legal lines - wills and trusts

181
TABLE OF CONTENTS AND SHORT RE\'IEW OUTLINE I. A FOTJNDATION FOR ESTATE PLANNING: SOCIETY,S CONTROL OF INHERITANCE A. PROLOGUE B. INHERITANCE AND ITS LIMITATIONS l. T. Jefferson 2. 2 W Blackstone, Commentaries 3. Supreme Cowt 4. TakingProperty Without JustCompensation 5. Partial Restraints on Mafiase Permissible C. TIIE PROBATE PROCESS l. lntroduction ahd Terminology a. Execulor, administralor . . . b. Other terminology ......... 2. ls Probale Necessary? . . .. .. 3. A Summary of Probate Procedure a. Opening probare b. Supervising therepresentative's actions c. Closing the estate ....... 4. Contest of Wills a. Grounds forcontest ..... D. PROTESSIONAL RESPONSIBILITY ., ............. l. Will Beneficiaries Owed Duty of Care 2. Fiduciary Duly INTESTACY: AN ESTATE PLAN BY DEFAULT . . . . . . . . . . A. INTESTATE SUCCESSORS! SPOUSE AND DESCENDANTS .. . . . . .. . . . l. Spouse a. Simultaneous death ....... Page I 1 I II. I I I I 3 4 4 6 6 6 6 ,7 8 10 10 l0 l0 Wills - v

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Page 1: Legal Lines - Wills and Trusts

TABLE OF CONTENTS AND SHORT RE\'IEW OUTLINE

I. A FOTJNDATION FOR ESTATE PLANNING: SOCIETY,SCONTROL OF INHERITANCE

A. PROLOGUE

B. INHERITANCE AND ITS LIMITATIONS

l. T. Jefferson2. 2 W Blackstone, Commentaries3. Supreme Cowt4. Taking Property Without Just Compensation5. Partial Restraints on Mafiase Permissible

C. TIIE PROBATE PROCESS

l. lntroduction ahd Terminology

a. Execulor, administralor . . .b. Other terminology . . . . . . . . .

2. ls Probale Necessary? . . .. ..3. A Summary of Probate Procedure

a. Opening probareb. Supervising the representative's actionsc. Closing the estate . . . . . . .

4. Contest of Wills

a. Grounds for contest . . . . .

D. PROTESSIONAL RESPONSIBILITY . , . . . . . . . . . . . . .

l. Will Beneficiaries Owed Duty of Care2. Fiduciary Duly

INTESTACY: AN ESTATE PLAN BY DEFAULT . . . . . . . . . .

A. INTESTATE SUCCESSORS! SPOUSE AND DESCENDANTS .. . . . . .. . . .

l . Spouse

a. Simultaneous death . . . . . . .

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I

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I

II.

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666

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l) Evidence of survival

Descendants

a. Taking by representation: per stirpes dist ibution

2) Minodty rule-strict per stirpes

Posthumous childrenAdopted childrcn

1) I-oss of inheritance dghts from or through natuml parents2) Equitable adoption

10

2. l l

1 l

I212

t2l3

').4

t4l5t )

17

).'l

1) UPC rule-per capita at each generation . . . . . . . t2t2

b.c.

d.

te.

Children bom out of wedlockCryogenically-preservedsperm ..Transfers to minorsAdvancements

B. INTESTATT SUCCFSSORS: ANCESTORS AND COLLATERAT,S . . . . . . .

l. HalfBloods2. Escheat

C. BARS TO SUCCESSION

1. Misconduct

a. Killing decedentb. Adulteryc. Deseftion

2. Transfer of Interest in Decedent's Estate

t6

l616

16

l6t1

l6

t7

a. Releaseofexpectancyb. Tnnsfer of expectancy

l) Disclaimer upheld

lr, CAPACITY AND WILL CONTESTS

A. MENTAL CAPACITY

l. Why Requirc Mental Capacity?2. Test of Menral Capacity

c. Disclaimert'tt1

17

t9

19

l9I9l9

vi - Wills

3. Insane Delusion

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a. -lnsane delusions about men ..b. Insane delusion resultine from irrational belief in nonexistent facts . . . .

B, TJNDUE IMLUENCE

l . Subjecl ive Test . . . . . . . . . 2 l2. Requirement ot eroot snowrng suusti*,ion oinpiurroi

TeslamenlaryDisposi t ion . . . . .Undue Influence Arising out of Attomey-Client RelationshipUndue Influence a Question of Fact where Testator Is Easily Swayed . . . . . .No-contest Clauses

C. FRAUD

l. Definition

3.4.)_

1920

2l

2l2223

24

A24

24

26

26

30

a.b.

a.b.

a.b.c.

u

Fruud in the executionFraud in the inducement

Constuctive Trust ImDosed Wherc Testator Prevented FrcmExecutingWill

Iv. EXECUTION: FORMS AND FORMALITIES

A. EXECUTION

I . Attested wills

Requirements of due executionRequirement that both witnessesbe present

2. Competency of Witnesses

Interested witnessesRequirement of disinterestedness

a,b.

26

27

2727

3. Recommended Method of Execut ing a Wi l l . . . . . . . . . . . . . . . . . 284. Sel f -kovingAff idavi t . . . . . . . . . . . . 285. Safeguarding aWil l . . . . . . . . . . . . . . 296. Mistake in Execution of a Will ..-... 297. Condi t ional Wi l ls . . . . . . . . . . . . . . . . . 308. Statutory Wi l ls . . . . . . . 309. Holographic Wi l ls . . . . . . . . . . . . . . . .30

Self-proved willsTestamentary provisions not in handwriting of testatorInfomal will

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B. REVOCATION OF WILLS

l. MethodsofRevocation2. Probate ofLost or Destroyed Wills3. Revocation by Writing or Physical Act

1) Common law2) Modem law

Revocation by Operation of Law:Change in Family Circumstances

a. Marriage

l) States2) States

without statuteswith statutes

c. COMPONENTS OFA WILL

l. Integration of Wills2. Republication by Codicil3. Incorpontion by Reference

a. Notebook incorporated by referenceb. Validation of inoperative will by holographic codicil

4. ActsoflndependentSignificance

D, CONTRACTS RELATING TO wlLLS

I . Contracts to Make a Will2. Conrracts Not to Revoke a Will

Attempted revocation by writing on paper upon which will is wdttenPartial revocation by physical act

4. Dependent Relative Revocation and Revival

a. Prcsumption against intestacy ...... 36b. Doctrine applicable where later will revoked under mistaken belief

a.b.c.

Presumption will destroyed .. .. ..

that doing so reinstates prior willc. Revival

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333334

343535

38

5.

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39

39

39

3. Joint Wills

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39

39

39

b. Divorce

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404l

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42

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a. Elective share in conflict with will conracr 43

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V, WILL SUBSTITUTES

A. CONTRACTSWITHPAYABLE.ON-DEATH PROVISIONS

l. Life Insurance2. Nonleslamenlary Transfers at Deatt3. Successor Beneficiary not Pemitted in Life Insurance Contact4. Investment Club Proceeds5. Change ofBeneficiary of Life Insurance Policy by Will

B. JOINT TENANCYAND MULTIPLE-PARTY BANK ACCOT'NTS

l. Types ofAccounts . . . . . . . .2. JointBankAccount:LackofDonativelntent ...3. Stock Certificates Held in Joint Tenancy . . . . . . .

JOINT TENANCIES IN LAND

REVOCABLETRUSTS . . . . . . . . . . . . - .

1. Intoduction2. Retention of Control by Settlor

a. Creation of valid inter vivos trust notwithstanding controlretained by settlorfuustee . . .

b. Inter vivos trust revoked ....c. Creditors may rcach trust assets over which the settlor had control

at the time of his death . . . . .

4S

15

46

48

484849

5t,

45

5052

53

c.D. 50

5050

4.

3. Testamentary "Pour-Over" into an Inter Vivos Trust .......... 54

a. Uniform Testamentary Additions to Trusts Act . . . ...... 54b. Effect of divorce on validity of dispositions to former spouse

made by revocable inter v ivos t rust . . . . . . . . . 54

Use ofRevocable Trusts in Estate Planning ....... 56

a. Consequences dur ing l i fe of set t lor . . . . . . . . . )ob. Consequences at death of set t lor . . . . . . . . . . . 56

Dwable Power of At tomey . . . . . . . . . . . . . . . . . . . 57

a. Agent 's act ion upheld . . . . . . . . . . . . . . . . . . . 5 ' l

Heal th-Care Direct ives . . . . . . . . . . . . . . . . . . . . . . . 58Terminat ion of Medical Treatment . . . . . . . . . . . . . 58Disposi t ion of Decedent 's Body . . . . . . . . . . . . . . . 58

5.

6.'1.8.

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vr. WILLS: CONSTRUCTION PROBLEMS

A. ADMISSION OF EXTRTNSTC EVIDENCE: AMBIGUTTIMJSTAKE, AN'D OMtssroN ..

6.

l .2.3.

5.

Correcting MistaLes

Latenl Ambigur! iesPatent Ambiguities 59

5959

No Extrinsic Evidence to Corect Drafter,s MistakeFailure ro Comply wjrh Slalutory RequiremenLsE_xtrinsic Evidence Adrnissible to Ascertarn CircumstancesUnderWhichWil l WasMade . . . . . . . .

a. Extrinsic evidence ofscrivener's error aclmlssibleto ascertaln testator's true intent

7. Liability for Drafting Ambiguous Will

DEATH OF BENEFICIARY BEFORE DEATH OFTESTATOR: LAPSE

LIPC Section 2-601ttPC Sect ion 2-605 . . . . . . . . . . . . . . . .Anl i - lAhca s '"h, , - .

a. Anti-lapse statute does not apply

4. Rule ofConstruction that..And,,Be Read as .,Or,,to Effectuate

5 Rule ofConsrucrion Held Inapplicable6566

7. cift ro Class and Named Individual Who preaeceases thetestaior

C. CIIAiIGES IN PROPERTYAFTER EXECUTION OF WILL:SPECIFIC VS. GENERAL DE\'ISES

r. Aoempuon

a. Ademption by extinction .. , .. ..

2. Abatement

a. IJPC secl ion 2-608 . . . . . . . . . . . .

59

59

B.

60

6062

64

646464

64

1.2.3.

3. Exoneration ofLiens

68

68

69

69

69

69

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a. IJPC section 2-609: nonexoneration69

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4. Satisfaction

a. IIPC section 2-607: ademption by satisfaction

5. Stock Splits

RESTRICTIONS ON THE POWER OF DISPOSITION:PROTECTION OF TIIE T'AMILY

A. RIGHTS OF THE SURVIVING SPOUSE

L. Introduction to Marital Property Systems

a. Separate property system

70

10

10

7l

7l

'71

VII.

11.

2.

3.

b. Community propeny system

Rights of Sun iving Spouse to suppon

a. Social securityb. Pr ivate pension plans . . . . .c. Homesteadd. Personal propeny set-aside .e. Family al lowance . . . . . . .f . Dower and curtesy . . . . . .

I) Propeny subjecl to dower . . .2) Tesramentary ef fect . . . . . . .3) Present status of dower and curtesy

Rights of Surviving Spouse to a Share ofDecedent's Propelty

a. Elective share and its rationaleb. Election required for public assistancec. No forced share in homosexual relationship . . . . . .d. Surviving spouse's statutory share of assets of inter vivos

trust created by deceased spouse .UPC righttoelective share .... ..Source of eleclive shareOther statures

l) Inter vivos transfer included in computation of elective share . . . . .

Waiver . . .

12'12

'121272

'12

727314

16'76'76

f.

a.

l) Prctection aeainst disinheritance ...... 7l

'11

't l

'117l'11'72

l) Waiverupheld . . . . . . . . . . 78

17

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6. Spouse Omiued from premariral Will

States without statutesStatutory solurionsSpouse omitted from premarital will

B. RIGHTS OF ISSUE OMITTED FROM THE WILL

Child Bom After Will but Befo.e Codicil

4. Rights of Suryiving Spouse in Community properry . . . . . . . . . .tg

a.b.c.

Introduction

u84

8l8282

80

808080

797979

5. Migrating Couples and Multistate property Holdings . . . . . . . . . .7g

Migntion ftom separate propety state to cornmunity propefiy st ate . . . .lgMigration from community prcperty state to separate property state . . . g0Uniform Disposition of Co.nmunity propefy Rights at Oeath lct . . . . . S0

Classification of assets as community or separate propertyPulling lhe sur\ ivor lo an election

b.c.

a.b.c.

81l .2.3.

No Malpracrice Suit Withour prioriry . .Greatgrandchildren Not p."r"r-itt"dt"j;; . .. . .. . .

VUI. TRUSTS: CREATION, TypES, AND CHARACTERISTTCS

A. INTRODUCTION

l .2.3.

5.6.

BackgroundThe SettlorThe Trustee

848484848484

84

84

8485868687

8'I

The BeneficiariesUse of Trusts in Estate planning . .A Trust Comparcd with a Legal Life Estare

B. CREATION OF A TRUST

1. Intent to Create a Trust

a.b.

c.d.e.

Need not expressly direct that subject matter be held in trustCustodianship Under Uniform Tmnsfels to Minom ActPrecatory language and equitable chargesNo intentJon to impose rrusree duries L .Constnrctive delivery

2. Necessity of Tnist property

xii - Wills

a. Promise ro make grfts in the future 87

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b. Resulting and constructive trusts

l) Resulting tust2) Constructive fust ... ...

c, Trust distinguished from debt

1) Trust based on intercst not in existence2) Gift made of property not in existence at time of gift

3. Necessity of Trust Beneficiaries

a. Identificationofbeneficiaries

88

8888

89

8990

9L

9l92

94

94

95

b. Honorary tusts . . . . .

4. Oral Inter Vivos Trusts of Land

a. Oral promise to rcconvey land held sufficient to impose aconstructive trust

5. Oral Tmsts for Disposition at Death

a. Trusts not sufficiently defined

DISCRDTIONARYTRUSTS . , . . . . , . .

93

93

c,

D.

1. Truste€'s Duty . . . . . . 95

SPENDTHRIFT TRUSTS . . . . . . . , . . . . . . . . . . . . ' . . . . . . . . 97

l. lmmunity from Alimony and Child Support . . . . . . ........ 97

2. Creditorc' Rights in Support Trusts and Discretionary Trusts 99

a. Support tusts 99

b. Discretionary fusts . . . . . . . . . 99

1) IRS unsuccessful . . . . . . . . . . . . . . . . " 99

3. Medicaid Trusts . . . . . 100

a. Discretionary trusts . . ... .... 100

1) Except ions ' . .100

b. Third-penon fusts . . . . . . . . . . . . . . . . . . . . l0O

c. Careful draf t ing . . . . . . . . 100

MODIFICATION AND TERMINATION OF TRUSTS . . . . . . . " . . . . . . . . . " . . . 101E.

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2.

l . Modification of Distributive provisions

a. Trust modification denied .......

Termination of Trusts

Remaining material pwpose .. ..Trusts remaining indestructible beyond the perpetuities period ........

POWERS OF APPOINTMENT: BUILDING FLEXIBILITY INTOTHE ESTATE PLAN

c.

l. Types of Powers

a. General and special powers

2. Does tie Appointjve propeny Belong to the Donororthe Donee? . . . .. . .. .r. ( reolror s Krght lo propeny Subject to a powerof Appointrnenr . . . . . . . . . .4. Tax Reasons for Creating powers

CREATION OFAPOWER OFAPPOINTMENT .........

l. Intent to Create a power . . . . . . .2. Powerstoconsu." . . . . . . . . . . . . . . . : . . . . . . : . . . . . . : . . : . . . . . . . . . . . :

a. Inconsistent clauses in will .b. Taxat ion of pow"t , t ; . " ; ; ; ; . . . . . . . . . : . . . . . . . . . . . . . . . . : . . . . :

RELEASE OFA POWER OFAPPOINTMENT . . . .. . . . ..

l. Conftact to Exercise a power of Appornrmenr . . . . .

EXERCISE OFA POWER OF APPOINTMENT . . . .. . . . . .

l. Exercise by Residuary Clause in Donee,s Will ...

a,b.

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101

101

102103

r04

rx.

B.

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r04

104

r04104105

105

t05105

105106

106

106

IM

to1

D.

a. Partial release of general power of appointment . .

2. Limitations on Exercise of a Special power . . . . .

a. Creation of limited interest . . .b. Exclusive andnon"*" lur i ; "po; ; . . . . . . : . . . . . . . . . . . . . . . . . . . . . .

Fraudon aspecialpower . . . . . . . . . . .Ineffective Eiercise ofthe power _ - .

'3.4.

r08

109

109109

109110

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x.

a. Al locat ion of assets . . . . . . . . . . . , . , . . . . .110b. Capture . . . . . 110

E. FAILURE TO EXERCISE A POWER OFAPPOINTMENT .............. 110

l. Disposition of Property When Special Power ofAppointmentIs Not Exercised . . . . . . . . , . . . . . . . 110

FUTURE INTERESTS! DISPOSITM PROVISIONS OFTIIE TRUST INSTRUMENT . . . . . . . . , . , . , . . . . . . . . . . . . . ll2

A. TNTRODUCTION , . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . l l2

B. CLASSITICATION OF FT]TTJRE INTER.DSTS . . . . . . . II2

l . Futue Interests in the Transferor . . . . . . . . . . . . . . . l l2

a. Reversion , , . . . . 112b. Possibi l i ty of reverter . . . . . . . . . . . . . , l l2c. Right ofentry . . . . . . . . . . . . . . . l l2

2. Future Interests in Transferees . . . . . . . . . . . . . . . l l2

a. Remainders . . . . . . . . . . . . . . . . l l2b. Executory intercsts . . . . . . . . . . . . . , . , , . . . l l2

3. Destructibil i ty of Contingent Remainders . . . . . . . ........... i l3

C. CONSTRUCTIONAND DRAFTING PROBLEMS . . . . . . .. . . . . . .. .. . . . . I13

1 Preference for Vested Interests . . . . . . . . . . . . . . . 113

a. Tmnsferabi l i ty and taxat ion . . . . . . . . . . . . . . .113b. Accelerat ion into possession . . . . . . . . . . . 113

l) Renunciat ion val id . . . . . . . . . . . . ' . . . . .113

c. Requidng survival to t ime ofpossession . . . . . . . . . , , , , . , 114

1) Present vested interest . . . . . . . . . . . . . . l l42) Heirs determined as of the date of death of the testator .......... l l53) Cornmon law rule wherc bequest is to be paid at certain age . . . . . . 1164) Controve$ial change in UPC section 2-101 . , . . . . . . . . . . . . . . . . . I 16

2. Gif ts to Classes . . . . . ,117

a. Gif ts of income . . . . . . . . . . . . l l '7

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xr.

l) Constuing class gift to testator's grandchildren _ .

b. Gifts to children or issue . . .

