daar wills and trusts spring 2015

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Wills and Trusts Daar Spring 2015

I. Control of the Dead Hand: Property can be controlled by the dead, but should the law respect the control of the dead hand? Freedom of Disposition includes the right to act in a way not favorable to people but is upheld by the law. a. Conditions and Restraints Put in Wills

i. Rule: Conditions result when a decedent conditions a gift on the beneficiary behaving in a certain way. Conditions will generally be upheld unless they violate the law or public policy. Invalid conditions include: Absolute restraints on marriage.

1. Exceptions to restraints on marriage: partial restraints that impose reasonable restrictions are generally not contrary to public policy and thus valid. The inquiry of reasonable restriction is fact sensitive. Partial restraints generally upheld include: marrying within a reasonable time period, or to someone within a certain religion. Example: Shapira v. Union National Bank Case

2. Other invalid restrictions : a. Gifts that require someone to stay within a religion are invalid due to violating the

constitutional right to freedom of religion. b. Gifts that encourage separation or divorce are also invalid. However, gifts in the event of

separation or divorce are not necessarily invalid. c. Gifts that require you to commit a crime are invalid.

3. When analyzing on exam: make constitutional and policy arguments . a. But, the right to inherit is not a constitutionally protected right, however, you can argue the

condition is violating another constitutional right. b. Policy arguments require you to argue the reasonableness of the condition.

ii. Rule: Remedy and gift over clauses1. Rule: if the conditional gift is void and there is a gift over clause, courts will distribute the gift to

the alternate beneficiary. If there is not a gift over clause, the condition is void and the original beneficiary receives the property.

iii. Remember: Conditional gifts are generally valid unless they fall within an exception. Reason by analogy, look at the nature of the beneficiaries affected right and the degree of unreasonableness

b. Wills requiring destruction of property i. Rule: -courts will break down their analyses into a variety of factors. Public policy: evaluate the facts,

weigh the benefits and burdens of fulfilling the condition, and decide which factors weigh more heavily than others.

1. Real property a. Balance the public and private interests. In virtually every case when asking to destroy

real property the courts have said no and voided the provision. Because there are burdens on the tax systems and creates nuisances and aesthetic harms.

2. Personal Property a. Common v. public figure?b. Motivation of the will maker? When the motivation is capricious, the court doesn’t like this

but if the motivation is heartfelt, the courts will be more receptive. c. Intent and Social Utility

i. What is the cost in destroying the property? Externalities? (in real property the externalities are taxes and deterring ownership of property, deprives society of realizing the wealth.)

c. Who can challenge wills?i. Rule: the ability to challenge a will rests upon the pecuniary interest in the estate. A person who is named

in a will or who would get the property would have pecuniary interest in the will, and everyone else will not have standing to challenge the will.

1. Another factor the courts consider is the economic interest of the individuals involves.

d. Posthumously Acquired Property 1


i. This property is property rights that the descendant acquired after death. ii. Marylyn Monroe case: Rule:

1. The disposition of property only extends to property at death. But this case takes on the truism that has been around – extends to the testator the envisions of property earned after death.

II. Wills and Trust Terminology a. Inherit : To gain property of the death of the individual – inheritance is the passing of property at death. b. Devise: Property that is passed through a will & Devisee is the same as beneficiaryc. There are three ways to inherit property: Rule: A person can die all three ways. For example, a person can die in a joint

tenancy and have a partial will. i. Will – A will is a written instrument that conveys property at death.

1. Testator = a person who drafts the will2. Testate Succession = the process of passing of property through a will

a. Succession is the passing of property. 3. Beneficiary = a person who takes property under a will.

ii. Intestate Succession1. Someone who does without a will, OR without disposing of ALL property will be subject to state laws

under a default system, these laws are known as intestate succession laws. (the next best estate plan). 2. Hier – a person who inherits property through intestate succession. 3. Decedent – person who dies without a will.

iii. Will Substitutes 1. Contracts or other legal agreements that arrange for the passage of property at death other than through

a will or intestate succession. 2. Types of will substitutes

a. Trust (intervivos trust avoids probate)b. Joint Tenancy – there is a right of survivorship – merely describes title – title a way that two or

more people own property. c. Life insurance – because payable upon death, Stock accounts, and Employee benefits

III. Probate Procedures and Attorney Liability a. Choice of Law

i. A testator’s estate will be administered under the laws of the state where they were domiciled in at death. 1. Real Property though is disposed of according to the state where it was located.

b. Probatei. Rule: Probate is a process for distributing property, that takes place in court which means lawyers and fees are

involved, there has been a movement that tried to avoid probate. When a person dies with a large estate, there are four purposes served by probate and the administrator (intestate succession) or executor/ personal representative (if will) has 4 specific duties:

1. Inventory and collection of assets2. Manage those assets during the time the probate is ongoing – average length is 1 year3. Pay off debts of the estate – there are very specific rules regarding creditors’ rights4. Distribute the remaining assets to the named beneficiary’s

ii. What needs to go through probate? 1. Non-Probate assets are will substitutes and do not need to go through probate (life insurance and

pension plan). 2. Other assets that should not need probate include, furniture, joint checking account…

iii. Always probate if :1. There is real property2. Probate can protect some people from predators 3. Pay estate taxes – can exist at a state level (CA no) but yes in federal.

c. Attorney’s Role and liability for will draftingi. It is our job to look into the future be both pessimistic and optimistic. If a client does not want a natural

disposition of the estate, then create a will that follows the intestate succession laws. ii. Liability rules (who can sue the attorney for mal practice?)

