make specific distributions to an identified beneficiaryIn a discretionary trust – trustee has discretion over when, to whom, or in what amounts to make a distribution

Power to distributing income, or principle, or both

May be virtually unlimited, or very limitedStandards for forcing trustee range from “good faith” standard to “reasonable”

i. Discretionary Distribution1. Marsman v. Nasca (1991)

a. I: Does a trustee, holding a discretionary power to pay principal for the “comfortable support and maintenance” of a beneficiary, have a duty to inquire into the financial resources of that beneficiary so as to recognize his needs?

b. R: Prudence and reasonableness, not caprice or careless good nature…furnish the standard of conduct of discretion

c. Trustee has an affirmative duty of inquiryd. Ct. held that the trustee had a duty to inquire – ct. treats the

trust as if it was limited to support, not absolute discretione. Tendency is that trustees are to be parsimoniousf. Ct. hold that Farr breached his fiduciary duty in not making

distributions from the trustg. Bona fide purchaser for value without notice trumps all.

ii. Sole, absolute, or uncontrolled discretion – held to good faith standardiii. Exculpatory clauses

1. Problem was the that trustee was the lawyer who drafted the trust in Marsman, however in that case there wasn’t sufficient evidence to show he was doing to purely for his own protection

iv. Mandatory arbitrationb. Investment Function

i. From Legal Lists to Prudent Man to Prudent Investorii. Prudent Investor Rule and its rationale – does not judge individual assets

but overall performance1. Uniform Prudent Investor Act (1994)

a. Prudent Investor – invest and manage trust assets by considering the purposes, terms, distribution requirements, and other circumstances of the trust. Trustee shall exercise reasonable care, skill, and caution.

b. Factors to consider in investing and managingi. General economic conditions

ii. Possible effect of inflation or deflationiii. Expected tax consequences of investment decisionsiv. Role each investment or course of action plays

within the overall trust portfoliov. Expected total return from income and appreciation

of capitalvi. Other resources of the beneficiaries

vii. Needs for liquidity, regularity of income, and preservation or appreciation of capital

viii. Assets special relationship or special value to the purposes of the trust or to one or more of the beneficiaries

c. Duty of diversification – trustee shall diversify unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying

d. Sensitivity to Risk/Return Curve – no per se ban on investments, but rather is the trust balanced in its investments to accomplish its purpose. “Totality of the trust investments and look to meet the purpose”

i. e.g. might have more high risk investments if the goal is retirement income

ii. e.g. for immediate support, look more at low risk investments and stable income

iii. Recurring problems in applying the prudent investor rule1. Duty to Diversify and Inception Assets

a. In re Estate of Janes (1997)i. F: trust had a concentration of stocks invested in

Kodak. Over the course of 8 years, the stock declined to the point where a majority of the trust’s value was lost. Trial court held that the trustee’s should have divested by mid ’73, and imposed a surcharge.

1. Trial court uses a market index to determine damages – lost profits or appreciation test (like Rothko) – came up with $6M

2. Appellate court uses “value of capital lost” – value at date it should have been sold minus the value at the actual sale = result plus interest. lowers damages to $4M.

a. Can only use appreciation test when there is affirmative bad faith conduct and breach

ii. I: Did the trustee breach their duty of prudence in continually holding the stock despite its decline of value

iii. R: In prudent person rule, there was no outright rule to diversify

1. Now Trustee has a duty to diversify as per the prudent investor rule

b. Compensatory Damages for Imprudent Investment2. Terms of the Trust

a. Wood v. US Bank, N.A. (2005)i. F: Shares in a company (Firstar, subsequent

trustee) were part of a trust. The trust stated that the company was allowed to hold its own stock (allowing them to get around the Undivided Loyalty). The company during its control of the

trust, kept selling off other companies’ stock and retained its own (avoiding diversification further).

ii. I: Did the trustee have a special circumstance to retain the stock

iii. R: No, there was still a duty to diversify that that trustee failed.