1) Meaning of'thildren,' and ..issue"

2) UPC Section 2-705 ... .. ..

a) Adopted adult not considered an ,.heir'

3) Gifts over on death without issue

c. Gifts to heirs . .. .. .. .

l) Determining identiry of heirs2) The docrrine of worthier tirle3) The rlule in SheUeyb Case . , .

d. The rule ofconvenience

1) Class closes when all existing members rcach stated age ........

DURATION OF TRUSTS: TIIE RULE AGAINST PERPETUITTES . . . . - . . . . . .

A. TNTRODUCTION . , . . . . . . . . . . .

l. Development of the Rule . . . .2. Policies Underlying the Rule3. When the Lives in Being Are Ascertained . . . . . . .4. The Val idar ing Li fe . . . . . . .

B. THE REQUREMENT OF NO POSSIBILITY OF REMOTEVESTING: TIIE WHAT-MIGHT.HAPPEN RULE . . . . . . , . .

1. The "Fertile Octogenarian"2. The"UnbomWidow" . . . . .

a. Exampleb. Barc possibility is sufficientc. Spl i t cont ingencies . . . . . .

C. APPLICATION OF TIIE RULE TO CLASS GIFTS

1. The Basic Rule: All or Norhing

a. Class gifts

117

118

118118

119

119

l l9

119r20121

121

t2l

123

t2 l

123123r23123

123

123

b. Consequences

2. Gifts to Subclasses

124

124t24125

t26

126

126t27

t2"t

xvi - Wills

of violating the rule

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a. Remainders to other subclasses not invalidated . .

3. Specific Sum to Each Class Member4. Does Vest = Vest = Vest? ....

D. APPLICATION OF TIIE RULE TO POWERS OF APPOINTMENT . . . . . . 129

L General Powers Presently Exercisable "" 129

a. Validity ofpower .... . . .. " 129b. Validity of interests created by exercise of a general power

presently exercisable """ " ' 129

2. General Testamentary Powers and Special Powers """"" 129

a. Val id i ty of power . . . . . . . . . "" " 129

b. val id i ty of exercise . . . . . . . . . . . . "" ' ' 129

l) The "Delaware tax trap" . . ."""" 1292) The second-look docrine .... 130

c. Rule applied to unconditional power ofrcvocation " 130

E. SAVTNGCLAUSE . . . . . . ' . . . . . . . . , . . . ' . . . . . . . . . . . 131

1. Attomey Liability for violating Rule .... l3l

FI, PERPETTJITIES REFORM ..... I32

1. The "Wait-and-See Doctrine" "" 132

a. Statutory period apPlies to nonvested interest crcated pursuantto power of apPointment . . . . . . . " 132

2. The Uniform Statutory Rule Against Perpetuities (1986, as amendedin 1990) .. . . 133

3. Cy Prcs or Equitable Reformation ...... . . .134

G. TIIE RULE AGAINST SUSPENSION OF THE POWER OFALIENATION: NEW YORK LAW ' . . . . """""" 134

l. A Brief Explanation ofthe Suspension Rule .. . 134

2. Application of the Suspension Rule to Statutory Spendthrift Trusts . . . . . . 134

xII . CHARTTABLE TRUSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

A. INTRODUCTION . . . . . . , . . . . . . , . . . . . . . . . . . . . . . . . 135

127

129r29

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l Creation of a Chadtable Trust

B. MODIFICATION OF CHARITABLE TRUSTS: CY PRES ... ' ......... '

l. Geneml Charitable Purpose . .2. Great Increase in Available Funds

C. STJPER\'ISION OF CIIARITABLE TRUSTS . . ' . . . . . . . '

l Donor Has No Standing . . . . . . . . .

XIII. TRUST ADMINISTRATION: TIIE FIDUCIARY OBLIGATION . .. .. . ... .. .. .

A. GENERAL FIDUCIARY DIIIIES AND LIABILITIES

l. Duty of Loyalty: Herein of Self-Dealing . . . . . . .

a. Trustee's wife acts as purchaselb. Conflict of interest ......c. Co-tusteesd. Insider trading

2. Fiduciary Duties Relating to Care of the Trust Property

Duty to collect and protect tlust propertyDuty to earmark trust prop9rty . . . .Duty not to mingle trust furds with trustee's own . . . . . .Duty not to delegate

l) Delegation of investment Power

e. Liability for contracts and torts

3. Duty of Impafiiality: Allocation to Income and Pdncipal

a. Trustee's duty of impartiality

4. Full Disclosure Required . . .5. Constuctive Fraud6. Changing Trustees ......

B. POWERS OF TIIE TRUSTEE

1 General Managerial Powers . . .2. Powers of Investment ....

Duty to diveGifyBalancing gains andlosses .....

a.b.c,d.

135

136

136t3'1

138

138

l4l

t4l

141

l4l141143143

143

143r43t43t43

t43

t44

t44

r44

146147148

148

148148

148149

a,b.

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C. ERISA

XIV. WEALTH TRANSFER TAXATION: TAX PLANNING

A. INTRODUCTION . . . . . . . . . . . . .

149

150

150

B.

1. A Br ief History of the Federal Estate Tax . . . . . . . . . . . . . . . . . 1502. Estate and Inhedtance Taxes Dist inguished . . . . . . . . . . . . . . . . 150

a. Estate tax computat ion . . . . . . . . . . . . . . . . . . 150b. Inher i tance tax computat ion . . . . . . . . . . . . . 150

3. The Unif ied Federal Estate and Gif t Tax . . . . . . . . . . . . . . . . . . 1504. Liabi l i ty for Payment ofTaxes . . . . . . . . . . . . . . . . 150

a. Payment of g i f t tax . . . . . . . . . 150b. Payment of estate tax . . . . . . . . . . . . . . . . . 150

TIIE I 'EDERAL GIFT TAX . . . . , . , . . . . . . , . . . . . . . . 151

1. Nature of a Taxable Gif t . . . . . . . . . . . . . . . . . . . 151

a. Discret ionary power in t rustee . . . , . . . . . . . l5 lb. Income tax basis . . . . . . . . . . . . 152

2. The Annual Exclusion . . . . . . . , . , , 152

a. Transfer for the benefit of minor .. . .. ... .. 152b, Gifts of a present intercst in property ...... 152

3. Gifts Between Spouses and from One Spouse to a Third Person .......... 153

TIM FEDERALESTATE TAX . . . . . . . . . . . , . . . . . , . 154

1. Introduction .. .. .. . 1542. The Gross Estate: Propedy Passing by Will or Intestacy . . . . . 154

C.

a. Section 2033: Property owned at deathb. Section 2034: Dower or curtesy

3. The Gross Estate: Nonprobate Property

a. Section 2040: Joint tenancy

1) Joint tenancy between persons other thanhusbandandwife. . . . .

2) Joint tenancy and tenancy by the entirety

154154

154

154

154

154between husband and wife

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b. Section 2039:c. Section 2042:

Employe€ death benefits 155155

155

Life insurance

4. The Gross Estate: Lifetime Transfe6 with Rishts Retained

Section 2036: Transfeft with life estate or power of contol retained

1) No bona fide sale

155

1551562) Requirement of an ascertainable standard

b. Section 2038: Revocable transfersc. Section 2037: Transfe6 with rcvercionary interest retained

The Grcss Estate: Tmnsferu Within Three years ofDeathThe Gross Estate: Powers ofAppointment Given Decedent by Another

a. Cohfort limited by ascertainable standard

t5'7157

5.6.

b. S€quentialtusts

7. TheMaritalDeduction ....

Inlroduclion

157157

157158

159

159159

160161

t62

162162

162162

163

163

165

b.

8. The Cha. i table Deduct ion . . . . . . .9. Executor's Elections: post-Death Tax planning . . .

Interests that qualify for the deduction

l) Failure to qualify for the deducrion2) Refomation allowed

a. Valuation of estate assetsb. Sections 2053 and 2054 deductions

THE GENERATION.SKIPPING TAX

STATE WEALTH TRANSFER TAXES

D.

E.

TABLE OF CASES

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I. A FOLINDATION I'OR ESTATE PLANMNG: SOCIETY'SCONTROL OF INHERITANCE

A. PROLOGUE

The material in this outline covers wills, ffusts, future interests, and estate andtust administration. Each of these topics rclates to the socialprocessby whichprivate wealth is aansmitted and allocated, and is critical to a comprehensiveunderstanding of the estate planning process.

B, INIIERITANCE AND ITS LIMITATIONS

l . T. Jefferson. "The earth belongs in usuftuct to the living; the dead haveneither powers nor rights over it."

2 W. Blackstone, Commentaries. "The permanent dght of property,vested in the ancestor himself, was b]ot a'l natuful, but merely a ciyi,dght." "Wills . . . testaments, dghts of inheritancel,] and successions areall . . . creatwes of the civil or municipal laws."

Suprcme Court. In lrying Trust Co. u Day, 314 U.S. 556 (\942), theSuFeme Cowt held that succession dghts to a deceased person's prcp-erty are created by statute. The Constitution does not forbid state legisla-twes from limiting or abolishing testamentary disposition over property.

Thking Property Without Just Compensation-Hodel v. Irving,481 Hodel vU.S.7M (1987). kving

a, Facts. Pursuant to an 1889 act of Congess, tracts of land reservedfor the Sioux Indian Nation were allotted to individual Sioux, thoughheld in trust by the United States, and were allowed to pass to theallottees'heiN. Succeeding generations of Sioux divided thei pre-decesso$' tmcts into increasingly tiny undivided fractional inter-ests, which often yielded pennies in annual rent. Congress respondedby enacting section 207 of the Indian Land Consolidation Act of1983, which provided that any undivided ftactional interest reprc-senting less than 2% ofa fact's acrcage, and which had eamed lessthan $100 in the preceding year, would escheat to the tribe ratherthan descend by intestacy or devise. Three Sioux who would haveinherited such interests but for the operation of section 207 filed anaction for injunctive and declaratory relief in federal court, claim-ing that section 207 violated the Fifth Amendment by taking privatepropeny without just compensation.

The Distdct Court found that the heirs (Ps) did not have any vestedproperty interest which wouldbe entitled to constitutional protec-

,

a

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b.

tlon, and accordingly denied reliel The Eighth Circuit revened, holding that:(i) Ps had standing to assed the decedents' right to contrcl the disposition oftheir propefty, and (ii) the raking of that right without compensation violatedthe Fifth Amendment.

Issue. Does a federal statute bardng inheritance oflndian land allotments andproviding for escheat to the tribe effect a taking of the decedents' propertywithoutjust compensation in violation ofthe Fifti Amendment?

Held. Yes. Judgment affirmed.

I ) The fact that section 207 has deprived those tribal members of fractionalintercsts that they would otherwise have inherited is sufficient iniury infact to satrsfy the case or conlrovers) requiremenl of Arlicle lll of rheUnited States Constitution.

2) The original version ofsection 207 ofthe Indian Land Consolidation Actof 1983 effects a taking of picperty wirhoutjust compensation in viola-tion of the Fifth Amendment. It entircly abolishes both tle descent anddevise of these property intercsts even when the passing of the prcpertyto an heir might result in the consolidation of property.

3) The govemment has considerable latitude, under the Just ComDensationClause o[ lhe Fifth Amendment. in regularing propeny righrs rn waysthat may adve$ely affect the owne$.

4) There is no set formula for determining when justice and faimess requirethat economic injuries caused by public action be compensated by rhegovemment, rather than remaining dispropofiionately concentrated on afew persons. Instead, the question whether such actionrcsults in atakinsof propeny under lhe Fifth Amendment is examined by engaging rn eslsentially ad hoc, factual inquiries in which seveml factors-such as theeconomic impact of the regulation, its interference with reasonable in_vestrnent-backed expectations, and the character of the govemmentalaction-have panicular significance.

5) Although the state and federal govemments have broad authority to ad-Just the rules goveming the descent and devise of prcperty without im-plicating the guarantees of the Just Compensation Clause of the FifthAmendment, the complete abolition of both the descent and devise of aparticular class of property may constitute a taking within the meaningof that clause. Under these facts, both descent and devise are abolishedeven where the govemmental pupose sought to be advanced, consolida_tion of ownership of Indian lands, does not conflict with the further de_scent of th€ property.

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5. Partial Restraints on Marriage Permissible-Shapira v, Union Na-tional Bank, 39 ohio Misc. 28, 315 N.E.2d 825 (1974).

Facts. The will of the decedent, David Shapira, M.D., bequeathed aportion of the residue ofhis estate to his son, Daniel Jacob Shapira(P), plovided that he is marded to a Jewish girl, both of whose par-ents arc Jewish, at the time of the testator's death. If after sevenyears from the testatot's death, P is unmarded or maried to a non-Jewish girl, then his sharc should go to the State of Israel. P, who is2l yea$ old and unmarried, brings a petition in the Court of Com-mon Pleas for a declaratory judgment, arguing that the conditionupon his inheritance is unconstitutional, contrary to public policy,and unenforceable because of its unrcasonableness.

Issues,

1) Is a partial restraint on marriage in a will a violation of theright to marry protected by the Fouteenth Amendment?

2) Is a partial restnint on marriage that imposes only reasonablerestrictions valid and not conhary to public policy?

Held. l) No. 2) Yes. Petition denied.

l) P is cofiect that the right to malry is constitutionally protectedfrom Estrictive state legislative action. Here, however, the courtis not asked to enforce any rcstdction on P's constitutionaldght to marry; rather, the cout is asked to enforce the testator'srestriction on his son's inheritance. The right to receive prop-erly is a creaturc of the law and is not a constitutionallyguaranteed right. Hence, upholding the partial rcstraint imposedby the testator will not violate the Constitution.

2) Nor does a partial estraint on marriage violate public policy. Ifthe condition werc that the b€neficiary not marry anyone, therestraint would be general or total and would be held conmry topublic policy. A partial restnint on mardage that imposes ofllyreasonable restrictions is valid, and not contrary to public policy.Th€ weight of authodty in the United States is that gifts condi-tioned on the beneficiary's marying within a padicular religiousclass or faith are reasonable. It is the conclusion of this courtthat the conditions contained in the testator's will are reasonablerestnctions on mardaee and are valid.

b.

Shapirav. UnionNational Bank

c.

C, TIIE PROBATE PROCESS

L. Intmduction and Tbrminology. The general steps in the prcbate pro-cess are (i) opening the estate by offering the will for probate, (ii) col-

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lec l inglhedecedenr 'sassets.{ i i i )payingan}fami lyal lowanceandsett ingasidehomes'tead and exempt personat propefly. t iv I pa) ing creditors'clajms and lax bll l( '

and (v) distributing the assets of the estate upon the probate court enteflng a oe€ree

ofdistribution.

a. Executor' administrator. Theexecutoris a personal representative named in

a will. The administrator is a perconal rcprcsentative appointed by the coul't'

There are various types of administratorc.

1) Administrator. An administrator is a person originally appointed when

the decedent dies intestate.

2) Administrator with the will annexed (administrator c't'a')' An ad-

ministrator with the will annexed (administratol c t a ) ls a person ap-

pointed when the decedent dies testate but no executor is named in the

will.

3) Administrator of goods not administered (administertd d'b'n')' An

administrator of goods not administered (administered d b n ) is a person

appointed to succeed an original administrator'

4) Administrator c.t.a.d.b.n.. An administator c t a d-b n is a pelson ap-

pointed to succeed an executor or an administator c t a

5) Special administrator. A special administator is a person appointed to

pieserve the assets pending qualification of the regular administrator'

b. Oth€r terminology, The teminology used in decedents' estates and trusts

originated primarily in England, where common law courts had jurisdiction

ovJr real property and ecclesiastical couts had j urisdiction overpersonal p'op-

erty. Each groupdeveloped a distinct terminology thathas carried over to this

day. Some key terms are defined below'

l) Succession. Succession is the process of becoming beneficially entitled

lo the propeny of a decedent

2) Intestate succession. Intestate succession occu6 when the decedent

leaves no valid will, so that his property passes to those of his relatives

named in a state statute (called the intestate law)'

3) Statute of descent. A statute of descent is an intestate law that applies

only to real property. Intestate real propefty is said to Pass by descent

4) Statute of distribution. A statute of distdbution is an intestate law that

applies only to personal property. Intestate personal propefty is said to

pass by distribution.

5) Statute of descent and distribution. A statute of descent and distribu-

tion is an intestate law that applies to both real and personal property'

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6) Heir. Aperson entitled by statute to the land ofthe intestate is called the heiror heir at law.

a) Expectant heir. An expectant heir is one who expects to take by inheri!-ance,

b) Prospective heir. A prospective heir is one who may inherit but may be€xcluded. This category includes heirs presumptive and heirs apparent.

(1) Heir prcsumptive. An heir presumptive is a person who will ir.herit if the potential intestate dies immediately, but who will beexcluded ifrelatives closer in relationship are bom.

(2) Heir apparenl An heir apparent is one who is certain to inhenrunless excluded by a valid wil l.

7) Next ofkin (or distributee). The next of kin, or distributee, is rhar person (orpersons) who is, or may be, entitled to the personal property of an intestate.This percon is said to ir,rrerit the personal property.

8) Ascendant or ancestor. An ascendant or ancestor is a penon related to anintestate or to a claimant to an intestate share in the ascending lineal line.

9) Descendant. A descendant is a person related to an intestate or to a claimanrto an intestate share in the descending lineal line.

10) Collateral. A collateral is a relative who traces relationship to an intestatetlrough a common ancestor but who is not in his lineal line of ascent or de-scenl,

a) Collaterals of the half blood. A collateral of the half blood is a personrelated to an intestate through only one common ancestor.

Alnnity. Relationship by marriage is called affinity.

Consanguinity, Relationship by blood is called consanguinity.

Escheat. Propefiy escheats to the state if no relatives ofthe intestare are en-titled to inheritance.

14) Will. A wiJl is an expression, either written o. oral, of a person's intentionconcerning the disposition of propefiy at death. A person who dies leaving avalid will is said to die t€stare.

Devise. Adevise is a clause directing the disposition ofreal property in a will,and the person who is named to take the real propeny is called the devisee.

Legacy. Alegacy is a clause in a will directing the disposition of money.

1r)

12)

13)

1s)

r6)

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2,

17) Bequest. A bequest is a clause in a will dirccting the disposition ofpersonal property other than money.