1. Old rule was that there is no liability because there is said to be no privity, since privity is required for a legal claim to arise, then intended beneficiary cannot sue. Under a tort theory there was no duty.

2. Modernly: Two theories of liability: Contract and tort:

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a. Tort basis is liability for negligence: an attorney has a duty of reasonable care with foreseeability of injury to the foreseeability to intended beneficiary.

b. Contract theory: once the client identifies who the intended beneficiary is, that person becomes a third party beneficiary and is in privity with the attorney. Sue for breach of contract.

3. There are two rationales for Modern rules: if the privity barrier is upheld, there is no recourse, and second, there is incentive for attorneys to do well.

iii. Conflict of Interest: may have a duty to divulge confidential information. See A v. B.

IV. Intestate Succession a. Introduction

i. Intestate succession is a system of default rules that anticipate the next best plan for the testator. Intestate Succession is when someone dies without a valid will, the property will pass by intestate succession according to the statutory scheme.

1. The first rule of intestate succession is that dead people cannot own property. If a dead person is named in a will, there needs to be a backup because the dead person has no ability to exercise dominion and control of the property.

2. Persons who benefit by intestate succession include family members by blood or marriage, b. Simultaneous death Provisions

i. Rule: Generally, if the title of property depends on the priority of death, and there is no evidence of simultaneous death then the property of each person shall be disposed of as if he has survived.

ii. Rule under the UPC : every person must survive the descendant’s death by 120 hours. This survival must be established by clear and convincing evidence. If the taker does not survive by 120 hours, he must be the last heir.

iii. CA Rule : requires clear and convincing evidence that the beneficiary or heir survived then to distribute that property but there are exceptions.

1. Joint Tenancy a. Rule: if property is held by two joint tenant and both have died and no evidence shows one

survived the other, the property shall be distributed under a sharing arrangement. The property would be held in tenancy of common.

iv. How to avoid the problem of simultaneous death:1. Create a will a head of time – stating what happens if there is simultaneous death2. The default system for dealing with simultaneous death:

a. For an heir to succeed – must survive by 5 days – 120 hours

c. Death of a Spousei. The surviving spouse is always the preferred first taker of the intestate succession. Even if separated, most

states view the parties as legally married. Some states disqualify a spouse if the spouse has abandoned. ii. There are two sets of rules 1) the uniform probate code on the spouses share and 2) the cal code

1. Uniform Probate Codea. First, if there is no issue, and no parent, then the spouse gets everything b. Second, share if there are children.

2. Cal Codea. Community property, the surviving spouse is automatically entitled to ½ of the community

property (property acquired during marriage). Therefore at death, only ½ of the property is subject to distribution. Inheritance and Gifts are not considered community property.

d. Two Systems for Distributing Property (CA’s §240 (issue)i. Per Stirpes

1. The initial division is made at the first generation regardless if there are any living members. a. The number of primary shares is the number of the surviving persons in that nearest

generation, plus the number of deceased persons in that generation who have descendants who survived.

ii. Per Capita on representation 1. The initial division of the estate is made at the first generation in which one or more members

survived. Representation is recognized for surviving decedents of that generation. The number of

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primary shares is the number of surviving persons in the first generation with a surviving member, plus the number of deceased persons in that generation who have decedents who survive.

e. Half Bloods and what share they geti. Sibling who is genetically related to you only through one parent – happens in blended families – original

sibling is a half sibling – all you need to know is that most codes would treat those siblings as being related fully. So where the probate code says distribute to siblings then they are treated as complete siblings – treated the same (intestate succession though)

f. Escheati. Rule: when a decedent has no relatives, the property will escheat to the state

g. Transfers to childreni. Adoption

1. There are two types of adoption: formal adoption and equitable adoption. a. Equitable Adoption – courts will look to the behavior and intent of the parties because no

formalities have been made – need clear and convincing evidence. – Adoptive parent’s intestate.

2. Reproductive Technologies ii. Nonmarital children(step children)

1. Are treated like marital children. iii. Posthumous children

1. Common law, post-humous children can take. 2. In CA a post mortem conceived child will be an heir or beneficiary if certain requirements are met.??

h. Advancement (lifetime gifts may have post death consequences). i. Common Law: if an heir receives a life time gift then that share is often counted against any distribution that

person would receive. The common law presumed gifts were advancements. Must present evidence (preponderance of the evidence standard) to rebut.