3. Custodial and Administrative Functionsa. Duty to Collect and Protect Trust Property

i. Testamentary trusts especially!b. Duty to Earmark Trust Property

i. Important to mark property as trust property1. Be it bank accounts, needs to be earmarked

for trust to prevent creditors from getting at it

c. Duty not to Mingle Trust Funds with the Trustee’s Ownd. Duty to Keep Adequate Records of Administration

i. Hemanez v. Lee for an example on thise. Duty to Bring and Defend Claims

4. Trustee Selection and Divided Trusteeshipa. Choosing a trusteeb. Delegation by a Trusteec. Division by a Settlor

i. Co-Trusteesii. Power of Appointment

iii. Directed Trusts and Trust Protectorsd. Private Trust Company

4. Duty of Impartiality – UTC §803(2000)a. Due Regard and the Terms of the Trust – does not require impartiality in sense of

equality, but rather a balancing by giving due regard to the beneficiaries’ respective interests defined by the settlor in the terms of the trust

i. Howard v. Howard (2007)1. R:2. Blended families, choice of trustee and Structural Conflicts

b. Principal and Income Problem – uniform principal and income act (1997)The unitrust development – has to be developed into the trust

Set that a percentage goes to A, and the remainder goes back to the principalThis allows income to be determined earlyCan have a provision in the trust to allow trustees to make a unitrust election

i. In re Heller (2006)1. R:

5. Duty to Inform and AccountUTC §813 – trustee has a duty to keep the beneficiary informed

a. Affirmative Disclosurei. Allard v. Pacific National Bank (1983)

1. F: trustee did their job but did not keep the B informed

2. R: Trustee must inform the beneficiaries of all material facts in connection with a nonroutine transaction which significantly affects the trust estate.

b. Responding to a Request of Informationi. Fletcher v. Fletcher (1997)

1. R: the terms of the trust may regulate the amount of information which the trustee must give and the frequency with which it must be given, however the beneficiary is always entitled to such information as is reasonably necessary to enable him to enforce his rights under the trust

c. Accounting and Repose – trustees have a duty to provide regular accountingsi. Trustees must set up some system to make sure there is an accounting

1. Trail of paperii. National Academy of Sciences v. Cambridge Trust Co. (1976)

1. R:2. Accounting protects the trustee

Trusts: Alienation and Modification1. Alienation of the beneficial interest

a. Discretionary trustsi. Pure discretionary trust

1. Trustee’s discretion is to make distributions as they see fit.2. Absolute discretion – good for trustee to be flexible in dealing with

situations that arise (distribute income as needed, dip into principle)

ii. Support trust1. The trustee’s discretion is limited to making distributions for the

comfortable support of the beneficiary.2. Limited to support – may be education, financial, medical, etc.

iii. Discretionary support trustiv. Collapsing the categories

1. UTC §504 Discretionary Trusts, Effect of Standardv. Protective trusts – types of protective provisions – protecting the

beneficiary from access from third party (creditor) 1. Discretionary clauses (absolute)

a. Does beneficiary have a property interest? Law held that beneficiary had no property interest, unless or until the trustee exercised their discretion

b. Can we force the trustee to exercise discretion? Historic test was “good faith” to exercise discretion

c. In sum, nothing that the creditor can attachd. However, post – Hamilton v. Drogo

i. Gave beneficiaries too much protection, and so:ii. Courts recognize there is a property interest and

changed the std. to reasonablenessiii. But still creditors cannot force exercise of discretion

– been turned into public policy

iv. But Hamilton order can allow Creditors can get a lien

2. Support clauses – creditor can get what beneficiary hasa. Trustee has to exercise discretion to pay for support –

beneficiary interest is sufficiently more present – b. “reasonableness” is the standard for exercise of discretion

to pay for supportc. Creditor who was the provider of necessities (like housing,

where beneficiary hasn’t paid rent), creditor can force trustee to exercise their discretion to satisfy the judgment for rent.