18) Attested, holographic, aDd nuncupativ€ wills. An attested will isa will signed by a witness. A holographic will is a will entirely inthe handwriting of the testator. A nuncupative will is an oral will.

19) Codicil. A codicil is a testamentary instrument ancillary to a will.

20) Probate, Probate is the procedue by which a transaction alleged tobe a will is established judicially as a valid testamentary disposi-tion, and also applies to the act of approving the will after probatehas taken place.

Is Probate Necessary? One of the primary functions of the probate prccess isto provide evidence of transf€r of title to the decedent's heirs or devisees.Howevet in view of the costs and delays of probate, one may wish to avoidprobate by tansfedng title to property during life. Three common ways ofavoiding Fobat€ are (i) taking title in joint tenancy, (ii) creating a trust dudnglife, and (iii) designating a payable-on-death beneficiary in a life insurancecontract or other contract. Statutes in all states permit heirs to avoid probatewhere the amount of property involved is small.

A Summary of Probat€ Pmcedur€.

a. Opening probate. Primary or domiciliary judsdiction is found in thejurisdiction wherc the decedent was domiciled at the time of death. An-cillary adminishation is required if the property is located in anotherjurisdiction. Each state has a detailed statutory procedue for issuance ofletters testarnentary or letten of administration. The majodty of statesrcquire pdor notice to inleresied panies before the appointment of a per-sonal rcprcsentative or Fobate of a will. Under the Unifom PrcbateCode ("LIPC"), the rcprcsentative also has a duty to publish a newspapernotice for creditoN once each week for thre€ we€ks.

b. Supervising thc representative's actions. The probate cowt supervisesthe representative's actions and approves the inventory and appraisal,payment of debts, family allowance, granting of options on real estate,borowing of funds, personal representative's commissions, attomeys'fees, preliminary and final distributions, and discharye of the personalrepresentatrve.

c. Closing the estat€. The representative is under a fiduciary duty to theestate until the cout grants discharge.

Contest of Wills,

a. Grounds forcont€st. A will contest poses the issue ofwhetherthe docu-ment offered for probate is a valid will. While most will contests involve

3.

4,

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the issues of testamentary capacity or undue influence, a will con-test may also be based on defective execution, revocation of the willby the testator, lack of testamentary intent, ftaud, and mistake.

D, PROFFSSIONAL RFSPONSIBILITY

No lawyer should prepare a will unless he considers himself competent to doso.

1. Will Beneficiaries Owed Duty of Care--Simpson v. Calivas, 139 SimpsonN.H.l, 650 A.2d 318 (1994). v. Calivas

a. Facts. Robert Simpson, Sr, (T), executed a will &afted by Chdsto-pher Calivas @). All real estate was left to Robert Simpson, Jr., (P),except for a life estate in "our homestead located at Piscataqua Road,"which was left to P's stepmother. Upon T's death, P and his step-mother filed a petition to determine whether "homestead" referredto the house and surounding (limited) acreage or if it referred tothe house, over 100 acres, buildings, and the family business onPiscataqua Road. The cout admitted extrinsic evidence showingthe close relationship between T and his wife, but did not admitnotes taken byD during consultation withT, which read, "House towife as a life estate remainder to soll . . . remaining land . . . toson. . . ." The court construed the will to provide the stepmotherwith a life estate in all of the rcal property. Two years later, P boughtout his stepmother's life estate for $400,000. P brought this mal-practice action in contract, based on a third-party beneficiary theoryand negligence. The trial court directed a verdict, granted D sum-mary judgment, and dismissed. P appeals.

b. Issues.

l) Does an attomey who drafts a will owe a duty to the intendedbeneficiary?

2) Did the trial cout elr in ruling that the findings of the probatecout on the testator's intent collaterally estopped P from bring-ing a malpractice action?

c. H€ld. 1) Yes. 2) Yes. Judgment rcvened and remanded.

1) A d$fting attomey owes a duty of care to an intended benefi-ciary, notwithstanding lack of privity, due to the foreseeabilityof injury to the intended beneficiary After the testator's death,the failure of his testamentary scheme works only to deprivehis intended beneficiades of the intended bequests.

2) If a testator contracts with an attomey to draft a will and has

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Hotz v.Minyard

,

identified those to whom he wishes his estate to pass, the identifiedbeneficiaries may enforce the contact as third-party beneficiaries'

3) Where the terms of the will are ambiguous' extrinsic evidence ofthe testator's intent may be admitted to probate proceedings to theextent that it does not contradict th€ express terms of the will Whileboth the probate court and the superior cowt are competent to con-sider the same evidence on the issue of T's intent, that is not dis-positive of an identity of issues. The probate court's role is to;etermine the testator's intent expressed in the language of the will

Direct declarations of the testator's intent are generally inadmis-sible in probate proceedings. A finding of actual intgnt is not neces-sary (or issential) to thatj udgment. Even an explicit finding of actualintent by a probate coufi cannot be the basis of collateral estoppel'Collateral estoppel is only applicable if the finding in the fi$t pro-ceeding was essential to the judgment of that cout. [Restatement(Second) Judgments, $271

Fiduciary Duty-Hotz v. Minyard, 304 S .C. 225 ' 4O3 S.E.2d 634 (1991)

a. Facts. Judy Minyard Hotz (P) and Toomy Minyard (Dl ) are brother andsister. D1 has bee! in charge of theft father's Greenville car dealeNhipsince 197?; P worked at their father's Ande$on dealership since 1983,and was also vice-prcsident and minority shareholder In 1985, their fa-ther signed a contract with General Moto$ designating P successor ofthe Anderson dealership.

In october of 1984, their father had Dobson (D2), a lawyer andnonpracticing CPA, draft a will, which their father executed one mom-ing in the presence of his wife, his secretary, and D1 Dl was left theGreenville dealership; other family members werc left bequests totaling

$250,000 and the remainder of the estate was divided betwe€n Dl and atrust for P after the wife's death. Later the same aftemoon, their fathersigned a second will with all of the same provisions except it gave thereal estate on which the Gretnville dealership was located to Dl out-right. He told D2 not to disclose the existence of the second will andspecifically said P should not be told about it. Thrce months later, Pasked to see the will and with her father's permission, D2 showed her thefirst will and discussed it with her in detail P claims D2 gave her theimpression she would receive the Anderson dealershiP and said she wouldshare equally with D1 in their father's estate. D2 claims he explainedthat their father intended to provide for P as he had for Dl when and ifshe became capable of handling a dealership. D2 noted this on the willand P claimed she thought these notes were part of the will.

About 16 months later, the father had a stroke and he is now mentallyincompetent. P and D1 agreed that while their father was ill, P would

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b.

carc for him and Dl would temporarily run the Ande$on dealership. UnderD 1 's direction, the Anderson deale$hip bought another dealership, which wasoperating at a loss; Dl also formed a holding company, which assumed own-ership of the father's real estate leased to the Anderson dealership and greatlyincrcased the rent. When P tried to retum. Dl refused to relincuish controland eventually fired her

After P consulted another attomey, the father executed a codicil rcmoving Pand her children as beneficiaries under his will and advised P of this by letterLater, at a meeting with their mother, Dl, and D2, P was told she would berestored under the will and could work at the Greenville dealership if shedropped her plans for a lawsuit. P discharged her lawyers and moved toGreenville. Eventually, D I terminat€d her.

P sued Dl, D2, D2's law fi.m, and an accounting firm of which D2 is a share-holder and director but from which he receives no remunemtion as an em-ployee. The causes of action against D I for totious interference with contact,a sharcholder derivative suit for wrongful diversion of corporate profits, andfraud survived summary judgment and are not at issue here. P appeals variouscauses of action that did not survive summary judgment, but the only issueaddressed herc is the fial judge's order granting summary judgment on thecause of action against D2 for breach of fiduciary duty.

Issue. Do material issues of fact, precluding summary judgment, exist as towhether D2 owed a fiduciary duty toward B who consulted him regarding theterms of her father's will?

Held. Yes. Judgment revelsed in part, affirmed in part.

l) D2's law film had prepared P's tax retums for approximately 20 yea$until 1985 andhad prepared a will forherwhich she had signed only oneweek beforc she inquircd about the effect of her father's will. P testifiedshe had consulted D2 in 1984 or 1985 about a suspected misappropda-tion of funds at one of the dealerships and as late as 1986 about herproblems with D 1 . A fiduciary relationship exists when one has a specialconfidence in another so that the latter, in equity and good conscience, isbound to act in good faith.

2) An attomey-client relationship is a fiduciary one. D2 did not owe P aduty to disclose the existence of the second will, but he did owe her aduty to deal with her in good faith and not actively misrepresent the firstwill.

3) SinceD2 was acting as an attomey when he met with B there is evidenceto prcsent ajury issue whether D2's law firm should be held vicariouslyliable for D2's conduct.

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Janus v.Tarasewicz

II. INTESTACY: AN ESTATE PLAN BY DEMULT

A. INTESTATE SUCCESSORS: SPOUSE AND DESCENDANTS

All states have statutes ofdescent anddistribution that govem the distributionof the property of a person who dies intestate, or who does not make a com-plete distribution of the estate.

l. Spous€, Under common la% a spouse was not an heil and the decedent spropefty passed by intestacy to descendants. Today, the surviving spousetakes an intestate share of the decedent's estate in all jurisdictions. If thedecedent is survived by a spouse and by descendants (childrcn, gandchii,dren, etc.), in most states the spouse takes one-third or one-half of thedecedent's estate. If the decedent is survived by a spouse but not by de-scendants or parcnts, in many states the spouse inherits the entire estate.

a. Simultaneous death. A pe6on cannot take as an heir or will benefi-ciary unless he survives the decedent for at least an instant of timeHowevet it is often difficult to determine whether the pe6on sur,vived the decedent (e.g., when the p€rson and the decedent are botnfatally injured in an accident). The Unifom Simultaneous Death Acr(or its Uniform Probate Code equivalent, the 120-hour survival rule)provides for this situation. Under the Act, where the title to propertior the devoluion thereof depends upon priority of death and there isno sufficient evidence that the parties have died otherwise than si_multaneously, the propety of each person shall be disposed of as ifhe had survived. Ifthere is sufficient evidence that one party suffivedthe other, even for a brief period of time, the Act does not apply.

l) Evidence ofsurvival.-Janus v. Tarasewicz, 135 lll. App. 3d936, 482 N.E.2d 418 (1985).

a) Facts. This declaratory judgment action arose out of thedeaths of a husband and wife who died after ingestingTylenol capsules laced with cyanide. Stanley Janus waspronounced dead shortly after he was admitted to the hos_pital. However, TheresaJanus was placed on life supportsystems for almost two days before being pronounceddead. Claiming that there was no sufficient evidence thatTheresa Jalus survived herhusband, Stanley,s mother (p)brought thi s action for the proceeds of Stanley,s $ 100,000life insuance policy, which named Theresa as the pri-mary beneficiary and P as the contingent beneficiary. Mefropolitan Life Insurance Company (D) paid the proceedsto Tarasewicz (D), who is Theresa's father and the ad-ministrator of her estate. The t.ial court found sufficientevidence that Theresa survived Stanley. p and the admin-

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istrator of Stanley's estate appealed, contending that there isnot sufficient evidence to Drove that both Yictims did not sufferbrain death prior to their affival at the hospital.

b) Issue. In a factually disputed case of whether one spouse sur-vived the other, is the appellate court's review limited to whetherthe trial court's finding was against the manifest weight of theevidence?

c) Held. Yes. Judgment affirmed

(l) A civil case is govemed by the law as it exists when ajudgment is rendered, not when the facts underlying thecase occur.

(2) Even though In re lialmer, which set forth standards fordetermining when legal death occurs, was decided afterthe deaths in issue, the trial court properly applied theFialmer standards. Fudhermore, application of those stan-dards was not unfair since the treating physicians had madepertinent diagnoses at the time of the deaths and the par-ties presented evidence relevant under the standards.

(3) Survivorship is a fact that must be proven by a prepon-derance ofthe evidence by the party whose claim dependson survivorshiP.

(4) In cases where survivorship is detemined by the testi-mony of lay witnesses, the burden of sufficient evidencemay be met by evidence of a positive sign of life in onebody and the absence of any such sign in the other.

(5) In cases where the death ptocess is monitored by medicalprofessionals, theirtestimony as to the usual and custom-ary standards of medical practice are highly rclevant whenconsidering what constitutes a positive sign of life andwhat constitutes a criterion for determining death

(6) The appellate court's task on rcview of a factually dis-puted case is to determine whether the trial court's find-ing was against the manifest weight of the evidence. Thefinding here that the wife survived her husband was notagainst the manifest weight ofthe evidence.

Descendants.

a. Taking by rtpresentation: per stirpes distribution' After the spouse'sshare is set aside, the children and the issue of deceased children of the

)

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b.

the decedent will take the remainder of a decedent,s pmperty. If the decedentis survived by children and gmndchildrcn, the grandchildren will take a shareof the estate only if they are children of a deceased child of the decedent.Grandchildren take only by reprcsentation.

l) LIPC rule-per capita at each generation. UpC section 2-106 pro-vides that each descen dant

^t the first generdtianal kvel u which liere

ate living takers takes one share, and the share of each deceased personat thal generattonal level is divided equally among the descendanti at thenext genemtional level.

2) Minority rule---6trict per stirpes. A few states apply a,,strict per stirpes"rule. Under this rule, the stirpital sharcs arc always determined ai thefi$t generational level, even if there are no living takers at that level.

Posthumous children. Today, in many states, a child conceived durins thefaLher's lifetime buL bom afrer hrs death is considered his child for inheriincepu4)oses.

Adopted children. In all states that have enacted statutes goveming in}lerit_ance .ights of adopted children, an adopted child has the same inheritancerights as a natural child.

l) Loss of inheritance rights from or through natural parents_Hall v.Vallandingham, 75 Md. App. 187, 540 A.2d 1162 (1988).

a) Facts. Earl Vallandingham died in 1956, survived bv his widow.Elizaberh. and their four chitdren. Two years Iateq Eiizaberh mar-ried Jim Killgorc, who adopted the childrcn. Earl,s brother, Will_iam, died childless, unmaried, and intestate. His sole heils werehis surviving brothers and sisters and the children of the brothersand sisteN who predeceased him. Earl,s four natuml childrcn (ps)allegedthat they, ereentil led tothedistributive shareof rheirnalu_ral uncle William's estate that thef natural father would have re_ceived had he survived. The circuit cowt found that ps were notentided to inherit from the decedent because of their adoDtion bvtheir stepfather afler the death of lheir natural father and rhe remar_riage of their natuml mother. ps appeal.

b) Issue. Do children adopted after the death of a natural parent loseall righls ofinheritance from or through Lhat natulal parent?

c) Held. Yes. Judgment affirmed.

(l) Every state possesses the power to regulate the manner by whichproperty within its dominion may be transmitted by will or

Hall rVallandingham

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inheritance and to prescdbe who can receive that property. The statemay deny the privilege altogether or may impose whatever restic-tions upon the grant it deems appropriate.

(2) An adopted child is entitled to all the rights and privileges of a bio-logical child insofar as the adoptive parcnts are concemed, but adop-tion does not confer upon the adopted child more rights and privilegesthan those possessed by a natuml child. To allow dual inhedtancewould bestow upon an adopted child a superior status.

(3) Adopted children may not inherit from or through their natural par-ents. Once a child is adopted, the rights of both the natural parentsand their relatives are terminated.

(4) Because an adopted child has no right to inherit from the estate ofa natural parcnt who dies intestate, it follows that the same childmay not inherit through the natural parent by way of representa-tion.

2) Equitable adoption. The doctrine of"equitable adoption," based on estoppelpdnciples, allows a child to inherit ftom a stepparent or foster parentjust asthough the child had been adopted. The basis of the estoppel is the stepparent'sor foster parent's conduct in failing to perfom the agreement to adopt. Thedocrine only works against the stepparent or foster parent. Thus, if there is anunperformed agreement to adopt and the child dies intestate, the stepparent orfoster parcnt does not inherit from the child.

a) No valid adoption-O'Neal v. Wilkes, 263 Ga. 850, 439 S.E.2d 490 O'Neal v,1994't. Wilkes

(1) Facts. O'Neal (P) filed a petition in equity seeking a declaration ofvirtual adoption. P was given to the Cooks by her aunt in 1961- Plived with the Cooks and after they were divorced, continued to livewith Mr. Cook until 1975 when P was married. P was educated byMr. Cookandhe identifiedP's children as his grandchildren. WhenMr. Cook died, his administrator, Wilkes (D), refused to rccognizeP's asserted interest in Mr. Cook's estate. A jury found P had beenvirtually adopted. The coult granted ajudgment n.o.v., finding thatP's aunt was without authority to confact for P's adoption. P ap-peals.

(2) Issue, Does an aunt have authority to contract for her niece's adop-tion if she is not the legal guardian?

(3) Held. No. Judgment affirmed.

(a) Although P's father had never acknowledged P and his con-

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d.

sent to the adoption was not necessary, P's aunt was notP s "legal guatdian."

(b) Even though P's aunt had physical possession of P at thetime of the adoption, P's aunt was not given legal custodyby court order; even if she had been "legal custodian,"under Georgia law, a custodian does not have the right toconsent to a child's adoption.

(4) Dissent. Equity considers that done which ought to have beendone. This court has heldthat an agreement to adopt a child, soas to make the child an heir on the adopting person's death,performed on the part of the child, is enforceable upon thedeath of the adopting person as to propety undisposed of bythe will. P has fully performed the alleged contract over a life-time.

Children born out of wedlock. In all states today, a child bom out of wed-lock (i.e., a nonmarital child) inherits from his natural mother and the mother'skin, and they can inherit from and through the child. While the rules respect-ing inheritance from the father vary, most states have adopted the provisionsin UPC section 2-109, which permit patemity to be established by evidenceof the parents' subsequent marriage, by the father's acknowledgment by anadjudication during the father's lifetime, or by clear and convincing proofafter his death.

Cryogenically.preserved sperm-.Hecht v. Superior Court, l6 Cal. App.4th 836, 20 Cal. Rptr. 2d275 (1993).

1) Facts. Kane left frozen sperm specimens for his girlfriend Hecht (P),with whom Kane had lived for five years before his death. He indicatedin a letter that he hoped P would have his child. He bequeathed only apiece of land to his two adult children, whom he considered financiallysecure. Aftet Kane's suicide, his children filed sepamte will contests al-leging lack of mental capacity and undue influence by P The childrenrcquested Kane's special administrator to file a petition to order Kane'ssperm destroyed. The adminishator also filed petitions to have the spermdistributed and for the court to determine whether any childrcn conceivedfrom Kane's sperm would be entitled to disaibution under instructionsaccompanying Kane'E will. P contended that the spelm was either aninter vivos gift or a gift causa mortis. The coult ordercd the spelm de-stroyed. P petitioned and the trial court's order was stayed p€nding aheanng.