1. Advancements of the heirs intestate sharea. An heir is by definition a person who succeeds to a decedent’s estate, identified at the time of

death. Thus, if you become an heir and you had a lifetime gift, that will count against you in the distribution.

ii. If it is determined that a lifetime gift is an advancement, there is an accounting process that occurs known as hotchpot.

1. Hotpot = adding the advancement to the estate, then dividing the property, and subtracting the advancement from the advanced devisee.

2. If the person who received an advancement ends up owing the estate money, then that person would simply not get a distribution. Owing money would be inconsistent with the law of gratuitous transfers.

i. Bars to Succession/Inheritancei. Rule: Generally, the law does not care if the descendant had a relationship with its spouse or children; however,

there are some acts that are so bad there is a need for dis-incentivizing and the law will step in. ii. There are two conducts not tolerated: murder and elder abuse.

1. Slayer rulea. If the jurisdiction does not have a slayer statute , there are three ways the court can decide:

i. Slayer gets the estate – the policy is double punishment and the criminal justice system punishes, not the civil system. However there are civil forfeiture laws.

ii. Slayer does not get the estate iii. Slayer is a constructive trustee

1. This is essentially giving the property to the slayer, but it is distributed to the next taker.

b. Slayer rule in CA i. The slayer is treated as predeceased, the slayer is not entitled to any of the following:

1. Any property interest or benefit in a trust2. Cannot receive any beneficial interest or administrative interest (fiduciary

interest as executor)3. Any property under intestate succession

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4. Any quasi community property ii. You also cannot kill someone for the benefit of a third person. Meaning your issue

cannot take the property either. Self-defense murder is ok, not felonious. iii. Not convicted of murder in CA – then there is a catchall – in the absence of a final

conviction of murder, a court may determine by the preponderance of the evidence that you are liable for the death.

2. Elder Abuse: a. Elder abusers are treated like slayers, to the extent it is proven by clear and convincing

evidence that the person is liable for physical abuse, neglect or financial abuse.

V. Will Formation & Execution a. Formation

i. Rule: The first law was the statute of wills, which permits the disposition of property at death through a written instrument. This statute was followed by several other statutes including the statute of frauds.

ii. CA Will Formation / Requirement rules1. There are four elements that must be met in order for the will to be valid:

a. In Writing (oral rules are not permitted)b. Be signed by one of the following: (electronic signatures are ok)

i. The testatorii. If there is no physical capacity to sign the will, the testator’s name can be signed in

the testator’s presence and by the testator’s directioniii. By a conservator pursuant to a court order to make a will.

c. Be signed by two witnessesi. The will must be signed by at least two persons each of whom (a) being present at

the same time witness the testator’s signing of the will and (b) understand that the instrument they signed be the testator’s will.

1. (the witnesses do not need to sign in each other presences)d. The testator must be at least 18 years old. (have the intent and capacity to make the will)

iii. Function of the wills formalities 1. The ritualistic function

a. Conveys to the testator this is a serious act2. The evidentiary function

a. Best evidence of the testator’s intent3. The protective function

a. Protects the testator from undue influence 4. The channeling function

a. You know it will be upheld it is a reliable system. b. Execution Generally

i. Common law1. The common law required strict compliance with the wills formalities. If there was any deficiency

the will would not be valid. ii. Substantial compliance with formalities:

1. Rule: even if a will is not executed in strict compliance, the court is able to probate the will if 10 clear and convincing evidence shows that the testator intended the document to be a will, and 2) there was substantial compliance with the formalities.

iii. Harmless Error Rule:1. Rule: A harmless error in executing a will may be excused if the proponent establishes by clear and

convincing evidence that the decedent adopted the document as his or her will. iv. Signature of the Witnesses

1. Common law rule: the testator must ackonledge in the presence of witnesses and the witnesses must sign in the presence of the testator. There are two approaches:

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a. Line of sight testi. The presence of the testator is satisfied if the testator sees or has the opportunity to

see the witnessesb. Conscious presence test

i. Modern trend: – the testator needs to know what is going on – that the witnesses are signing from the sight, sound, and general awareness of the events. Broader than the line of sight test.