3. Spendthrift provisionsa. Disabling restraint on alienation.

i. Ben. can’t anticipate or assign – would be voidii. Property can’t be attached

b. Must have both prongs satisfiedb. Spendthrift Trusts – there is a presumption now that trust created is a spendthrift

trust if it mentions the “spendthrift” wordi. UTC §502 – Spendthrift provision

ii. UTC §503 – Exceptions to Spendthrift Provision1. Creditor for child support can get into the trust

a. Spousal support available in a majority of the statesiii. Scheffel v. Krueger (2001)

1. F: man was ordered to pay damages and plaintiff sought to attach the judgment to the Δ’s beneficial interest in an irrevocable trust. Trust had a spendthrift provision. This is a tort creditor going after the trust

2. I: Does a tort judgment attach to a spendthrift trust?3. C: No. it is not an effective exception to get around a trust –

child/spousal support only recognized exceptionsNote: If you can get the money, then the creditors can get the money – only exceptions are spendthrift trusts and asset protection trusts

c. Self-Settled Asset Protection Trustsi. FTC v. Affordable Media (1999)

1. Off-shore trusts create a lot of leverage2. Modification and termination

a. Consent of the Beneficiaries – can do so if 1) settlor and all beneficiaries agree or if settlor dead 1) if all the beneficiaries agree, and 2) change must not be contrary to material purpose of the trust – Clafin doctrine

i. English Lawii. Clafin Doctrine – In general, a trust cannot be terminated if (1) it is a

spendthrift trust, (2) the beneficiary is not to receive the principal until attaining a specified age (enjoyment is postponed), (3) it is a discretionary trust, or (4) it is a trust for support of the beneficiary.

1. In re Estate of Brown (1987)

a. I: when the main purpose of a trust has been accomplished may the trust be terminated?

b. R: Ct. is not going to terminate the trust because it had two purposes: education and life-long support.

c. Ct. felt the settlor’s intent would be frustrated by terminating the trust early

2. UTC and Restatement Third of Trustsa. §411 Modification or Termination of Noncharitable

Irrevocable Trust by Consentb. Deviation and Changed Circumstances – equitable deviation doctrine: changed

circumstances not anticipated by the settlor that would defeat or substantially impair the accomplishment of the purposes of the trust

i. Traditional Lawii. UTC §412 - broadens the test beyond “a material purpose” to “further the

purposes of the trust”1. In re Riddell (2007)

a. F: trustee wished to modify the trust to create a special needs trust for his daughter.

b. Ct. applied a two prong test to determine if modification of the trust was appropriate

i. Unanticipated circumstancesii. Further the purposes of the trust

c. “special needs” trust – comply with medicaid2. Ladysmith Rescue Squad v. Newlin (2010)

a. F: One party wanted to terminate the trust by stating they “wished to have the money now.” To accomplish this, they first sought a division of the trust which a lower court granted, and then used that division to say the second party had no standing to dispute the termination of the trust

b. I: Does the UTC provision soften the standard needed to be met to modify a trust

c. UTC does have a provision to divide into two trusts equitably

d. “I need the money now” is not an unanticipated circumstance

3. Trustee Removala. UTC §706

i. Ct. may remove a trustee if:1. Trustee has committed a serious breach of trust2. Lack of cooperation among co-trustees substantially impairs the

administration of the trust3. Because of unfitness, unwillingness, or persistent failure of the

trustee to administer the trust effectively4. Substantial change in circumstances or requested by all the

beneficiaries and ct. finds the removal serves the best interests (Removal without cause is generally not available in most states)

b. Davis v. U.S. Bank National Assoc. (2007)i. F: seeking the removal of one corporate trustee and the appointment of a

new trustee (would charge lower rates, better location, maybe some personal knowledge)

ii. Ct. allows it (practice point: draft a provision allowing the change of corporate trustees – allows for rate shopping)

Trusts: Powers of Appointment – 1. Purposes, Terminology, and types of powers

a. Doesn’t require any special words or designations – relationship similar to agency

i. Donor of the power – settlorii. Donee of the power– beneficiary – has no duty to exercise the

powerb. Creation – confers discretion on the done

i. Similar to trustee, except it is a duty in a trust, and power for the done

We are in a 1969 UPC jurisdiction – know the majority rules of decision. Know the rules and policy