2) Issues.

a) Did Kane have sufficient right of possession or ownership of thesperm so as to bdng it within thejurisdiction of the probate court?

Hecht v.Superior Court

e.

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g.

b) Does the public policy of Califomia prohibit the artificial insemi-nation of P because she is an unmarried woman or because Kane isdeceased?

3) Held. a) Yes. b) No. Judgment rcversed.

a) Other authorities have, in considering the legal status of pre-em-bryos, determined that sperm is "gametic material" that can be usedfor reproduction. At the time of Kane's death, he had an interest inthe nature of ownership to the extent that he had decisionmakingauthority as to the use of his sperm for reproduction. Such interestis sufficient to constitute property within the meaning of the rel-evant probate statute.

b) This court has interprcted state civil law to afford both manied andunmarried women a vehicle for obtaining semen for artificial in-semination without fear that a donor may claim patemity. The do-nor was determined to have a statutory vehicle for donating semenwithout fear of liability for child support. Thus, we are not opemt-ingin a legal vacuum and are free to establish policies relative to anunmaried woman's access to atificial insemination. Therc is nosupport for the argument that Califomia public policy prohibits P'sartificial insemination because of her status.

c) Kane's children do not establish, with their argument that posthu-mous conception would create orphaned child.en with state autho-rization, a state interest sufficient to justify interference with P'sandKane's desire to conceive a child. There is no Califomia statutethat contains a public policy statement that reveals an interest thatcould justify infringing on gamete-providen' decisional authority.

Transfers to minors. Minors do not have the legal capacity to manage prop-erty. Therc are three options available to parents of minom for property man-agement: guardianship, custodianship, and trusteeship. Custodianships andtrusteeships may be created only during the lifetime of the creator orby will.A guardian or conservator will be appointed by the court if Foperty is left toa minor child and the parcnt dies intestate.

Advancements. At common law and in a number of states today, any lifetimegift to a child is Fesumed to be an advancement ofthatchild's intestate shareto be taken into account in distributing the intestate's property at death. Manystates have stafutes goveming advancements. Most of these statutes providethat an advancement can be made to any heir and not just a child or otherdescendant. The most important effect of these statutes is to rcverse the com-mon law presumption: in many states, a lifetime gift to an heir can be treatedas an advancement only if (i) expressly declared as such in a writing signed bythe donor, or (ii) acknowledged as such in a writing signed by the donee.

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B, INTESTATE SUCCESSORS: ANCESTORS AND COLLATERALS

If the intestate is suNived by descendants, parents and collaterals do not takein anyjurisdiction. If there are no descendants, the intestate's propefty is usu-ally distributed to the parents after deducting the spouse's share. In nearly allstates, ifthe intestate is not survived by a spouse, descendants, or parents, theestate passes to the descendants of the intestate's parents, i.e., to the decedent'sbrothers and sisters (and the descendants of deceased brctherc and siste6, persurpes).

1. Half Bloods. In most states, a relative of the half blood (e.8., a half-brother) is treated the same as a relative of the whole blood.

2. Escheat, If there are no heifs, the property of the decedent escheats tothe state in all juri sdictions.

BARS TO SUCCESSION

1. Misconducl

a. Killing decedent--In rc Est^tE ofMahoney,126 Vt.3\,220 A.2d,4',75 (1966\.

1) Facts. The decedent, Howard Mahoney, died intestate afterbeing shot to death by his wife, Charlotte Mahoney (P), whowas convicted of manslaughter and sentenced to prison. Thedecedent was suflived only by P and his parents. The t ial cowtentered ajudgment decreeing the residue ofthe decedent's es-tate to his parents in equal shares. P appeals.

2) Issue. Can a widow convicted of manslaughter for the death ofher husband inherit from his estate?

3) Held. Yes. Judgmentrcvened.

a) There are th.ee separate lines of cases dealing with thisissue: (i) some states hold that legal title passes to theslayer and may be retainedin spite of the cdme; (ii) somestates hold that legal title does not pass to the slayer be-cause of the pdnciple that no one should be permitted toprofit by his own wrong; and (iii) some states hold thatlegal dtle passes to the slayerbutequity holds him to be aconstructive trustee for the heirs or next of kin of the de-cedent.

b) We adopt the third line of cases. However, in this case,the trial court did not decree the estate to the widow andthen make her a constructive trustee of the estate for thebenefit of the parents; rather, the court below decreed the

C.

In re EstateofMahoney

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estate directly to the parents. We reve$e. The trial court wasbound to follow the statutes of descent and distribution anddecree the estate to the widow.

c) Further, juisdiction to impose a constructive tust rests withthe chancery cowt, not the probate court. Accordingly, we re-mand this case so that application may be made to the chancery cowt for purposes of imposing a constructive trust andfor determination of whether the death of the husband wasvoluntary manslaughter or involuntary manslaughter. Ifno suchapplication is made, then the probate cout shall assign to thewidow the interest in the estate of her deceased husband.

b. Adult€ry. In a few states, a spouse is disqualified from dowel inhedtance,or an elective share if the spouse abandoned the decedent and committedadultery

c. Desertion. States may disqualify a parent as an heir if the parent hasfailed or refused to support the child or has abandoned the child duringhis minority.

2. T[ansfer of Interest in Decedent's Estate. A person may be barred fromsucceeding to a decedent's estate b€cause he has released, transferred, or dis-claimed his interest.

b.

Relcas€ ofexpectancy. A child's release to his parcnt dudng the parent'slifetime is binding if given for fair consideration.

Tfansfer of expectancy. An expectancy is merely the possibility of in-heriting prcperty and, as such, it cannot be transferred, though a pur-ported transfer of an expectancy for consideration may be enforceable inequity.

Disclaimer. It has always been held that a beneficiary can disclaim anytestamentary gift. If a beneficiary makes a valid disclaimer, the disclaimedinterest passes as though the disclaimant predeceased the testator. If aperson disclaims, and the disclaimer is not "qualified," ie., the pe$onhas not made an iflevocable and unqualified refusal of an interest in prcp-erty under Intemal Revenue Code section 2518 procedures, gift tax li-ability results. The disclaimer must be made within nine months afterthe interest is created or after the donee reaches ase 21. whichever islater.

l) Disclaimer upheld-Troy v. Hart, 116Md.App.468,697A.zd Troy v.ll3, cert. denied,341 Md.255,700 A.2d 1215 (1997). Hart

a) Facts. Paul Lettich, a resident of Stella Maris Hospice ("StellaMaris"), was receiving Medicare and Medicaid benefits when

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b)

c)

his sister died intestate. One of l_ettich's two surviving sisters, Hart (D), wasappointed penonal representative of her deceased sister's estate. and althoushD was aware Leltich was represenled by Troy (p). D visiled Leuich and helD;dhim e\ecule a disclaimer to his S t 00.000 share of rhe deceased sister.s est;te.D did not advise Lettich of the effect of the disclaimer on his Medicaid statusand she divided the $100,000 with their orher sisrer. p was notified of therenunciation the following month. Counsel for I_ettich filed a Detition to re_scind the disclaimer and remove D as personal representative oi the deceasedsister's estate. One day before the deadline to.espond to the petition, D,sattomey visited Lettich and asked him to execute a motion to strike the Deti_tion. A social worker intervened and suggesred p be consulted. t ertich diedshortly thereafter The court denied p's petition. p appealed. D,s motion forJudgment with rcspect to p,s request to have her tEmoved was glanted: p,spelit ion ro rescind was djsmissed. p appeals.

Issue. May a Medicaid recipient disclaim an inheritance?

Held. Yes. Judgment affirmed.

( 1) Maryland law requires that once an individual is elisible for and receiv_ing Medicaid benefits. he must norify the Departmeit ofSocial Services("DSS") within l0 working days of changes affecting eligibility.

(2) Lettich failed to notify DSS of his inheritance and thereby violated ap_plicable Medicaid law and deprived both the state and federal eovem_menls of an opponunity to ree\ aluale his eligibil i ty.

(3) A New York court has found in similar circumstances that rcnunciationof an intestate share is irreconcilable with the concept that public aid islimited and shoutd be reserved for those who have a legitimate need, thata renunciation is essentially equal to a transfer, and should be penalizedin lhe same manner. We adopt the reasontng of the New york coufl here.

(4) If a rcnunciation would cause a benefits recipient to be disqualified. therenuncjalion should be lreated as a transler and incur the same penaltythat.a ftansfer prior ro eligibility would incur The recipient should beliable for any payments incorrectly paid by the state in consequence ofthe renunciation.

(5) While Lettich's disclaimer is valid, his surviving sisters should rake sub-ject to any claims the state may have against l_ettich,s estate for anvpaymenrs improperly made as a resulr of Lenich s failure ro notify DSSof his acquisition of property.

(6) A consructive rust is applied where circumsrances render rl inequitablefor the party holding rirle to rctain it, as here

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III. CAPACITY AND WILL CONTESTS

A. MENTALCAPACITY

r)

l

',

Why Require Mental Capacity? Mental capacity is required for theprotection of society and for the protection of the decedent's family andthe decedent herself.

Test of Mental Capacity. The decedent must know: (i) the natue andextent of her propedy; (ii) the persons who are the natural objects of herbounty; (iii) the disposition she is making; and (iv) how these elementsrelate in planning for the disposition of her propefiy.

Insane Delusiol. An insane delusion is an exteme misconception ofreality to which the testator adheres against all proof to the contrary.

a. Insane delusions about men-L re Strittmater, 140 N.J. Eq. 94,53 4.2d205 (1947).

1

In reStrittmater

2)

J)

Facts. Strittmater (T) never married. She lived with her par-ents until their death and was devoted to them and they to her.Four years after their death, she wrote that her father was "aconupt, vicious, and unintelligent savage," typical of the ma-jority of his sex, and on a photograph of her mother, she in-scribed, "moronic she-devil." T's dealings with her attomey,over a period of years, were nomal. T became a member ofthe National Women's Party and volunteered one day a weekfor at least two years. In her will, she left her estate to theparty, as had been her expressed intention. T died one monthafter her will was executed. The will was admitted to probate.Two cousins challenged the will, alleging it was a product ofT's insanity.

Issue. May a will that was executed by a person with insanedelusions about men be admitted to prcbate?

Held. No. Decree affirmed.

a)

b)

T's female physician opined T suffered from a split per-sonality.

T had been a member ofthe party for 11 years when shewrcte: "It remains for feminist organizations like [theparty] to make exposure of women's 'protectors' and'lovers' for what their vicious and contemptible selvesarc."

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InrcHonigman

b.

c) I think it was her paranoiac condition, especially her insane delu-sions about the male, that led her to leave her estate to the pady'Probate should be set aside.

Insane delusion resulting from irrational belief in nonexistent facts'-h re Honigman, 8 N.Y2d 244, 168 N E.2d 676, 203 N.YS 2d 859(1e60).

1) Facts. Prior to his death, the decedent, Frank Honigman, told friendsand strangers alike that he believed his wife was unfaithful. This suspi-cion became an obsession, although he was normal and rational in otherrespects. The decedent, a man of 70 who had undergone a number ofoperations, once commented that he was sick in the head and that heknew something was wrong with him The decedent instructed bis attor-ney to prepare a will cutting off his wife from any of his estate, leavingher life use of her minimum statutory share, with dircctions to pay theprincipal upon her death to his surviving brothers or sisters and to thedescendants of any predeceased brother or sister, per stirpes. At the trial,the proponents of the will adducedevidence which, they argued, showeda reasonable basis for the decedent's belief. This includedan annive$arycard sent by a Mr. Krause to the decedent's wife; a letter; evidence thatwhenever the phone rang the decedent's wife would answer it; and evl-dence that Mr. Krause came over to the decedent's house one night whilethe decedent was out. When the will was offered for probate, thedecedenfs widow (P) filed objections. A trial was conducted on the is-sue of whether the deceased was of sound mind and memory at the timehe signedthe will.Thejury answered in thenegative. The appellate courtrevers€d. This appeal followed.

2) Issue. If a p€rson believes facts that arc against all evidence and prob-ability and conducts himself, however logically, upon the assumption oftheirexistence in making his will, does he suffer from an insane delusionso as to defeat testamentary capacity?

3) Held. Yes. Judgment revetsed and a new trial ordered.

a) The general rule is that if a person persistently believes supposedfacts that have no real existenceexcept in his pervefied imaginationand againstall evidence and probabi lity, and conducts himself, how-ever logically, upon the assumption of their existence, he is, so faras they are concemed, under a morbid delusion Such a person isessentially mad or insane on those subjects

b) Here, the issue ofthe decedent's sanity was an issue for the jury toresolve. There was sufficient evidence to justify placing this issuebefore thejury: the decedent's repeated suspicions ofP's unfaith-

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fulness; his belief of P's misbehaving by hiding malecallers under herbed and by hauling men from the streetup to her bedroom by the use of sheets; and so forth.

c) The proponents argue that even ifthe decedent was labor-ing under a delusion, other reasons support the validity ofthe will. We disagree. A will is invalid if its dispositoryprovisions might have been caused or affected by the de-lusion.

d) Finally, we hold that the Dead Man's Statute-whichexcludes the testimony of a witness conceming a per-sonal communication between the witness and the de-ceased-was misconstrued to permit the testimony ofPwhen an objection to her testimony had been properlyraised.

4) Dissent. The evidence adduced utterly failed to prcve that thetestator was suffering from an insane delusion or lacked testa-mentary capacity. Much of the evidence was improperly ad-mitted, as the coufi itself notes, by reason of the Dead Man'sStatute.

B. LNDUE INFLUENCE

A will or a gift in a will may be set aside if it was the result of undue influ-ence-mental coercion that destroyed the testator's free will and forced himto embody someone else's intention in his will in place of his own

l . Subjective Test. The test of whether a testator has been subjected toundue influence is a subjective one, measurcd at the time ofexecution ofthe will. The evidence must establish: (i) that undue influence was ex-erted on the testator; (ii) that the effect of the influence must have been tooverpower the mind and will of the testator; and (iii) that the influencemust have produced a wili or a gift in the will that expresses the intentnot of the testator but of the one exerting the influence, and that wouldnot have been made bul for the influence

Requir€ment of Proof Showing Substitution of a Plan of T€stamen- Lipper vtary Disposition-Lipper v. Weslow, 369 S.W.2d 698 (Tex. 1963). weslow

a. Facts. M.s. Sophie Block (T) executed a will written by her son,Frank Lipper, a lawyer, 22 days before she died. Lipper bore maliceagainst his deceased half-brother, who was excluded from the will.This resulted in Lipper receiving a larger share under the will thanhe otherwise would have received. LiDper lived next door to T and

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h rc Willof Moses

had akey to herhome. After signing the will, T toldone witness that shewas leaving her estate to her son and daughter and that her other son,JulianA. Weslow, and his children would be excluded because they nevershowed any attention to her. The will provided a lengthy explanation asto why Julian was excluded from the will largely due to the "unfriendlyand distant attitude" T felt had been accorded to her. The children ofJulian Weslow (Ps) contest the will, charging Frank Lipper and IreneLipper Dover (Ds) with undue influence. At tial, ajury found that T'swill was procured by undue influence. Ds appeal, contending that thereis no evidence to suppofi this finding.

b. Issue. Must a person contesting a will on the basis of undue influencesupply proof of the substitution of the plan of testamentary dispositionby another as the will of the testaaix?

c. Held. Yes. Judgment reverced and rendered for Ds.

l) The contestants have established a confidential relationship, the op-portunity, and perhaps a motive for undue influence. However, theymust go forward and prove in some fashion that the will as wdttenresulted from D's substituting his mind and will for that of T. Prcofof vital facts of undue influence must be provided: the substitutionof a plan of testamentary disposition by another as the will ofT.

2) Here, the evidence shows thatT was of sound mind, of strong will,and in excellent physical condition. Aperson of sound mindhas thelegal dght to dispose of her property as she wishes, with the burdenon those attacking the disposition to prove that it was the prcduct ofundue influence. T had a legal right to do what she did whether wethink she was justified or not. We conclude that therc was no evidence of probative force to support the verdict of the jury.

Undue Influence Arising out ofAttorney.Client Relationship. -In rc Willof Moses, 227 So. 2d 829 (Miss. 1969).

a. Facts. Fannie Taylor Moses (T), during her second marriage, becamefriends with Clarence Holland, an attomey. Prior to her death, she suf-fered from heart trouble, had a breast removed because of cancet andbecame an alcoholic. Three yeals pdor to her death, she made a willdevising virtually all of her property to Holland. This will was drafted bya lawyer who had noconnection with Clarence Holland, nor did Hollandknow about the will. T's eldest sister (P) attacked the will on the groundof undue influence. The trial court found for P Holland appeals.

b. Issue. Does a presumption of undue influence exist wherc a sexualrcla-tionship between attomey and clientcoexists with the attomey-client re-lationship?

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4.

c. Held, Yes. Judgment affirmed.

1) It is argued that even ifHolland, T's attomey, occupied a fiduciaryrelationship on the date ofexecution of the will, the presumption ofundue influence is overcome since T had the independent adviceand counsel of an attomey. We disagee. The evidence herc showsthat the attomey who drafted the will was little more than a scriv-ener, and that there was no meaningful independent advice or coun-sel touching upon the area in question.

2) Herc, the intimate nature of this relationship is relevant to the ques-tion of undue influence to the extent that its existence waranted aninference of undue influence, extending and augmenting that whichflowed from the attomey-client relationship. This is particularly tuewhen it is considered that Holland will Dersonallv benefit from thewill as drafted.

d. Dissent. Therc is not one iota of evidence in the record that Hollandeven knew of the will, much less that he padicipated in the preparationor execution of it. The evidence is to the contary T prepared her will onthe advice of independent counsel whose sole purpose was to advise herand prepare the will exactly as she wanted it.