2. Modern UPC Rule a. UPC abolishes the requirement that the witnesses sign in the presence of the testator. The

testator must sign / acknowledge in the presence of the witnesses. Just in a reasonable time. 3. Presence requirement

a. Telephonic presence – witnesses testator sign the will = not presenceb. Skype? Courts are not ready to substitute physical presence with technological presence

c. Execution and Interested Witness Problem i. Overall rule: An interested witness is someone who receives a pecuniary under the will. A disinterested

will is someone who does not take under the will. a. Common law – interested will is void, renders the will invalid. b. More modern law: The witness has a conflict of interest only to the extent that the witness

stands to take more under the will than if the will were not valid. There is a presumption of conflict, if the interested witness rebuts the presumption, then the gift under the will is not void.

c. Modern Law – the presumption shifts – don’t invalidate an interested will, rather the court will focus on the gift that the witness is receiving in the will.

ii. Purging statutesa. Rule: Purging statutes allow an interested witness to purge the excess interest under the will. (the

excess interest is void). To determine the excess interest 1) calculate how much the witness would take if the will were not valid (prior will or intestacy) and 2) how much the witness stands to take under the will.

iii. California lawa. Presumption of fraudb. Extra benefit test in the purging statutes: We purge the interested witnesses of any portion of the

gift that exceeds what the witness would have received if the will were not established. i. Steps

1. Step 1: is the witness interested?2. Step 2: apply the presumption of undue influence, fraud or duress3. Step 3: if yes to (2) then the gift is purged (the extra benefit), if no to (2) then the

interested witness will take the gift.d. Mistakes in execution

i. Swapped Wills1. Under the traditional, common law approach the will is invalid. Even though the wills mirror each

other. 2. Rule: CA: provision that says courts should take conditions into account but for the most part the

wills are valid, they show an overall intent to make a unified estate plan – will be held up even if particular conditions did not come to pass.

e. Holographic Willsi. Rule: A holographic will is written by the testator’s hand and is signed by the testator. A holographic will

does not need to be attested to by witnesses. The material portions of the will need to be in handwriting. There must be testamentary intent.

ii. Testamentary Intent:1. Rule: there must be intent that the document constitutes the last will and testament. There is no

ritualistic function because there are no witnesses.

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VI. Revocation and Reformation of Willsa. Overall Rule : Wills are executed intervivos, but are not effective until death. A will can be revoked, amended, or

replaced at any time before death. Wills can be revoked in two different ways: physical act and subsequent will. i. Physical acts

1. Rule: A will may be revoked by physical act as long as the act is destructive and there is intent to revoke. A testator may physically revoke a will by burning, tearing, cancelling or destroying the will.

a. Common law: The words of the will, will have to be affected. (see page 24 of notes) – mark cancelled on the will.

b. Modern Law: any part of the will can be affected. 2. Partial Revocation

a. Partial revocation by physical act is permitted. ii. Subsequent will

1. Rule: A will may be revoked in whole or in part by a properly executed will (expressly); or by a subsequent properly executed will that is inconsistent with original will.

a. Express: the subsequent will must clearly indicate intent to revoke. b. Implied: the revocation by inconsistency occurs when the subsequent will disposes of the

descendant’s property in a way that is inconsistent with the prior will. The prior will is deemed revoked to the extent of any inconsistencies.

iii. Will v. Codicil 1. If the subsequent will revokes the prior will completely, the subsequent will becomes the testator’s

sole will. If however, the subsequent will only partially revokes or amends the prior will, ether expressly or by inconsistency, the subsequent will is a codicil. The prior will stands and is valid to the extent it is not revoked by the codicil.

2. A codicil is a will that must meet the formalities, but it merely amends the original will. 3. Revocation of a codicil does not revoke the underlying will. But revocation of a will, revokes the

codicil. (page 72 of statute book). iv. Revocation by Presumption / Lost Wills

1. If a will was with the testator and cannot be found upon death, a rebuttable presumption arises that the testator revoked the will by act. Almost any evidence is admissible.

v. Revocation by Operation of Law1. Rule: Unless the will provides otherwise, divorce automatically revokes any provision in the will

relating to the ex-spouse.

b. DRR: Dependent Relative Revocation i. Overall rule: Under DRR, if a will is validly revoked in whole or in part, it may be possible to probate the

will if the revocation was based on mistake of fact or law AND if the testator would not have revoked the

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will if he or she knew the truth. it is presumed that the testator preferred the old will over intestacy and the old will be admitted to probate in absence of evidence overcoming the presumption.

1. Testator revokes a gift by act on the belief that the new will or codicil is valid (but it is not – mistake of law). The intended beneficiary stands to take nothing because the new gift is not valid, and old gift was revoked. DRR allows the old gift to be saved if that is what the testator would have wanted if he or she had known the new will/codicil was invalid

2. If the testator revokes by writing – there is almost always a mistake of fact. For DRR to apply, the courts require the mistake of fact be set forth in writing and the mistake be beyond the testator’s knowledge.

ii. IMPORTANT: You must argue for DRR, the court just does not apply it.

c. Revival i. Revival is an issue arising when a will that was previously revoked is revived by revoking the revoking

instrument (second will). Extrinsic Evidence is ok. 1. Minority of jurisdictions require will #1 to be re-executed. 2. Majority/UPC: testator must intend to revive will 1. If will 2 is revoked by act – any evidence is

allowed. If will 2 is revoked by writing, evidence must be in writing. ii. Burden if proof is on the person trying to prove the first will is not revived.

VII. Components of a Will (scope and integration)a. Doctrine of Integration Overall rule : The threshold issue is what constitutes the pages of the will? The

doctrine of integration provides that all the pieces of paper that are physically present at the time of execution and that the testator intends to be a part of the will constitute the pages of the will.

i. Doctrine of Integration – Holographic Wills 1. Rule: some jurisdictions apply a flexible approach, as long as there is clear and convincing

evidence the papers are meant to be a part of the will, even if they are not physically present at the time of execution, it is ok.

b. Doctrine of Republication by Codicile i. Rule: A codicil is a will that amends an existing will. Executing a codicil, republishes, and executes the

underlying will. Thus, the underlying will is thought of as executed on the date of the codicil. 1. If there are adverse consequences of redating the will – the parties can argue the codicil does not

redate the will because the testator would not have wanted that. Courts generally accept this argument where there are no express republication clauses.

2. Curative powers if problems with original execution.

c. Incorporation by Reference (usually used when not physically present)i. Rule: A valid will can incorporate by reference a document that was not executed with the requisite

formalities, thereby giving effect to the intent expressed in the incorporated document as long as:1. Intent: The language of the will must manifest intent to incorporate the doctrine. ( reference the

document). 2. The document to be incorporated must be in existence at the time the will is executed. The plaintiff

has a burden of proof by a preponderance of the evidence. 3. Description – the language of the will must sufficiently describe the writing.

d. Doctrine of Acts of Independent Significance i. Rule: this doctrine is a statutory doctrine to the extent that we have codified the acts of independent

significance. This doctrine means that the things a testator or other people do can have testamentary impact. Normally, acts that have testamentary impact must be in a will, but this doctrine excuses those acts that have independent significance.

1. Examples:

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a. I leave all property to the class in the year of my death. The beneficiaries act of being in the class has independent significance.

b. I give my car that I own at death to B. But if the testator buys a new car worth 100k, the act was of independent significance – as in the testator wanted a new car, therefore it did not have testamentary impact, Normally you would need a new will to make a dramatic change in a gift, but under this doctrine B still gets the car.

e. Contracts with respect to wills i. A contract with respect to a will can do one of three things:

1. Enter into a contract to make a will in favor of someone or another person2. Enter into a contract not to revoke an existing will3. Enter into a contract not to make a will at all.

VIII. Testamentary Capacity a. Capacity to Make a Will

i. Overall rule: there is a standard of competence; the testator must have the capacity to make a will at the time of execution. To have the capacity to make a will, the testator must have the ability to understand

1. The persons who are the natural objects of his or her bounty (who is heirs are)2. The nature and extent of his property3. The disposition he is making as is described by the will 4. How the elements come together to form a desire of disposition

ii. If the testator does not have the capacity to make a will, the will, will be invalid. If a person suffers from a defect in capacity at the time of execution, it may invalidate all or part of the will. There are four possible defects: Insane delusion, undue influence and fraud.

b. Insane Delusion i. An insane delusion is a single belief, a false sense of reality. If the belief impacts a provision of the will,

then that provision may be invalid. The insane delusion must affect the disposition made by the deceased, it does not affect the testator’s capacity to create a will. If there is a factual basis to support belief – not insane. factual basis to support belief it could be a mistake. Court’s do not take action for mistakes.

c. Undue Influence i. Overall rule: Undue influence is “substituted” intent. When the disposition is not free, the testator is

influenced. The trier of fact may infer undue influence from circumstantial evidence that shows:1. The testator was susceptible to undue influence because of his age, personality, physical or mental

health and ability. 2. The alleged wrongdoer had an opportunity to exercise influence through access, communication

and contacts3. The alleged wrongdoer had a disposition to exercise the undue influence4. A will appears to be the effect of undue influence because it contains an “unnatural” disposition

pattern or unusual inclusions/exclusions. ii. Proof needed to establish undue influence

1. Preponderance of the evidence or clear and convincing. iii. Confidential Relationships

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1. In most jurisdictions , a contestant is entitled to a presumption of undue influence if the contestant shows the existence of a confidential relationship between the alleged influencer and the testator and one or more of the suspicious circumstances are present.

a. Suspicious circumstances include: weakened condition, physically or mentally; the extent to which the alleged wrong doer prepared the document; whether the donor received independent advice; whether the will was prepared in secrecy; whether the donor’s attitude toward others had changed…

2. Undue Influence of Attorneys a. Rule: An attorney may draft a will for persons who want to make the attorney a beneficiary

only under certain circumstances. An Attorney cannot draft a will for a stranger in which the attorney is a devisee. If the attorney is an heir of the client, an attorney may draft the will, but cannot receive a disproportionate share under the will.

iv. Rebuttable Presumption1. If the presumption of undue influence is triggered, the burden shifts to the proponent of the will t

come forward with rebuttable evidence for example, by showing the influencer acted in good faith. d. Duress Transfers that occur under duress are invalid. Physical or threaten = duress

e. No Contest Clauses AKA in terrorem clause i. Common law rule (followed in CA): these clauses will not be enforced against a contestant if a contestant

is able to show probable cause for bringing a claim in the first place. 1. The devisee can either take under the will as provided, or contest the will, but if the devisee loses

under the contest, then the devisee loses the gift in the will. If the devisee wins the will can be invalid.