Undue Inlluence a Question of Fact Where Testator Is Easily Swayed.Under the facts in 1n re Kaufrnann's Will,20 A.D.2d 464, U7 N.YS.2d 664(1964), aff'd, l5 N.Y2d 825, 257 N.YS.2d 941, 205 N.E.2d 864 (1965), thedecedent, Robert Kaufmann, a millionaire by inheritance, lived with WalterWeiss for some eight years, during which time Robeft, in successive wills,increased Walter's share of his estate. Upon Robert's death, his brother Joelsued to have the final will, drafted in 1958, set aside on the ground of undueinfluence. In his deposition, Walter denied that a homosexual relationshipexisted betwe€n the two men. After two jury tdals, both finding undue influ-ence, the court of appeals affirmed, stating that "where, as here, the recordindicates that testator was pliable and easily taken advantage of, that therewas a long and detailed history of dominance and subservience between them,that testator relied exclusively upon proponent's knowledge . . . and propo-nent is willed virtually the entire estate, we consider that a question of factwas presented conceming whether [there had been undue influence]."

No-Contest Clauses. A no-contest clause in a will provides that any pe$onwho contests the will shall forfeit all interests he otherwise would have re-ceived under that will. If a beneficiary contesting the will is successful, theno-contest clause fails with the will. In most states and under the UPC, abeneficiary who unsuccessfully contests the will does not forfeit the legacy ifthe court finds that the beneficiary challenged the will tn goo.l faith alld onthe basrs of prcbable caase. A minority view gives full effect to no-contestclauses even if the losing contestant had probable cause for challenging the

5.

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c.

will. A challenge based on an action brought to construe the will, onjurisdictional gounds, or on the appointment of an executor, or to theaccounting made by that person, is not considercd a contest to the willthat would result in a forfeifure under a no-contest clause.

FRATJD

1. Definition. Fraud consists of (i) false statements of material facts, (ii)known to be false by the party making the statements, (iii) made withthe intention of deceiving the testator (iv) which actually de€eive the tes-tator, and (v) which cause the testator to act in reliance on the false state-ments.

a. Fraud in the ex€cution. This tlpe of fraud (also known as fraud inthe factum) includes cases where the testator was tricked into sign-ing a document not knowing it to be a will, and cases where onewill is substituted for another.

b. Fraud in the irducement. This type of fraud includes those caseswhere the testator is fraudulently induced into making the will (e.8.,in rctum for a false promise of care).

2. Constructive Tfust Imposed Wherc Testator Prevent€d From Ete-cuting Will..Latham v. Father Divine,299 N.Y 22, 85 N.E.2d 168, llA.L.R. 2d 802 (l949).

a. Facts. The complaint brought by Ps (first cousins of the decedent)alleged the following facts: The will of Mary Sheldon Lyon (T)gave almost her whole estate to Father Divine, leader of a religiouscult (D), two corporate defendants (Ds), and to Patience Budd @),one of Father Divine's active followers. After making the will, Texpressed a desire to revoke the will and to execut€ a new will bywhich Ps would receive a substantial portion of the estate, T, shortlybefore her death, had attomeys dmft a new will for her with Ps re-ceiving a substantial sum, but beforc she couldexecute this will, Dsby undue influence and physical force, prevented T ftom executingthe will. The complaint brought by Ps alleged that Ds conspired tokill, and did kill, T by means of a surgical operation perfomed by adoctor engaged by Ds without the consent or knowledge of anyrelatives ofT. The will that T did sign was prcbated under a com-promise agreement in a proceeding in which Ps were not parties.The tdal cowt upheld the complaint but the appellate court dis-missed it on grounds of insufficiency. Ps appeal.

b. Issue. When an heir or devisee in a will prevents the testator fromproviding for one for whom she would have provided but for theinterference of the heir or devisee. will that heir or devisee be deemeda trustee ofthe property received by him to the extent that the de-

Latharn v.FatherDivine

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d.

frauded party would have received had not the deceased been interferedwith?

Held. Yes. Judgnent of the appellate cowt reversed

l) The general rule is that wherc an heir or devisee in a will prevents the

testator from providing for one for whom she would have provided butfor the interference of the heir or devisee, that heir or devisee will be

deemed a trustee, by operation of law, of the property, real or personal,

received by him from the lestator's estate. to lhe amount or extent thatthe defrauded party would have received had not the intention of thedeceased been interfered with.

2) This is not a prcceeding to probate the will nor is it an attempt to accom-Dlish a revocation of the earlier will. The complaint alleges that by forceind fraud Ds kept T from making a will in favor of Ps. We cannot say asa matter of law that no constuctive trust can arise therefrom

3) A constructive trust will be erected whenever necessary to satisfy theends ofjustice. Here, the probated will has full effect but equity, in oderto defeat the fraud, raises a trust in favor of those intended to be benefit-ted by the testator and compels the legatee to tum over the gift to them'

Comment. Tortious interference with an expectancy is another theory thatcan be used to rectify fraud or undue influence. (Restatement (Second) ofTorts $?74B (1979)) The plaintiff must prcve the interfercnce involved con-

duct tortious in and ofitself, e.g., fraud, duress, undue influence.

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In reGroffman

IV. EXECUTION: FORMS AND FORMALITIF^S

A. EXECUTION

1. Attested Wills. The standard form of a will is one that is signed by thetestator and wimessed by two witnesses pursuant to a formal attestationDrcCedure.

a. R€quirements ofdue execution. For a will to be valid and admis-sible to probate, the testator must meet the formal requircments ofdue execution imposed by statutes of the appropdate state. Theserequircments vary from state to state, and generally include requir-ing the testator to sign at the end of the will and in the presence ofall attesting witnesses. The testator might also be required to pub-lish the will, ie., declare to the witnesses that the instument is herwil l.

b. Requirement that botb witnesses be present-I2 re Groffman, Iw.L.R. 733 (l969).

1) Facts. Charles Groffman (T), one evening while sitting in hislounge, askedDavidBlock, the solicitor who prcparcd his will,and Julius L€igh, a friend, to witness his will. Block ledT outof the lounge into the dining room wherc T took out his will,which had already been signed by him. T asked Block to signthe will andBlockdid so. Mr.Irigh, however, was left behindand was not prcsent when Block signed. Block retumed to thelounge, leaving T in the dining room. Mr. IJigh went to thedining room and signed his name beneath Block's. In the mean-time, Block had remained in the lounge. T's son @) andBlock(P), both executors under the will, propound the will to be pro-bated. T's widow contests the will, contending that it was notvalidly acknowledged in the presence of two or morc witnessespresent at the same time.

2) Issue. Fora willtobe valid, must itbe signed by the testator inthe prcsence of two or moae witnesses present at the same timewith the witnesses signing the will in the presence of the testa-tor?

3) Held. Yes. Probate denied.

a) The Wlls Act states that no will shall be valid unless ir isin writing and executed in the manner hercafter mentioned:It must be signed at the end by the testator or some otherperson in his presence and by his direction; and the sig-naturc must be made or acknowledged by the testatorin

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7

the prcsence of two or more wimesses prcsent at the same tim€,

and those witnesses must attest and subscribe the will in thepresence of the testator, but no form of attestation is necessary

b) Here, there was no acknowledgment or signature by T in thepresence of two or more witnesses at the same time The argu_

ments put forth-that there was suflicient acknowledgmentsince the attesting witnesses had an oppofiunity to see the will

if they had wished to and that there was no break in the conti-

nuity of the ftansaction-are without merit l am bound to prc-

nounce against this will.

Competency of Witnesses. Witnesses must be competent This genenlly

means that at the time the will is executed the witness must be mature enough

and of sufficient mental capacity to understand and appreciate the nature of

the act he is witnessing and to be able to testify in coud should this be neces-

sary.

a. Interested witness€s. At common law. if an altesting witness was also a

beneficiary of a will, the witness-beneficiary was not a competent wlt-

ness aldthe will was deniedprobate Today' however, mostjurisdictionshave interested witness statutes, which provide that if an attesting wit-

ness is also a beneficiary, the gift to the witness is void but the witness is

a competent witness and the will may be probated

b, Requirement of disinter€stedness-Estrte ofParsons, 103 Cal App Estate of

3d:84, 163 cal. Rptr. ?0 (1980). Parsons

1) Facts. Three persons signed the will of the decedent' Geneve Par-

sons (T):Evelyn Nielson, Marie Gower @), andBob warda, a no-

tary public. Two of them, Nielson and Gower, werc named in the

wiil as beneficiaries. After T's death, her will was admitted to pro-

bate. Nielson then filed a disclaimer of her bequest in the will There-

after, the assignees of T's first cousin once rcmoved and other first

cousins once rcmoved (Ps) claimed an interest in the estate on theground that the devise to Gower was invalid. The rial court rejected

that argument. Ps appeal.

2) Issues.

a) Is a subscdbing witness to a will who is named in the will as abeneficiary a disinterested subscribing witness as required bystatute?

b) Is a subsequent disclaimer effective to tansfolm an interestedwitness into a "disinterested" one?

3) Held. a) No. b) No. Judgment reversed

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a) Probate Code section 5l provides that a gift to a subscribingwitness is void unless there are two other disinterested wit-nesses to the will. Ps contend that a subsequent disclaimer isineffective to transform an intercsted witness into a disinter-ested one. They assert that because there was only one disin-te.ested witness at the time of attestation, the devise to D isvoid by operatior of law. D, however, points to language inPrcbate Code section 190.6 that states "in every case, the dis-claimer shall relate back for all purposes to the date ofcreationofthe intercst."

At common law a party to an action, or one who had a dircctinterest in its outcome, was not competent to testify in courtbecause it was thought that an interested witness would betempted to perjure himself in favor ofhis interest. If any one ofthe requisite number of attesting witnesses was also a benefi-ciary then the entirc will would fail. Parliament, in 1752, en-acted a statute that saved the will by providing that the interestof an attesting witness was void; under such legislation, thecompetence of a witness to testify is restored by invalidatinghis gift. The majority ofjurisdictions have similar statutes; sec-tion 51 falls into this category.

The essential function of a subscribing witness is performedwhen the will is executed. We believe section 5l looks in itsoperation solely to that time. It opemtes to insue that at leasttwo ofthe subscribing witnesses are disinterested.

Because we hold that section 5l looks solely to the time ofexecution and attestation of the will, it follows that a subse-quent disclaimer will be ineffective to transform an intercstedwitness into a disinterested one within the meaning of that sec-tion. D's rcliance on section 190.6 is misplaced-that sectionserves to equalize the tax consequences of disclaimers as be-tween heirs at law and testamentary beneficiaries.

o)

Recommended Method of Executing a Will. A decedenr might not die inthe j uri sdiction where the will was executed, thus giving rise to potential con-flict of laws issues. The validity of rhe will in disposing pe$onal propefiy isdetemined according to the laws of the decedent's domicile at death. Thevalidity of the will in disposing real property is determined according to thelaws of the state where that property is located. Hence, the will should beexecuted so that it will be admitted to probate in all j urisdictions involved.

Self-Proving Affidavit. The great majority of states have adopted a self-p.ov-ing alfidavit procedure in which the reslaror and rhe q irnesses, after e^ecuring

c)

d)

1

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6.

the will, execute in ftont of a notary public an affidavit reciting that all of therequisites for due executron have been complied with. This allows the willtobe probated if the witnesses are dead, cannot be located, or have moved fa!away.

Safeguarding a Will. An attomey's retention of a client's will may have

the appearance ofsoliciting business, which is an ulethical practice. Manystates have statutes permitting deposit of wills with the clerk of the pro-

bate court.

Mistake in Execution of a Will--h re Pavlinko's Estate' 394 Pa 564' 148A,.2d 528(1959\.

a. Facts. The decedent, Vasil Pavlinko (T), by mistake sigfled the will ofhis wife, Hellen, andHellenby mistake signed the will ofher husband'T. The &afting attomey and his secretary signed as witnesses. A brotherofHellen, who was the residuary legatee of both wills, offered for pro-

bate as T's will the will that purported to be the will of Hellen Pavlinko'but which was signed by her husband. The trial court refused to pro-

bate the wil l. This appeal followec.

b. Issue. Will a court refom a will to allow prcbate when there is a mistakein execution of the will in that one pafy mistakenly signs the will ofanother?

Held. No. Judgment affirme d.

1) The wills Act provides in clear language that every will shall be inwriting and shall be signed by the testator at the end thereof. Thecourt below correctly held that the paper that rccited that it was thewill of Hellen Pavlinko could not b€ Fobated as the will of T andwas a nullity.

2) To decide in favor of the residuary legatee, almost the entire willwould have to be rewritten. Here, the paper signed was not T's willHe had executed no will and there was nothing to be reformed. Hetherefore died intestate and his property descends as at law. Werewe to rewrite wills or make exceptions to the clear provisions of theWills Act, the Act would become meaningless and would encour-age fraudulent claims.

Dissent. The majority does not make a serious effort to effectuate theintent of the testator. The fact that some of the prcvisions in the willcannot be executed does not strike down the residuary clause' which ismeaningful and stands independently. Some of the provisions are noteffective, but their ineffectuality in no way baIs the legality and validityof the residuary clause, which is complete in itsell

In rePavlinko'sEstate

d.

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7. Conditional Wills. A conditional will is one that becomes oDerative if a statedevent occuls.

Statutory Wills. Several states have authorized "statutory wills," which areshort wills, with the terminology provided by statute. Spaces are provided forthe names of beneficiaries. Formalities for execution, such as signing andattestation, must be followed.

Holographic Wills. A holographic will is handwritten and signed by the tes-tator; attesting witnesses are not required. About half of the states p€rmit ho-lographic wills. Under the UPC, a holographic will is valid if the signatueand the material provisions arc in the handwriting of the testator even if notwitnessed.

a. Self-proved wills--fr, re Will of Ranney, 124 N.J. 1,589 A2d1339(l991).

Facts, Russell Ranney (T) executed a four-page will before a no-tary and two witnesses. T acknowledged that the instument was hiswill and he wanted the witnesses to act as witnesses. T sicned thewill on the unnumbered fourth page, and rhe witnesses i imulra-neously signed a self-proving affidavit on the fifth page. All partiesbelieved they were complying with statutory attestation rcquirc-ments. All signatures were notadzed and the fifth page was stapledto the foudh. The attestation clause rcferc to the execution of thewill in the past tense and states that each witness "signed the Will aswitnesses." Upon T's death, the will was admitted to prcbate; T'swife contested, claiming that the will failed to comply litelally withthe statutory formalities. The supedor court ruled that the will didnot contain the signatures of two witnesses. The appellate divisionreversed and found the affidavit to be a part of the will, and, there-fore, the witnesses had signed. The supreme court gmnted T's wife'spetition for certifi cation.

Issue, Should an insffument purporting to be a last will and testa-ment that includes the signature of two witnesses on an attachedself-proving affidavit, but not on the will itself, be admitted to pro-bate?

Held, Yes. Judgment affirmed.

a) We do not agree with the appellate division that a will contain-ing witnesses' signatures only on a self-proving affidavit liter-ally complies with attestation requirements. The court,srationale was that an affidavit and an attestation clause arc suf-ficiently similar to justify the conclusion that signatrres on anaffidavit, like signatures on the attestation clause, satisfy the

8.

9.

In rcWlllofRanney

r)

2)

3)

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o)

o)

e)

f)

n,

1)

requircment that the signatures be on the will. This conclusion fails to con-sider the basic differences between a subsequently-executed, self-proving af-fidavit and an attestation clause.

Attestation clauses (i) provide "prima facie evidence" that the will was signedby the testator in the presence of witnesses; (ii) pemit probate when a witnessforgets the circumstances of execution or dies before the testator; and (iii)express the present intent of the attestant to act as witness.

Self-proving affidavits arc swom statements that the will has been executedand has alrcady been wimessed. The affidavit performs all the functions of theattestation clause and permits probate without requiring either witness to ap-pear.

Here, affiants, intending to act as witnesses, signed the affidavit immediatelyafler witnessing T s e\eculion of the wil,.

Nothing in statutory language or history suggests that the legislaturc contem-plated a subsequently-executed affidavit as a substitute for the attestation clauseThe legislature did indicate its intention that subsequently-executed, self-prov-ing affidavits be used solely in conjunction with duly executed wills. In theinstant case, the affidavit does not comply with statutory requirements.

In limited circumstances, however, a will that "substantially complies" withstatutory requirements may be admitted to probate. Other states, scholars, andteatises have determined that "substantial compliance better serves the goalsof statutory formalities by permitting probate of formally-defective wills thatnevertheless represent the intent of the testator"

Formalities in execution of wills (i) arc meant to insure that the instumentrcflects the testator's uncoerced intent; (ii) p€rform the function of providinguniformity in the organization, language, and content of a will; and (iii) pro-vide a ritual that undeNcores the sedousness ofthe occasion. These puposesare often ftustrated when rigid insistence on literal compliance invalidates awill that is the deliberate and voluntary act of the testator.

The variation of the UPC adopted by the state legislatwe in 1977 minimizesthe formalities ofexecution: (i) witnesses are not required to sign in the pres-ence of the testator and each other; (ii) a beneficiary who acts as a witness isno longer prevented from taking: and (iii) unwitnessed holographic wills maybe admitted to probate. Thus, we believe the legislature did not intend that awill should be denied probate because the witnesses signed in the wrong place.

Because an affidavit serves a unique function, we are reluctant to permit thesignatures on an affidavit to both validate the signatures on the will and torender the will self-proving. However, if the witnesses, with the intent to at-test, sign a self-prcving affidavit, but do not sign the will or an attestation

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14 /e Estateof Johnson

b.

clause, clear and convincing evidence of thef intent should be ad-duced to establish substantial compliance with the statute.

Testamentary provisions not in handwriting of testator-h /€ Estate ofJohnson, 129 Ariz. 307, 630 P2d 1039 (1981).

1) Facts. The will ofthe decedent, Amold H. Johnson (T), was on a printedwill form available in various office supply stores. It contained certainprinted provisions followed by blanks where T could insefi any provi-sions he might desire. Barton I-ee Mcl-ain and Marie Ganssle (Ps), twobeneficiaries under the will, petitioned for fo.mal probate of the instu-ment. The personal rcpresentative of the estate objected to the petitionand filed a motion for summary judgment on the grounds that the instru-ment was invalid as a will, in that it was not attested by any witnesses,and that it did not qualify as a hologaphic will since the marerial prcvi-sions thereof were not in T's handwriting. Ps filed a cross-motion forsummary judgment, urging that the document constituted a holographicwill. The trial cowt granted the motion of the perconal representative. psappeal.

2) Issue. May an insh]lment be probated as a holographic will ifit containswords not in the handwdting of the testator if such words arc essential tothe testamentary disposition?

3) Held. No. Judgment affirmed.

a) A will that does not comply with the statutory requirements for awill may still be valid as a hologaphic will, whether or not wir-nessed, if the signature and the material provisions are in the hand-writing of the testator An instrument may not be probated as aholographic will if it contains words not in the handwriting of thetestator if such words are essential to the testamentarv disDosition.However. lhe mere facl lhat a teslator used a blank tlrm does noLinvalidate what would otherwise be a valid will ifthe printed wordsmay be entirely rejected as surplusage.

b) Herc, the only words that establish T's requisite testanentary intentare found in the printed portion of the form. Though T used theword "estate," this word alone is insufficient to indlcate an animustestandi.