IX. Interpretation of Wills / construction a. Common Law rules of construction

i. Common Law Plain Meaning Rule1. The court should attribute to the will its plan and ordinary meaning

ii. No Reformation Rule 1. Courts should not reform or change any words within the four corners of the will

iii. Common Law: Two types of ambiguities: patent and latent & extrinsic evidence only allowed for latent. 1. A patent ambiguity appears on the face f the will2. A latent ambiguity appears when the will is construed or applied to the facts.

b. Modern Rules of Construction i. The plain meaning rule, and difference in patent and latent ambiguities have been repudiated. Extrinsic

evidence is generally allowed, even for mistakes. c. Know the CA rule on admission of extrinsic evidence

i. Does not per se exclude extrinsic evidence but will allow it under certain circumstances.

X. Will Lapse a. Lapse: Overall Rule: If a beneficiary fails to strive the testator, the gift is said to lapse. A lapsed gift fails. b. Default takers of failed gifts:

i. If a specific gift or general gift fails, it falls to the residuary, otherwise intestacy. ii. If a residuary gift fails completely, it falls into intestacy

iii. If part of a residuary gift fails, there were two options. Under common law, the no residue of a residue rule apples, and that part goes to intestacy. Under the UPC, the part that fails is distributed among the rest of the residue.

c. Classification of Giftsi. Specific Gifts : Rule: A specific gift is a gift of specific items of property either real or personal, a

particular piece of property – the most common type of property is real property. Anything that can spec. identified.

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ii. General : gift of monetary or pecuniary benefit is known as a general gift – it is a gift of some pecuniary amount, particularly in cash.

iii. Residuary : The rest of the estate. iv. Class Gifts: A class gift is a gift to two or more individuals who share a common attribute. Children,

nieces, nephews, the members of my book club, the people of my church etc…If circumstances of a particular case would intend the consequences of class gift, it should be presumed a gift was made.

v. Section 2111 of the Cal, Probate Code

d. Anti-Lapse: there are two doctrines to save a failed gift. i. Lapse Due Death of a Beneficiary before testator

1. Overall rule: anti-lapse statutes apply when 1) there is a lapse, 2) the predeceased beneficiary meets the statutory degree of relationship to the testator, and 3) the predeceased beneficiary has living issue who survive the testator, the lapsed gift will go to the issue unless the will expresses a contrary intent.

a. Degree in CA: any beneficiary who is related to the testator or the testator’s spouse. However, anti-lapse does not apply to the testator’s spouse.

ii. Death of a Beneficiary of a Class before the testator 1. At Common law: if a member of the class predeceased the testator, the gift would be shared

among the remaining class membersa. For example, A, B, and C in the class and C predeceases T. C’s gift is absorbed by the

reaming class members. 2. Most states – modernly apply the anti-lapse statute to class members

a. Thus, if the class member were eligible, the gift would go to their issue not the other class members. (anti-lapse statute applies)

b. If however, the class member dies before the will is executed, and the testator is aware of the death, then the anti-lapse will not apply.

XI. Changes in the Testator’s Property a. Ademption (death of the property): Overall rule: Ademption only applies to specific gifts; it does not apply to

general or residuary gifts. Ademption can happen in two ways: satisfaction or extinction. i. Ademption by Satisfaction:

1. The descendant or heir acknowledges an advancement was made. Or the decedent receives the property during the testator’s lifetime.

a. Advancement – hodge podge scenario – and an advancement is not presumed unless the decedent or heir has acknowledged the advancement.

b. Example: Testator has 20,000 to D. T writes to D and S I give you each 10,000 as satisfaction of the will gift.

i. Options: subtract 10k from 20k and say 10k was in satisfaction OR The intervivos gift satisfied the whole thing – the whole gift of 10k - intended to be in satisfaction of entire amount given to D – but this is often happening because of the avoiding taxation issue at death. – and the gift would be satisfied

ii. LOSING argument – D’s gift is only satisfied as to 10k that D got, trying to satisfy by Ademption, one gift by giving it to another is not considered Ademption.

2. Ademption by Extinction a. The property is no longer available because it is not owned by the testator at death. Thus, if

the property is not property of the estate at death, the gift fails by Ademption. b. Is the Ademption because it has changed in form or changed in substance? If the gift was a

change in form, it is not adeemed (bene still gets it), if the gift was a change in substance, it may be adeemed.

c. Apply the two theories if there was a change in substance: i. Common law or traditional identity theory –

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1. If the will makes a specific gift, the executor is required to go back through the testator’s probate estate to see if he can identify the gift. If he cannot find the gift, the gift is adeemed, revoked.

ii. modern intent based theory 1. courts will consider extrinsic evidence of the testator’s intent

b. Abatement i. Overall rule: Abatement occurs when there is a lack of sufficient funds in the testator’s estate to pay the

devises in a will. First reduce residuary, then general and then specific gifts.