Informaf will..Kimmel,s Estate, 278 Pa. 435 , 123 A.4OS 0924).

1) Facts. A letter mailed by the decedent, Kimmel (T), to two of his chil-dren, who were narned as beneficiaries thercin. was admitted to Drobate.T djed the altemoon of the day he wrote the letter. One of T s heirs ob-Jected to the admission and now appeals.

Kir[nel'sEstate

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2) Issues.

a) May an informal letter be testamentary in character?

b) Is the signature "Father" sufficient to comply with theWills Act?

3) Held. a) Yes. b) Yes. Decree affirmed and appeal dismissed.

a) Where a testator's purpose was to make a posthumousgift, we have held deeds, letters, powe$ of attomey, andan informal letter of requests as wills.

b) T's contingency here, "if enny thing hapens," was stillexisting when he died suddenly, and the question of tes-tamentary intent is one of law for the cowts.

c) T's words make it difficult to determine that he meantan)4hing other than a testamentary gift, and his act of send-ing the letter to the persons for whom the gift was in-tended gives fwther support to that determination.

d) The signatue "Father" was intended as a complete signa-tule.It was the method employed byTin signing all suchletters and was mailed by T as a finished document.

B. REVOCATION OF WILLS

1. Methods of Revocation. A will may be revoked by one of three metl-ods:

By operation of law If a t€stator gets married or divorced after ex-ecuting a will, this change in status may revoke, by operation oflaw, all or part of the will.

By a later will or codicil. In these instances, language that exprcsslyrevokes the prior will should be included. Altematively, a later willmay revoke a prior will if there are inconsistent provisions in thelater will that impliedly revoke the earlier will.

By a physical act of destruction. Generally, buming, tearing, or oblit-erating a mat€rial part of the will revokes it. Another person can dothe teadng or buming if in the testator's presence and at his direc-tion.

c.

2. Probate of Irst or Destmyed Wills. In the absence of a statute, the fact

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Harrisonv. Bird

that a will is lost, or is destroyed without the consent of the testator, does notprevent its prcbate, provided its contents are proved. Most states require proofof contents by testimony of persons who had knowledge of the contents of thewill, as by having read the will or having heard it read. States that have stat-utes restricting the probate of lost or destoyed wills have narrowly construedthem in order to permit probate.

3, Revocation by Writing or Physical Act. Under the UPC, a will or any partthereofis revoked (i) by a subsequent will that revokes the prior will or part ofit expressly orby inconsistency; or (ii) by being bumed, tom, canceled, obli!-erated, or destroyed, with the intent and for the purpose of revoking it by thetestator or by anotherpenon in his presence and by hjs direction.

a. Presumption will destroyed-Harrison v. Bird, 621 So. 2d,972 (Ala.19931.

Facts. The decedent, Daisy Speer (T), executed a will namingHarison (P) as the main beneficiary T later called her attomey,who had the original will, to rcvoke the will. The attomey and hissecretary tore up the will and wrote a letter toT confirming this andenclosing the tom pieces. He informed T she was without a will.UponT's death, the letterwas found, but not the tom pieces. I-ettersof administration were granted to Bird (D). P filed the copy of thercvoked will for probate. The circuit court ruled (i) the will was notrevoked; (ii) there could be no ratification of the desaucdon of thewill as ithadnot been done puNuant to saict statutory requirements;and (iii) based on the lact that the pieces werc not found, there wasa presumption that T revoked the will herself. The court found thispresumption had not been rebutted by P and the duplicate was notT's will. The court held thatT's estate should be administered as anintestate estate. P appeals.

Issue. Was the evidence presented sufficient to rebut the presump-tion that T destroyed her will with the intent to revoke it?

Held. No, Judgment affirmed.

a) Even though a duplicate exists that was not in T's possession,if T had possession ofher will before her death, and the will isnot found after her death, a presumption arises that T revokedher will and all duplicates.

b) P argued that the facts that T's attomey destroyed the will out-side of T's presence, T had possession ofthe pieces, and suchpieces were not found, are not sufficient to invoke the pre-sumption of revocation. This argument is without merit.

r)

J'

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b, Attempted revocation by writing on paper upon which will is written" ThompsonThompson v. Royall

' 163 V^. 492,175 S.E. 748 (1934). { Royall

1) Facts. On September 4, 1932, the decedent, Mrs. Knoll (T), sigfled awill consisting of five sheets of legal paper On September 19, 1932, atT's request, her attomey and her executor took the will and codicil to herhome, where she told the attomey, in the presence of her executor andanother, to deshoy both. But instead of destroying them' she decided toretatn them as memoranda. On the back of the manuscript cover, in thehandwriting of her attomey, signed by T, there was wdtten: "This willnull and void and to be held only by (the executor) instead ofbeing de-stroyed as a memorandum for another will if I desire to make same. " Thesame notation was made on the back of the codicil, except that the nameof the attomey was substituted for that of the executor. The jury foundthat the instruments were the last will and testament of T. From an ordersustaining this verdict and prcbating the will, this appeal was taken.

2) Issue. Must wdtten words used for revocation by cancellation of a willbe so placed asto physically affect the written portion ofthe will and notmerely the blank parts of the paPer on which the will is written?

3) Held. Yes. Judgment affirmed.

a) A will must be revoked as prcscribed by statute, either by (i) somewriting declaring an intention to rcvoke and executed in the samemanner as a will or by (ii) cutting, teadng, buming, obliterating,canceling, or destroying the will with the intent to revoke.

b) Here, the notations made on the back of the will are not wholly inT's handwriting, nor are her signatues attested by subscdbing wit-nesses. Hence, under the statute they are ineffectual as "some writ_ing declaring an intention to rcvoke."

c) Nor are the words sufficient to revoke the will by cancellation byphysical act. The statute contemplates marks or lines across thewritten parts of the inshument or a physical defacement or somemutilation of the writing itself with the intent to rcvoke. If writtenwords are used for the purpose, they must be placed as to physicallyaffect the written pofion of the will, not merely the blank parts ofthe will on which the will is written. The attempted revocation istherefore ineffectual.

Partial rtvocation by physical act. Most statutes authorize partial as well astotal revocation of a will by physical act. Extrinsic evidence is generally ad-missible to show whether the testator intended only a partial rcvocation. Inthe absence of a statute expressly allowing partial revocation, several stateslefuse to recognize partial revocation by a physical act. In thesejurisdictions,

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Carter v.First UnitedMethodistChurchofAlbany

where the testator attempts to revoke a portion of the will, the act is givenno effect. Thus, if the testator crosses out a bequest to Tom, Tom takesthe bequest despite the attempted cancellation. If the destroyed podoncannot be recreated by extinsic evidence, only the destroyed portionfails; the remainder of the will is given effect.

4. Dependent Relative Revocation and Revival. The doctdne of dependenrrclative Gvocation is an equitable doctrine under which a court may disrcgarda rcvocation if the coufi finds that the act of rcvocation was premised on amistake of law or fact and would not have occured but for the testator's mis-taken belief that another disposition of property was valid. The requirementsof this doctrine are as follows:

(i) It must be shown that the testator at the time of revocation intended tomake a new testamentary disposition that for some reason was ineffec-tive.

(ii) It must be shown that there was an otherwise valid rcvocation.

(iii) It must be shown that the testator's intent was premised on a mistakenbelief as to the validity of the new disposition.

(iv) It must be shown that invalidation of the rcvocation would be consistentwith the testator's probable intent.

a. Presumption against intestacy-Carter v. First United MethodistChurch of Albany, 246 Ga.352,27 | S.E.2d 493 (1980).

1) Facts. The decedent's, Mldred Tipton's (T's), 1963 will was foundat T's death among her personal pape$ together with a handwritteninstrument dated May 22, 1978, captioned as a will but unsignedand unwitnessed. Pencil marks had b€€n made through the Fopertydispositions of the 1963 will. The supedor cout found T had indi-cated to her attomey that she wished to change her will but that shedid not intend to rcvoke the 1963 will by scratchings. The 1963 willwas admitted to probate. The caveator, Carter, appeals.

2) Issue. Was sufficient evidence prcsented to rebut the statutory pre-sumption of revocation and to give dse to a presumption in favor ofthe prcpounder under the doctrine of dependent relative rcvocation?

3) Held. Yes. Judgment affirmed.

a) We agree with First Methodist's contention that the Ceolgiastatute providing that intention to rcvoke will be presumed fromthe obliteration or canceling of a material portion of the will isinappropdately applied in this case.

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b) The doctrine of dependent relative revocation, one of presumed in-tention, has as its purpose to effect the testator's intent. The merefact that a testator intended to make a new will, or made one thatfailed, will not alone, in every case, prevent a cancellation or oblit-eration of a will from operating as a revocation. If it is clear that thecancellation and the making of the new will were parts of onescheme, and the revocation of the old will was so related to themaking of the new will as to be dependent on it, then if the new willis not made, or is invalid, the old will, though canceled, should besiven effect.

c) The stipulation that the 1963willandthe 1978 document were foundtogether shifted the burden to Carter to prove that T would haveprefered intestacy. The presumptiol against intestacy standsunrebutted.

b. Doctrine applicable wherc later will revoked und€r mistaken belief that Estate ofdoing so reinstates prior will.-Estate ofAlburn, 18 Wis. 2d 340, ll8 N.W. Album2d919 .L963)'.

1) Facts. The decedent, Ottilie L. Album (T), executed a will in Milwau-kee, Wisconsin, in 1955 and left it with her attomey, ceorge R. Affeldt.Thereaftet Tmovedto Kankakee, Illinois, andin 1959 executedanotherwill while rcsiding therc. She then moved to Fort Atkinson, Wisconsin,where she instucted her brother, Edwin Lehmann, to dispose of theKankakee will, which she had tom up. He did so. Olga I-ehmann, thewife of Edwin, testified that T told her that she wanted the Milwaukeewill to stand. T's sister, Adele Ruedisili, brought a petition for appoint-ment of a special administrator, alleging that the deceased died intestate.Thereafter, T's grandniece, Viola Henkey, filed a petition for the prcbateof the Milwaukee will, and Lulu Album and Doris Album filed a petitionfor probate of the Kankakee will. The county court heard all three peti-tions and held that T destroyed the Kankakee will under the mistakenbelief that by so doing she would revive the Milwaukee will. The coultapplied the doctrine of dependent relative rcvocation and held that theKankakee will was admitted to probate. Ruedisili appeals.

Issue. When a testator revokes a later will under the mistaken belief thatby doing so she is reinstating a prior will, may the doctrine of dependentrelative rcvocationbe invoked to render the rcvocation ineffective?

3) Held. Yes. Judgment affirmed.

a) We arc committed to the doctrine of dependent rclative rcvocation.The usual situation for application of this doctrine arises when atestator executes one will and thereafter attemDts to revoke it bv

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c.

making a later testamentary disposition that for some reason ptoves

ineffective.

b) However, the doctrine has been applied to the unusual situation in

which a testator rcvokes a later will under the mistaken belief that

by doing so she is reinstating a prior will ln this situalion, the doc-

tline of dependent rclative revocation is invoked to ender the revoca-

tion ineffective. The doctrine is based uporl the testator's infered

intention. It is held that the destruction of the later document is in-

tended to be conditional when it is accompanied by the express intent

of reinstating a former will and there is no explanatory evidence'

c) Here, we find that the tdal court was correct in finding that T had

revoked the Kankakee will under the mistaken belief that she was

thereby reinstating the prior Milwaukee will. T's statement to OlgaLehmann that she wished her Milwaukee will to stand, the infer-ence that she did not wish to die intestate, and the fact that she took

no steps following the destruction of the Kankakee will to make a

new will are sufficient evidence that she destoyed the Kankakeewill under the mistaken belief that the Milwauke-e will would con-trol the disposition of her estate Applying the doctrine of depen-dent relative revocatlon, therefore, the trial court was corect ln

holding that the attempted revocation of the Kankakee will was in-effective and admitting the will to probate.

4) Comment. Wisconsin law on revival of wills precluded the Milwaukeewill from being revived.

Revival.

1) Common law. The commonlaw rule, still adhered to in several states, is

that no part of a will is effective until the death of the testator. Thereibre,if Will #2 (which expressly revokes Will #l) is itself revoked before the

testator's death,Will#1 alone remains in effect andis operative upon thetestator's death. Destruction of Will #2 opentes to "revive" Will #l '

2) Modern law. In most judsdictions, a will, once revoked, is not revivedunless republished by (i) reexecution or (ii) a later codicil under the doc-trine of republication by codicil. Thus, rcvocation of a later will thatcontained language revoking an earlier will does not, by itself, revive theearlier will or any of its provisions. Under the UPC and in a substantialminority of states, destruction of Will #2 and its ldlguage of revocationmay operate to tevive Will #1, depending on the testator's intent. Suchintent is establi shed by the testator's statements and by reference to all ofthe circumstances of the case.

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5. Revocation by Operation oflaw: Change in Family Circumstances.Achange in family circumstances may revoke awill by operation oflawThe law in these instances presumes an intent to revoke on the part of thetestator

a. Marriage, At conmon law, a mardage following the execution of awill had no effect on the will, but a marriage followed by a birthwas held to revoke the will. Most states no lonser follow the com-mon law rule.

1) States without statut€s. About half of the states have no stat-ute dealing with the effect of marriage on a previously executedwill.In most ofthese states mariage, by itself, does not affectthe will. In a minority of states, however, the courts apply thecommon law rule noted above.

2) States with statutes. In most of the states having statutes deal-ing with the effect of marriage on a will, the will is only par-tially revoked. The marriage revokes the will only to the extentofproviding the new spouse with an intestate share. After dis-tribution of the spouse's intestate share, the will operates todistribute the remaining assets. In a minority of states, mar-riage after the execution of a will revokes the will in its en-tirety. Note that in eithercase, the will is not pafiially or totallyrevoked if (i) the will makes provision for the new spouse, (ii)the will provides that the spouse's omission was intentional,or (iii) it appean that the will was made in contemplation ofmamase.

b. Divorce. A majority of states have enacted statutes that hold a di-vorce partially revokes a will in that it automatically revokes theprovisions of a will in favor of the former spouse. The will is read asthough the former spouse prcdeceased the testator.

C. COMPONENTS OFA WILL

Integration of Wills. Integration of a will concerns the problem ofwhat pages should constitute the will. The pape$ that are present whenthe will is signed and are intended to be included in the will are inte-grated. rypically, the problem adses where the pages of a will have notbeen fastened together.

Republication by Codicil. Republication by codicil means an impliedrestatement or rewriting of the language of a valid will as ofthe time ofrepublication. Republication by codicil has sometimes been used to vali-date a prior invalid will.

1.

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Incorporation by Refercnce. Pages that cannot be integrated because theywerc not present at the will's execution nevertheless may be given effect un-der the doctrine of incorporation by reference. This doctdne recognizes that aduly executed will may by appropriate reference incorporate into itself anyextrinsic document or writing even though the other document was not prop-erly executed. The following rcquirements must be met:

(i) The document must have been in existence at the time the will was ex-ecuted:

(ii) The will must expressly refer to the document in the present tense;

(iii) The will must describe the document to be incorporated so clearly thattherc can be no mistake as to the identitv of the document referred to;and

(iv) The testator must have intended to incorporate the extrinsic document aspart of the overall testamentary plan.

a. Notebook incorporated by r€ference- Clark v. Greenhalge, 4l I Mass.4lo, 582 N.E.2d 949 (1991).

1) Facts. Testatrix, Helen Nesmith (T), executed a will in l9?7 nam-ing Greenhalge (D) executor and pdncipal beneficiary of any per-sonal property except that designated by a memorandum known toD or in accord with T's wishes as expressed during T's life. D hadhelpedT draft a document entided "Memorandum" in 1972; T modi-fied this list of specific bequests from time to time. T wished herfriend Clark (P) to have a painting and so listed it in a notebook Tkept. T's nurses knew of her wish for P to have the painting andknew of the notebook and had observed T write in it. T executedtwo codicils in 1980; T amended some bequests and ratified herwill in all other respects. Upon T's death, D was given T's note-book. D distdbuted T's property in accord with the will as amended,the 1972 memorandum, and cefiain of the provisions in the note-book, including all of the property bequeathed to him in the not€-book. Howevet he refused to give P the painting. P commenced anaction to compel Dto deliverthe painting. The probate cowt found:(i) T wished P to have the painting, (ii) the notebook was a memo-randum within the meaning of T's will, (iii) the notebook was inexistence at the time of the codicils, which ntified the language ofthe will in its entirety, and (iv) the notebook was incorporated byrcference into the tems of the will. D appeals.

2) Issue. Was T's notebook incorpomted by reference into the termsof T's will?

Clark v.Greenhalge

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3) Ileld. Yes. Judgment affirmed

a) A will may incorporate by reference any document not so executedand witnessed ifit was in existence when the will was executed andis identified by clear and satisfactory proof as the paper refened toin the will.

b) The cardinal rule in the intelpretation of wills is that the intention ofthe testator shall prcvail. T's language and the circumstances sur-rcunding the execution of T's will and codicils are used to deter-mine T's intent.

c) T intended to retain the right to alter and amend her bequests oftangible personal property in her will without having to formallyamend the will. The mechanism T chose was a memorandum, andthe notebook, although not titled "Memorandum," has as its pul-pose and is in the spidt of T's intent. T is not limited to only onememomndum.

d) Having been in existence at the time T executed her codicils, thatrcpublishing of T's intent incorponted the notebook by reference.

b. Validation of inoperative will by holographic codicil--Johnson v. John- Johnson v.son,279 P2d c28 (Okla. 1954). Johnson

1) Facts. The will of the decedent, Dexter G Johnson (T), consisted of asingle sheet of paper with three typewritten paragraphs. The typewrittenportion was not dated, signed, or attested by two witnesses. At the bot-tom ofthe t)?ewritten portion, T wrote in his handwriting a $10 bequestto his brother James. The prcpofients of the will introduced evidenceshowirig that T was a practicing attomey who had prepared many wills;that he had told his inswance counselor that he had a will but it was outof dat€; that he had told his rental agent that the typewdtten insffumentwas his will and that he wanted his rental agent to witness it; that hisrental agent did not do so but later T told him that he had changed hiswill by codicil and did not need him to sign it as a witness. The tdal courtrefused to admit the instrument to probate. The appellate court affirmedThe proponents appeal.

2) Issue. May a valid holographic codicil republish and validate a will thatwas theretofore inopentive because it was not signed, dated, or attestedaccording to law?

3) Held. Yes. Judgment reversed and the case remanded with directions toenter the will for probate.

a) There is no question that the typew tten instrument was not signed,dat€d, or aftested. A will may be so defective, as here, that it is not

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entitled to probate, but if testamentary in character it is awill nonetheless.

b) By definition a codicil is a supplement to an existing willmade by the testator to alter, enlarge, or restrict its provi-sions and it must be testamentary in chamcter A codicilneed not be called a codicil; rather, it is the intention toadd a codicil that is controllilg. Here, the handwrittenwords arc testamentary in character and they make anaddition to theprovisions ofthe will alrcady in existence'Further, the codicil meets all the requirements of a validhologaphic codicil. It is wdtten, dated, and signed by T.The fact that it was written on the same piece of paper asthe typewdtten will does not invalidate the codicil.

c) The general rule is that a codicil validly executed oper-ates as a republication of the will no matter what detbctsmay have existed in the execution of the eadier document,that the instruments are incorporated as one, and that apropet execution of the codicil extends also to the will.We therefore hold that the valid holographic codicil in-corporated the prior will by reference and republished andvalidated the prior will as of the date of the codicil.

4) Concurrence. All rules of constuction are designed for thepurpose of effectuating the intent of the testator To hold other-wise would permit a contrary disposition of the testator's prop-eny against the purpose for which the statutory prcvisions wereaimed.

5) Dissenl The typewdtten part is not a will and the handwrittenpart is not a codicil. T intended the typewritten portion io bepart of his will, not the completed will. I can never subscribeto the proposition that a holographic codicil will validate as awill an instument that is typewritten, unfinished, undated,unsigned, and unattested. Property may descend by will whenthe will is executed in confomity with the statutes

4, Acts of Independent Signiffcance. Under the (JPc, a will may disposeof property by reference to acts and events that have significance apartfrom their effect on the dispositions made in the will (e.9., "I deviseBlackacre to the persons named as beneficiaries in my sister's will.")

CONTRACTS RELATING TO WILLS

Conhacts to make a will, contracts not to revoke a will, and contacts not tomake a will are kinds of contracts pertaining to wills. In these instances, the

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l .

law of contracts applies. A will in violation of a valid contract made by the testa-tor, while it may be probated, will be subject to contactual remedies (e.9., impo-sition of constructive trust).

Contracts to Make a Will. Many states have enacted statutes rcquiring that acontract to make a gift by will be in writing lf the promisor fails to make thepromised testamentary gift, the promisee has a cause of action against thepromisor's estate for damages for breach of contract The measure of dam-ages is the value of the property promised to be devised or bequeathed. How-ever, if the case involves a promise to make a devise or bequest of specificprope.ty, the usual rcmedy is to grant a consfuctive tlust for the promisee'sbenefit.

Contracts Not to Revoke a Will. These contracts typically arise when a hus-band and wife have executed joint or mutual wills A number of states haveenacted statutes rcquiring that any agreement relating to a will, including acontractnotto revoke awill, be in a writing executed with certain formalitiesThe mere execution ol reciprocal wills containing identical prcvisions doesnot constitute evidence that the wills were contractual.

Joint Wills. A joint will is the will of two or morc pefions executed as asingle testamentaiy instrument. In contrast to j oint wills, reciprocal wills, some-times called mirror wills, are separate wills of two or morc persons containingreciprocal provisions.

a. Elective share in conflict with will contract-'Via v. Putnam' 626 So.2d 460 Gla. 1995).

1) Facts. Edgar and Joann Putnam executed mutual wills contractingthat the survivor not do anything to defeat the distribution scheduleset forth therein. The wills devised the spouse's entirc estate to thesurvivor and the residuary estate to the children upon the su ivor'sdeath. After Joann died, Edgar rcmafiied and did not execute a sub-sequent will providing for his new wife, Rachel Putnam (P). UponEdgar's death, P filed a petition to determine the share of a preter-mitted spouse and an election to take her elective sharc. The chil-dren of the first marriage (Ds) filed claims against the estate allegingthat by marrying again, Edgar had violated his contract not to de-feat the distribution schedule set forth in his mutual will. The rialjudge found that the mutual will constituted a binding contract andDs were third-party benehciaries to that contract. Summary judg-ment was entercd for Ds, who were found to be class 7 obligationsunder Florida Law (third-party beneficiaries/crcditor status), andthe judge concllded that P's pretemitted or elective share is sub-

iect to the class 7 obligations of the estate. The second disrict cowtof appeal reversed, acknowledging that its decision conflicts with

,,

\4a v.Putnam

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the third district's tuli ngin Johnsott u Girtman, 542 So 2d 1033 (Fla 3d DCA1989). Ds appeal.

Issue. Should the claims of the decedent's children as third-party beneficia-ries under the mutual wills of their parents be given creditor status under Flodda

law when their interests contravene the intercsts of the surviving spouse un-

der the pretermitted spouse statute?

Held. No. Judgment affirmed.

a) We agree with the district court's reliance on the reasoning in S,nnp uHuff,315 Md . 624, 556 A.2d 252 (1989), a case identical to this one. The

Si/imp court found the public policy underlying the mariage relation-ship and the elective sharc statute required it to rule in favor of prctectingthe surr'iving spouse's right to receive an elective share. The district coutfound that Florida's statutes also suggest the same strong public policy.

The third district in "/ortrsor took the view that the surviving spouse'sstatutory share can be subordinated to claims of third-party beneficiariesof previously executed mutual wills. ./o/irson and other similar rulingshave advanced four rationales for giving priority to contract beneficia-ries: (i) the surviving spouse's rights attach only to property legally andequitably owned by the deceased spouse, and the will contract places

equitabletitle in the conftact beneficiary; (ii) when the surviving testatoraccepts benefits under the contractual will, an equitable ftust on dle Fop-erty is created in lavor of the conttact beneficiaries: the testator is en-titled only to a life estate and the beneficiaries take the rcmainder uponthe testator's death; (iii) when the suryiving testator benefits under thecontractual will, the testator becomes estopped from making a differentdisposition of the property, despite a later maniage: and (iv) when thesurviving testator breaches the will conftact, the beneficiades are en-titled to judgment creditor status. Under these theories, the duation ofthe mariage makes no difference.

b) We, like the covl in Shrimp, recognize the well-established principlethat contracts that discourage or restrain the right to marry are void asagainst public policy.

c) The Flodda legislature set forth three specific circumstances when apre-termitted spouse would not be entided to a share of the decedent's estate:(i) when the spouse has been provided for or waived provision by pre-rluptial or postnuptial agre€ment; (ii) when the spouse is provided for inthe will; and (iii) when the will states an intention not to provide for thespouse. The trial court found none of th€se exceptions applied For us tohold otherwise would amend the statutory exceptions and add a fourth.We have no authority to do so.

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V. WIL ST]BSTITUTES

A. CONTRACTSWITHPAYABLE-ON-DEATHPROVISIONS

L. Life Insurance. The issue in these cases includes whether a beneficiarrof a life insurance policy can be changed by will. A majority of courtshold that if the policy requires written notice of change of beneficiaryfiled with the insuance company, th€ beneficiary of a life insurance policymay not be changed by will.

Nontestamentary Transfers at Death. Under the UPC, wdtten agree-ments to pay, after the death of the decedent, money or other benefits toa person designated by the decedent in either the instrument or a separatewriting are deemed to be nontestamentary.

Successor Beneficiary Not Permitted in Life Insurance Contract--Wilhoit v. Peoples Life Insurance Co., 218 F.2d 887 (7th Cir 1955).

a. Facts. Roley Wilhoit was the insured of a $5,000 life insurancepolicy issuedby Century Life andreinsuredby Peoples Life (Dl).After Roley's death in 1930, Sarah Wilhoit, his widow and benefi-ciary, arranged to leave the amount due her on deposit with Dl onspecified terms, including thatupon her death any remaining fundsplus accrued interest would be paid to her brothet Robert Owens.Robert Owens died in 1932 leaving all his property by will toThomas Owens (D2). Sarah wilhoit died in 1951. Her will pur-ported to leave the funds on deposit with Dl to Robert Wilhoit(P). Both P and D2 claim the funds; D1 refused to recognize P'sclaim. The district court granted P's motion for summary judg-ment, and D2 appeals.

b. Issue. Where the proceeds of a life insurance policy are to be dis-posed ofin accordance with its provisions, may a beneficiary of thepolicy designate a successor beneficialy to take upon the death ofthe primary beneficiary?

c. Held. No. Judgment affirmed.

l) Ds rely on cases that have held that the proceeds ofa life insur-ance policy are to be disposed of in accordance with its provi-sions, and that a beneficiary, if authorized by the policy, maydesignate a successor beneficiary to take on the death of theprimary beneficiary. This contenilon is without merit if we donot accept the premise that the agreement between SarahWilhoit and the company was an insurance contract or an agrce'ment thereto. We reject this premise and hold that the arrange-

t

Wilhoit v.Peoples LifeInsurance Co.

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Estate ofHillowitz

4.

ment between the parties was the result of a sepante and indepen-dent agrcement, unrelated to the terms ofthe policy.

2) Sarah Wilhoit did not take advantage ofthe investment provision intheinsurance policy by which shecouldhave left the proceeds withthe company on the terms and conditions stated therein. Instead,she accepted the proceeds and surendered the policy. Only laterdid she by letter make her own proposal, which was accepted by thecompany on conditions that differed materially from those containedin the policy. We agree with B the.eforc, that the provision in theagreement by which Robert Owens was to take the funds in theevent ofher death was an invalid testamentary disposition.

3) Finally, it is not immaterial to take into consideration the inten-tions of the parties. Here, Sarah Wilhoit in her will specificallydevisedthe funds in controversy to P Itthus appea$ plain that shedid not intend the funds to go to the successors of Robert Owensbut thar, after his death, she thought she had a right to dispose ofthe funds as she saw fit. While we recognize that the intention ofthe parties is not controlling, we think that it is entitled to someconsidemtion.

Investment Club Proceeds-Estate of Hillowitz,22 N.y2d 107.238 N.E.2d723, 291 N.y.S.2d 325 ( 1968\.

a. Facts, Abraham Hillowitz's (T's) executors (Ps) brcught a discovery pro-ceeding in surrogate court against T's widow (D) to have determinedwhetherT's investment club contract to have his share paid to his widowupon his death was an invalid attempt to make a testamentary dispositionof property. The surrogate cout ruled for D; the appellate division forPs. D appeals.

b. Issue. Is a partnership agreement providing that, upon the death of onepartnet his jntercst shall pass to the surviving partner or partneff, restingin contract, valid?

c. Held. Yes. Order reversed.

1) There is no difference between a contract provi.ling for survivingpaftne(s) and one providing for a surviving widow.

2) This is a third-party beneficiary contract, performable at death, andit need not confom to the requirements of the statute of wills.

3) Other such contracts include (i) a contract to make a will. (ii) aninter vivos ftust in which the settlor rcserves a life estate. and (iii)an insurance policy.

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5. Change of B€neffciary of Life Insurance Policy by Will--Cook v. Equita.ble Life Assurance Society,428 N.E.2d 110 (Ind. App. 1981).

a, Facts. The decedent, Douglas Cook (T), had purchased a whole life in-surance policy in 1953 naming his wife at that time, Doris, as the beneficiary In 1965, T and Doris weie divorced. The divorce decrce made noprcvision regarding the insurance policy.Afterthe divorce T ceased pay-ing the premiums on his life insurance policy, and the inswance com-pany notified him in 1965 that his whole life policy was automaticallyconvened to a paid-up term policy. The policy contained a provisionallowing the owner to change the beneficiary by written notice providedthat the change is endoNed on the policy by the insurance company. ln1965, T married Maryarct, and a son, Daniel, was bom to them. In 1976,T made a holographic will in which he bequeathed his insurance policyto his wife and son.

T's insurer brought an interpleader action to determine whether T's formerwife, Doris, the named beneficiary on the life insurance policy, or T'swidow and child, Margarct and Daniel, to whom T had bequeathed theinsurance policy in a holographic will, were entitled to the proceeds ofT's policy. The circuit court entercd summary judgment in favor of T'sformer wife, and widow and child appeal.

Issue. Can a beneficiary of a life insurance policy be changed by thetestator's intent as expressed in his will?

Held. No. Judgment affirmed.

1) An insured's attempt to change the beneficiary of a life insurancepolicy by will, without more, is ineffectual.

2) It is in the interest of inswance companies to requirc and to followspecifiedprocedures in the change of beneficiaries so that they maypay benefits to persons properly entitled to them without subjectingthemselves to claims by othe6 of whose .ights they had no noticeor knowledge. These procedules are also in the interest of benefi-ciades themselves, since insumnce companies will not feel obli-gated to withholdpayment until a will has been probated, in fear oflitigation that might result from having paid the wrong pafy.

3) Substantial compliance with the requirements of an insurance policywill be sufficient to change a beneficiary as long as the insured hasdone everything in his power to effect such a change. Under thesefacts, therc is no indication that T took any action in the 14 yearsbetween his divorce from Doris and his death, other than the mak-ing of the will, to change the beneficiary of his life insurance policy

b.

Cook v.Equitable LifeAssurance

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B.

from Doris to Margaret and Daniel. If T had wanted to changethe beneficiary he had ample time and oppofiunity to complywith the policy requirements.

4) Public policy requires that the insurer, insured, and beneficiaryshould be able to rely on the certainty that policy provisionspertaining to the naming and changing of beneficiaries willcontrol except in extreme situations.

JOINT TENANCY AND MULTIPLE-PARTY BANK ACCOUNTS

1. Tlpes ofAccounts. Multiple-pafty bank accounts includejoint and sur-vivor accounts, payable-on-death accounts, agency nccounts, and sav-lngs account trusts.

2. Joint BankAccount: Lack ofDonative Intent-Franklin v. Anna Na-tional Bank ofAnna, l40Il l. App. 3d 533,488 N.E.2d l l lT (1986).

a. Facts.The executorofthe decedent's estate brought an action againstthe bank alleging that funds in a joint savings account werc theproperty of the estate. The bank interpleaded the decedent's sister-inlaw, Cora Goddard, who asserted her dght to the money as asurvivingjoint owner.

The decedent had had eye surgery and, according to Goddard, waslosing his eyesight. Coddard subsequently moved in with the dece-dent to help him. Goddard claims that she and the decedent went tothe bank to have his money put in both their names so she could getmoney when they neededit. She alleges that "he wanted me to havethis money if I outlived him." Goddard testified that she did notdeposit any money in the savings account to which she and the de-cedent had signed a signature card. She made no withdrawals, thoughshe once took the decedent to the bank so he could make a with-drawal. Later in the year Enola Fmnklin (P) began to care for thedecedent. The decedent sent P to the bank to deliver a handwdttenletter signed by the decedent in which he attempted to change thename of the joint ienant to P The bank, however, would not removea signature from a signature card based on a letter. Thus, the mostrecent signatue card the bank had for the savings account was signedby the decedent and coddard.

The trial coult found that Goddard was the sole owner of the fundsin the savings account by dght of survivo$hip as surviving jointtenant, and that no part of the funds becarne part of the decedent,sestate. P argues that the decedent did not intend to make a gift of thesavings account to Goddard. After remand by the appellate court,the circuit court entered judgment for Goddard. P appeals.

Franklin v.Anna NationalBank ofAnna

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b. Issue, Does evidence of lack ofdonative intent at the time of creation ol

ajoint lenancy sever lhe joinl tenancy?

c. Held. Yes. Judgment ofthe circuit coul reversecl

1) The instument creating ajoint tenancy account presumably speaks

the whole truth. In order to go behind th€ tems of ajoint tenancyagreement, one claiming adversely thereto has the burden of estab'

liihing by clear and convincing evidence that a gift was not intended

2) The form of ajoint tenancy agreement is not conclusive regardingthe intention of the depositofi between themselves'

3) Evidence of lack of donative inteflt must relate back to the time of

crcation of the joint tenancy. The decision of the donor' made sub-

sequent to the creation of the joint tenancy, that he did not want thepr;ceeds to pass to the survivor would not, in itself, be sufficient to

sever the joint tenancy.

4) It is proper to consider ev€nts occurring after creation of the joint

account in determining whether the donor actually intended to hans-fer his interest in the account at his death to the survivingjoint ten-ant.

5) Evidence that, nine months after adding his sister-in-law's name to

his savings account, the decedent had attempted to rcmove her name

and substitute another and that the decedent had written letters to

the bank indicating that he might lose his sight and be unable to

transact his own banking business, established that the deceden!had made his sister-in-law a signatory of the joint account for his

own convenience, in case he could not get his money, and not with

the intent to effect a present gift lt does not appear that Goddardever exercised any authority or control over the joint account Such

evidence thus established that, upon the decedent's death, moneyinthejoint account was the propefiy of the decedent's estate'

3. Stock Certilicates Held in Joint Ten^ncy.lt\ Blanchette v Blanchette,362

Mass. 518, 287 N.E.2d 459 (1972), Robert Blanchette worked for AI&T and

began to buy shares ofstock in the company. When he acquired the shares, he

told his wife, Marie, that he put them in both their names as joint tenants The

certificates were issued at his request: "Robert L. Blanchette & Mrs Marie A

Blanchette, JointTenants." He executed assignments to himself and Marie "as

Joint Tenants with rights of survivorship and not as Tenants in Common-"

Robert never told Made that she owned half the stock. The certificates were

kept in the wardrobe of thei bedroom up to the time they separated: atlhat

time Marie demanded one ofthe two bankbooks but did not ask for any of the

stock. No evidence existed that she made any claim to the stock before the

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c.

parties' divorce. Marie brought a petition in connection with the divorceto detemine her interest in the stock. The petition was rcfered to a mas-ter, who held that Robert never at any time indicated that he intended totransfer any prcsent interest in the stock to his wife. The master foundthat the words "joint tenants" werc used because this was the only formof issuance authorized by the company that would approximate Robert'sdesire to make his wife his beneficiary if he died. On appeal, the courtdetemined that certificates ofstock held injoint tenancy between a hus-band and wife may be paid to the wife upon the death of the husbandwithout the arrangement being declared testamentary and void.

The court found that the intention was clear that the husband was to havesole control during his life and that whatever should remain at his death,ifthe wife survived, should ripen into full ownership by her The findingthat no present gift was intended would have the effect of frustrating theintention of the ptuties by rendering their arrangement testamentary andvoid. The court avoided this result by finding a present gift of a futuleinterest, subject to a reserved life estate in the husband and subject to hispower to revoke his wife's interest.