XII. Rights of spouses and issue omitted from the willa. Marital Property Distribution

i. There is a presumption that a spouse did not intend to omit the surviving spouse. To ensure this, the law imposes an omitted or preterminated spouse share

1. Typically this share is equal to the intestate share. But there are exception to this in the code:a. Intent in the will to excludeb. Gifts provided outside the will c. Whether there was a prenuptial agreement

ii. However, if the testator devises all of his property to his child, or decedants from a prior marriage, the suriviving spouse will not receive an omitted share.

b. Protection of Issue - Omitted Children i. Surviving issue are generally not protected by disinheritance. There is no sensibility in the need to protect

children. The only exception is presumed unintentional. 1. Begins with presumption that the testator drafts a will prior to birth, if no change, codicil or

updating of the will, unless the testator says otherwise, the law does not expect the testator to exclude the child, and the law will presume the omission was unintentional and will allow the child a preterminated share, which is equal to what would have been the child’s intestate share

2. IF if the will contains a share to children born after the execution and it still wasn’t included.

XIII. Trusts a. The Use of trusts in estate planning

i. Rule: a trust is a method of holding title to property and transferring private wealth. The settlor/trustor is the person that has the property to transfer. The trustee has the responsibility to manage the property on behalf of the beneficiaries. The trust property is known as the corpus, res or principle. Whatever the settlor wants in the trust instrument will generally override the default rules.

ii. Three main reasons why clients want to put property into trusts 1. Avoid probate: a trust created during someone’s lifetime is a will substitute and as a will substitute

it avoids probate for the property that is placed in the trust. 2. Assures proper management of the property 3. Allows for interfamily wealth transmission

a. For example S to T for the benefit of then to C, D, and Ei. The trust res would be the property (aprt building, stocks and savings)

ii. W gets the life estate in the assets also known as the income, so the rents from the building and interest from accounts.

iii. Transfers in trust and declarations of trust 1. The way in which an asset is transferred into a trust is the same as in the main. Thus, if real

property transfers are required to be in writing, then a transfer of real property to a trust must be in writing. Also, if a corp has rules on how to transfer stock, those rules must be followed.

2. Declaration of Trust – I hereby declare today ….myself trustee for the benefit of….

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b. 7 Required elements of a trust i. Settlor

1. You need someone who is placing property in a trust. The settlor does not have to be a living person, it can be a testator (arising at death through a will).

ii. Trustee1. The trustee owes fiduciary duties for the management of the property . If the instrument does not

name a particular trustee another tenant is a trust will not fail for wont of the named trustee. A role of the court will take over.

iii. Beneficiaries1. Someone who will have the enjoyment of the property. The benefiters do not have to be living

persons. They can be ascertained persons or ascertainable persons. The one limitation is generally you cannot have a trust for a pet, it must be a person.

a. Private trust must have one or more ascertainable beneficiaries to whom trustee owes fiduciary duties and who can call trustee to account. Private trust must be for benefit of beneficiaries. Beneficiaries need not be ascertained when trust is created – only ascertainable. If, at time trust becomes effective, beneficiaries too indefinite to be ascertainable, attempted trust will fail for want of an ascertainable beneficiary

iv. Property 1. You must have a trust res. A present, identifiable interest in property. It can be a future interest, but

it must be presently identifiable. v. Intent to create a trust

1. Usually the language is pretty clear. “I am leaving X to B and I hope B will give it to C. This is not a trust.

vi. Valid Trust Purpose1. You cannot have a trust for a purpose that would be illegal or against public policy. For example,

you cannot have a purpose to restrict marriage (full), encourage divorce, encourage divorce, neglect of parental responsibilities, change of religious beliefs.

vii. Delivery1. You must deliver the trust property in a tesmentary trust the executor of the will is required to

transfer the assets into a testamentary trust. In an intervivos trust, it is problematic. You must show intent to deliver the assets to the trustee from the settlor.

c. Intervivos trust – will substitute – does not have to follow formalities. i. Revocable Trusts

1. The trust in which the settlor remains the right to revoke, alter, to amend during the settlor’s life time. Originally, trusts were irrevocable, unless specifically made revocable. Now, the presumption is that a trust is presumptively revocable unless it is specifically irrevocable.

a. Leskar Rule: beneficiaries under a revocable trust have no legally enforceable interest in the trust as long as it is revocable. Accordingly, a trustee owes no duties to the expectant beneficiaries, and there is no standing to sue.

d. Requirements: Oral trusts oki. The UPC permits oral trusts, but there must be clear and convincing evidence of the oral trust but

states may have other statutes regarding transfer.

e. Types of Trustsi. Mandatory Trusts

1. A trustee MUST make a distribution of either principle or income to a benenificary according to express terms.

ii. Discretionary trusts 1. There are three types of discretionary trusts: pure discretionary trust, support trust, and a hybrid,

discretionary/support trust. 2. Pure discretionary trust

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a. Dispersment of assets is in the sole discretion of the trustee. Neither the bene or creditor can compel the trustee to make a certain distribution.

b. The bene can bring an action against the trustee if there is an arbitrary or fraudulent reason for the trustee not distributing the property. The creditors cannot bring an action.

c. The creditors can receive a cutting off distribution procedure – basically saying when you do decide to pay out, you have to pay the creditors first.

3. Support trust a. The discretion has to be exercised to provide support for the beneifacy. Typically the

support is tied to a group of standards the settlor wants to give the benes. Traditionally these standards are: health, maintenance, and education of the beneficiary.

b. Creditors cannot compel the trustee to make payments but there are more exceptions to the support trust. Creditors can ask for distribution if the purpose of the support is for the creditors (ex: medical service or food suppliers)

c. Family obligations, child support, alimony, or maintenance upon dissolution also seek to reach trust.

4. Discretionary support trust a. Works by combining the absolute discretion with a support standard. The restatement and

uniform trust code suggests collapsing all three intpo a single type of trust, but the creditors rights are different with respect to all, so it would be hard to select which creditors’ rights should prevail.

iii. Spendthrift trusts 1. A spendthrift trust is only valid if it prohibits both voluntary and involuntary. 2. Spendthrift trust places restraints on the alienation and encumbrance of B’s interest in the trust,

thus keeping it safe from B’s creditors and preserving it for future generationsa. B may not assign his interest or have his interest reached by creditors UNTIL the trustee

makes payments of trust income or principal to Bb. Creditors can only get to the trust assets once they have been distributed to B

iv. Remedial Trusts are operations of law1. Resulting Trust?

a. Implied intent. These arise if 1) an express trust fails or makes an incomplete disposition of the trust property, 2)

2. Constructive trust.

f. Testamentary Trusts: typically created in a testator’s will, and must be in writing. If the testamentary trust fails for wont of writing, the result will depend on if the trust was secret or semisecret.

i. Secret and semisecret trusts 1. A secret trust is a testamentary trust that fails because the terms of the trust are not set forth in the

will. On the face of the will, the secret trust looks like a gift. Nothing indicates the devisee is taking as trustee. courts use the extrinsic evidence to impose a constructive trust.

2. A semi-secret trust includes no terms of the trust, but hints at the devisee being the trustee, courts will not take extrinsic evidence, but the gift fails, and the courts will impose a resulting trust. – falls to the residuary, or if trust was residuary, falls to intestacy.

Remedy DistributionSecret Court will impose a constructive trust

imposed on the named beneficiary for the benefit of the intended beneficiaries

Intended Benifiaries will get the money. (if not – then they would bring an action in an unjust enrichment context – and then the remedy applies )

Semi Secret Resulting trust The resulting trust then goes to the heirs typically – pass back to the estate because it is a trust that

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failed and it would pass by intestacy.

g. Modification and Termination of Trustsi. Rule: typically trusts have two types of provisions: administrative provisions and disposition provisions.

1. Administrative provisions include provisions to the trustee stating: you have discretion, you can sell, you have to make accounting every six months.

2. Disposition provisions state who gets paid, when that person gets paid, and how much they get paid.

ii. Common law Modifications to Trust1. Claflan doctrine

a. A trust cannot be modified or terminated if doing so would interfere with the trust’s material purpose. ( if it would be contrary to a material purpose of the settlor – even if all the beneficiaries agree – all the types of trusts are material purposes).

b. However, if the settlor AND all beneficiaries agree then it can be modified or terminated. iii. Modern Law may allow modifications or termination??

1. Changed circumstance s doctrinea. Changed circumstances that are not anticipated by the settlor, and modification and

deviation will further the interests of the trust.

h. Pour-Over Willsi. Pour over wills have two documents, a will and a trust. A will directs the executor to our over any existing

assets to a trust. Intervivos revocable trusts may be funded during the lifetime of the testator / settlor.

i. Trustee Duties also: duty to inquire and decide when discretionary i. The duty of loyalty There are two different standards:

1. If a conflict of interest scenario occurs, then courts will generally look to see if there is good faith and fair dealing.

2. If the conflict of interest though involves self-dealing, the trustee buys or sells property then there is no further inquiry, there is a per se breach of duty of loyalty.

3. If the purchaser of property is a BFP they will not have to give the property back. ii. Exceptions to Self-Dealing: 1)If there is a court order 2) The trust instrument can provide for it, the settlor

can write into the trust that the trustee has the power to do it or 3) All the beneficiaries consent

iii. The duty of prudence 1. Prudent Investor Rule: the trustee has a duty to the property. The duties include:

a. Duty not to speculateb. Duty to diversifyc. Duty not to comingled. Duty to earmark (risting case did not earmark).

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daar wills and trusts spring 2015

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