JOINT TENANCIES IN LAND

One common method of avoiding the cost and delay of probate is to holdproperty in joint tenancy or tenancy by the entirety. When one joint tenant ortenant by the entirety dies, the survivor owns the property outright. The shareof ajoint tenant cannot be devised by will. If ajoint tenant does not want theco-tenant to take his share at death, he must sever the joint tenancy during hislifetime, thus crcating a tenancy in common. Credito$ of ajoint tenant canIeach the joint tenant's interest only dudng his life.

REVOCABLE TRUSTS

1. Intmduction. In a revocable trust the settlor has the power to revoke,alter, or amend the aust and has the right to trust income during herlifetime. Revocable tnrsts arc valid in all jurisdictions.

2. Retention of Control by Settlor. If the settlor retains numercus powersand lacks the true ffust "intent," the trust may be ruled illusory. However,as long as the trust creates some interests in some category of beneficia-ries, couts will rerognize a valid nontestamentary tust even though thesettlor rctains extensive powers.

a. Creation of valid inter vivos trust notwithstanding control re.tained by settlor/trustee-Farkas v. Willi ams, 5 lll. 2d 4l'7 , 125N.E.2d 600 (l955).

D.

Farkas v.Williams

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l) Facts. Albeit B. Farkas, who died intestate, Durchased on four

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occasions during his life the stock oflnvestors Mutual, Inc., insftucting it, bymeans of a wdtten application, to issue the stock in his name .,as tnistee forRichard J. Williams." Farkas also signed separate declarations of trust, all ofwhich were identical except as to dates. In each of these declarations, Farkasreserved to himself as settlor the following powels: (i) the dght to receiveduring his lifetime all cash dividends; (ii) the right at any time to change thebeneficiary or revoke the trust; and (iii) upon sale or redemption of any por-tion of the trust property, the right to retain the proceeds therefrom for his ownuse. The co-administrators of the estate (Ps) bring this action to have declaredtheir legal rights in the four stock certificates. The circuit court found that thcdeclarations werc testamentary in character and, not having been executedwith the formalities of a will, were invalid, and directed that the stock beawarded to Ps as assets of the estale of Albert Farkas. The aDDellate counaffirmed. Williams and lnvestors Mutual I Dsl appeal.

2) Issues.

a) Does the fact that the interest of a beneficiary is contingent upon a cer-tain state of facts existing at the time of the settlor's death indicate thatno prcsent interest is acquired in the subject matter of a tust, and hencercnder a tust insfument testamentary in character?

b) Does the rctention of power by a settlor to sell or redeem stock and keepthe proceeds for his own use, to change the beneficiary, and to rcvoke thetrust indicate that the settlor has retained such contuol over the subiectmatter ofa trust so as lo render a trust insfumenl teslamenlarv in chara( _ter?

3) Held. a) No. b) No. Judgment reversed and remanded.

a) Williams acquircd a present interest in the subject matter of the intendedtusts. Farkas, irDmediately after execution of these instruments, couldnot deal with the stock the same as ifhe owned the property absolutely.As trustee, Farkas is held to have intended to take on those oblisationsthat are expressly set out in the instrument, as well as those fiJuciarvobligations implied by law.

(l) The fact that the trust instrument provides that .,the decease of thebeneficiary before my death shall operate as a revocation of thrstrust" does not change the result. The disposition is not testamet-tary and the intended trust is valid even though the interest of thebeneficiafy is contingent upon the existence of a certain state offacts at the time of the settlor,s death.

(2) Admittedly, absent this prcvision, Williams,s interest would havebeen greater. But to say that his interest would have been greater isnot to say that he did not have a beneficial interest durins the life_time of Farkas.

Wil ls- :

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In re Estateand Trustof Pilafas

b.

b) Farkas did not retain such contol over the subject mattgr of thetrust as to rcnder the trust insfuments testamentary in character.The retention by the s€ttlor of the powe. to revoke, even whencoupled with a rcservation of a life interest in the trust property,does not render the trust inoperative for want ofexecution of a will.

(l) A more difficult problem is posed by the fact rhat Farkas isalso ftustee and as such is empowercd to vote, sell, and other-wise deal in and with the subject matter of the trusts. Here, thecontrol reserved is not as great as in those cases where thepoweris rcservedto the owneras settlor, for as trustee he mustconduct himself in accordance with standards applicable totrustees generally. Williams would have had an enforceableclaim against Farkas's estate were Farkas to have improperlydissipated the stock.

(2) Another factor in determining whether an inter vivos tust ex-ists is tle fomality of the tnnsaction. Here, the stock ceitifi-cates in question were issued in Farkas,s name as trustee forWilliams. He thus manifested his intention in a solemn andfonnal manner

Inter vivos trust revoked-/r, /e Estate and Trust of pilafas. 172 Ariz. 207.836 P.2d 420 (1992).

1) Facts. The decedent, Steven Pilafas (T), executeda trust appoinring him-self trustee. The agreement directed that upon T's death, a poition oftheftust estate would be distributed to eight nonprofit organizations (ps).The remaining portion was to be held in vtuious trusts. Two of T's chil_dren were explicitly omitted. The trust included a revocation/amendmentprovision that T exercised twice. On the occasion of the second amend_ment in 1987, after T's divorce, T simultaneously executed a will thatgave the residue ofhis estate to the trust. Subsequently, T,s relationshipswrlh his children fDst rmproved. During the last month of hls l i fe, Tindicated to his attomey his intention to revise his estate plan to includeall his children. T s arrome) had given f the originals;f the lrust. theamendments, and the will immediately after they were executed. UponT s dealh. T s son unsuccesslully searched T s house lor rhe documenrs.Ds testified that T fastidiously saved important documents and that Twas a man ofdirect action who had been known to tear or discardDaDersthirr offended him. T s son frled a petit ion for appoinrmenr of a ipecialadministator and a special trustee, a petition for adjudication of intes_tacy and determination ofrevocation of fust, and asked the coult to au_thorize him to transfer all trust assets to T's estate. ps objected, seekng adetermination that T had revoked neither his will nor the trust. The tdalcoufi granted Ds' motion for summary judgment. ps appeal.

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2) Issues.

a) Did D present sufficient evidence that T revoked his will?

b) Did the trial court en in determining that T effectively revoked his

inter vivos trust?

3) Held. a) Yes. Ruling affirmed. b) Yes Ruling reversed.

a) Ds' argument relies on the common law principle that if a will is

last seen in a testator's possession and cannot be found after his

death, there is a prcsumption that the testator destroyed the will'

b) Ds submitted affidavits tending to prove that (i) T took possession

of his will, (ii) he meticulously kept important papers, and (iii) a

diligent search did not uncover the will Ps offered no evidence to

rebut.

c) A ttust, unlike a will, involves the present transfer of a property

interest to beneficiaries. These interests can only be taken from the

beneficiaries (i) in accord with a trust prcvision' (ii) by their own

acts, or (lii) bY a courl decree

d) T's trust provided for revocation only by written insfument'

e) ln accord with ihe Restatement (Second) of Torts, section 330, ard

accompanying coinrnentary' we hold that T could only revoke his trust

in the rnanner provided for in the trust instrument lf a settlor rese es

a power to levoke the tlust by a transacdon inter vivos, for example'

bt a notice to the tustee, he cannot revoke his tust by his will'

Cr€ditors may rcach trust assets over which the settlor had control at the

time of his death--State Strtet Bank & Trust Co. v. Reiser' 7 Mass App

ct. 633. 389 N.E.2d 768 (1979).

1) Facts. The decedent, Wilfred A. Dunnebier (T), created an inter vivos

trust with the power to amend or rcvoke the trust, and conveyed to the

trust the capital stock of five closely held corpomtions lrnmediately fol-

lowing the execution of the trust, T executed a will under which he left

his rcsiduary estate to the tust he had established Thereafter, T applied

to the State Street B ank & Trust Co. (P) for a loan, which was later granted'

Approximately four months after he borowed the money, T died and his

esiite had insufficient assets to pay the entire indebtedness due the bank'

P seeks to reach the assets of the inter vivos trust'

2) Issue. When a settlor places Property in trust, may the settlor's creditors

reach those assets owned by the trust over which the settlor had control

at the time of his death?

State StreetBank & TrustCo. v. Reiser

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3.

3) Held, Yes. So ordered.

a) We hold that wherc a person places property in trust and rc-serves the right to amend and revoke, or to direct dispositionof principal and income, the settlor's creditors may reach, insatisfaction of the settlor's debts to them. those assets ownedby the trust over which the settlorhad such control at the timeofhis death as would have enabled the settlor to use the trustassels for his own benefil.

b) Assets that pour over into such a trust as a consequence ofthesettlor's death over which the senlor did not have control dur-ing his life are not subject to the reach ofcredito$.

4) Comment. If probate assets are insufficient, UPC section 6-215allows creditors to reach a decedent's Davable-on-death accountsand hisjoint bank accounts.

Testamentary r?our-Over" into an Inter Vivos Tiust. Pour-over wills areuseful to establish an inter vivos trust, which later merges into the estate afterthe death of the settlor. The settlor creates a revocable inter vivos trust bynarning a tustee and then transfering probate assets to that trustee. The seft-lor then executes a will devising the residue ofhis estate to the trustee, to holdas kustee under the terms of the trust.

a. Uniform Testamentary Additions to Tfusts Act. This Act validates atestamentary gift to a trust provided the trust is sufficiendy described in thetestator's will. The hust inshurnent may be executed after the will. This isso whether the trust was created by the testator or by a third p€rson andwhether it was modifiable or in fact modified. The size and extent of thetlust corpus during the testator's lifetime is likewise irnmaterial. The Actspecifically validates gifts to either funded or unfunded life insurance trusts,even if the testator has reserved all rights of ownership in the policies.

b. Effect of divorce on yalidity ofdispositions to former spouse madeby revocable int€r vivos trust-.Clymer v. Mayo, 393 Mass. 754, 473N.E.2d 1084 (1985).

1) Facts. The decedent, Clara Mayo (T), died in 1981. She had beenmarried to James Mayo (D) from 1953 to 1978. The couple had nochildren, and T's sole heirs at law are her parents (Pls). As a conse-quence of a $300,000 gift to the couple from T's parents in 1971,she andD executed new wills and indentues of trust in 1973 whereineach spouse was made the other's principal beneficiary. Under theterms of T's will, D was to rcceive her pe$onal property. The rcsi-due of her estate was to "pour over" into the inter vivos trust shecreated that same dav.

Clymerv Mayo

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T's tust insffument named herself and John Hill as austees. As the donor,'l

retained the right to amend or revoke the tust at any time by written instru-

ment delivercd to the tustees. In the event that D survived T, the tust estatewas to be divided into two parts. Trust A was the madtal deduction trust' The

balance of T's estate, or the entire estate if D did not survive her, composedTrust B. Trust B provided for five specific bequests. After those gifts weresatisfied, the remaining tmst assets were to be held for the benefit of D forlife. Upon D's death, the assets in Trust B werc to be held for the benefit of T'snephews andnieces living at the time of her death. When all of these nephewsand nieces reach€d the age of 30, the trust was to terminate and its remainingassets werc to be divided equally between Clark University and Boston Uni-versity.

The Mayos divorced on January 3, 1978. The court incorporated into the de-

cree a stipulation of the parties' propetty settlement Under the terms of thatsettlement, D waived any right, tide, or interest in T's secudties, savings ac-counts and certificates, retirement fund, fumiture, and art.

The administrator ofT'sestate (P2) petitioned for instuctions on the effect ofT's divorce on the estate's administration. T's parents brought actions for de-claratory and equitable relief to preclude D ftom participating in the estateand to remove P2. The probate and family court dismissed P1s' action, and

appeal was taken.

2) Issues.

a) Did T create a valid trust despite the fact that it was not funded until herdeath?

b) Does a statute that revokes any disposition to a former spouse made bywill apply to revoke dispositions to the former spouse made by a revo-cable inter vivos trust that has no funding or practical significance untilthe decedent's death?

3) Ileld. a) Yes. b) Yes. Judgment affirmed in part, reversed in paft, and remanded'

a) In light of the Massachusetts statute goveming '?our-over" deYises, T'sinter vivos trust executed contemporaneously with her will was validdespite the fact that the trust did not receive funding until her death.

b) Probate courts are empowered to terminate or reform a tust in whole orin part when its puposes have become impossible to achieve and thesettlor did not contemplate continuation of the fiust under new circum-stances.

c) D could not take under the trust established by T' inasmuch as such transferwas intended by its terms to qualify for a marital deduction for federal

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estate tax purposes, and such objective became impossible af-ter the parties' divorce. Therefore the trust was effectively ter-minated.

Refercnce to an existing trust in a will's pour-over clause isnot of itself sufficient to incorporate that trust by referencewithout evidence that the testator intended that result.

The Massachusetts statute that opemted to rcvoke any disposi-tion to a former spouse "made by the will" was also applicableto revoke dispositions to a decedent's divorced husband madein a revocable inter vivos tnrst executed contemporaneouslywith her will, inasmuch as the trust had no funding or practicalsisnificance until the decedent's death.

0 Inasmuch as T had no siblings, and thus had no nephews ornieces who were blood relations, T's bequest in the indentueof trust to "nephews and nieces of the donor" created a latentambiguity. The trial cowt therefore properly considered ex-trinsic evidence to determine that T intended the bequests togo to the nephews and nieces of D.

g) The statute that operated to revoke any testamentary disposr-tion to a former spouse did not apply to rcvoke T's bequest inindenture of tust to D's nieces and nephews.

4. Use of Revocable Tfusts in Estate Planning.

a. Consequences during life of settlor. Durisg the life of the settlor, arcvocable trust may be used to relieve the settlor of the burdens of finan-cial management, to deal with the contingency ofthe settlor's incompe-tency, and to cladfy title and ownership of assets. Therc are no fedemltax advantages in creating a revocable trust, since trust income is taxableto the settlor regardless of to whom it is paid.

b. Consequences at death of settlor. Upon the death of the settlor, a revo-cable trust can be used to avoid probate. Under a revocable tust continu-ing after the settlor's death, income and pincipal can be disbursed to thebeneficiaries without significant delay. In contrast to probale, therc is noshort-term statute of limitations applicable to revocable trusts to cut offthe rights of creditors. A rcvocable rust avoids publicity since it is notrccorded in a public place. To avoid ancillary probate over rcal propefiylocated outside the domiciliary state, land in another state can be trans-fened to a revocable inter vivos trust. In some states, the law might per-mit a funded revocable trust to defeat a spouse's elective share in certaincircumstances. An inter vivos tlust of penonal property may be gov-emed by the state law ofthe settlor's choice. In practice, it is mor€ diffi-

d)

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5.

cult to set aside a revocable trust than a will on grounds of lack of mentalcapacity and undue influence. Finally, a revocable trust that becomesirrevocable upon the death oione spouse can thereby control the surviv-ing spouse's disposil ion of ptopen).

Durable Power of Attorney. A duable power of attomey may be used toplan for incapacity.

Agent's action upheld--Franz€n v. Norwest Bank Colorado, 955 P2d Franzen v.1018 (Colo. 1998). Norwest Bank

ColoradoFacts. Janes Franzen created a tust for the benefit of himself andhis wife. Frances Franzen. and died four months later. Mrs. Franzen,who was living in a nursing home, was advisedby a Norwest Banktrust officer that pursuant to the trust instrument, three months atterher husband's death, she could direct that the trust continue or thatthe residuary trust estate be transfered to her. Mrs. Fmnzen indi-cated she wished the trust to continue for her lifetime. Concemedbecause the trust did not include Mrs. Franzen's vacant home andother assets, the bank contacted the trust remaindermen, Mrs.F@nzen's two nephews. They were reluctant to intervene. JamesO'Brien, Mrs. Franzen's brother, was not, however He movedMrs.Franzen to Kentucky and provided the bank with a power of attor-ney purporting to authorizehimto actin Mrs. Franzen's behalf, anda letter attempting to revoke the trust and rcmove the bank as filstee.The bank filed a petition for advice and later a petition for appoint-ment of a conservator, asking the probate courl to protect Mrs.Franzen's assets. The court found the power of attomey had crc-ated a valid agency, but that the trust continued in existence. Thebank was appointed special fiduciary with responsibility for bothtust and non-trust assets and directed to use the assets to makepayments for Mrs. Franzen's benefit. Mrs. Franzen appealed. Thecourt of appeals reversed. The bank appeals.

Issue. Under the common law, must a power of attomey that ap-pears to give the agent sweeping powers to dispose of the principal'sproperty be narrowly consfued in light of the circumstances sur-rounding the execution of the agency instrument, and if so, may theprincipal confer on an agent authority to amend or revoke fustswithout referdng to the trusts by name in the power of attomey?

Held. Yes. Judgment affirmed.

a) The trust instrument provided that after her husband's death,Mrs. Franzen could remove any trustee without cause. It fur-ther provided Mr. Franzen could amend or revoke the ttust inwhole or in part by a writing delivered to the trustee and after

r)

1I

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b)

Mr. Franzen's death, Mrs. Franzen could exercise these pow-ers with respect to the entirc trust estate.

While under Colorado's power of attomey statute an agent maynotrevoke or amend aaustwithout specific authority and spe-cific reference to the trust in the power of attomey, that statutewent into effect almost two years after Mls. Fmnzen executeda power of attomey. Pinciples of statutory consruction andlegislative history lead us to conclude the statute was not rct-roachve.

There is no common law rule that requires a power of attomeyto refer to a trust by name. The cases rcquirc that a broad powerbe constued in light of the surrounding circumstances, andwhere the broadly worded power authorizes acts that may beinconsistent with the principal's intercsts, the acts should notbe pemitted in the absence of specific authority.

The instant power authodzes O'Brien to revoke trusts, and whilenot specific, we conclude that language authorizes O'Bden torevoke the Franzen fust.

o)

6.

7.

4) Comment. This holding gives the attomey-in-fact the power tochange the will once the p.incipal becomes incompetent. An aftor-ney who drafts such a broad power may unleash a dangerous weaponin the hands of an unscrupulous individual.

Health.Care Directives. ln Cruzan v. Directota Missouri Department ofHealth,49'] U.S.26l (1990), the Suprcme Court held that a pe6on may makeknown her desires regarding termination of medical fteatment, or may ap-point a surogate to make those decisions, providing state law requirementsare met.

Termination of Medical Treatmenl A living will provides that the life of aterminally ill person shall not be prolonged by extraordinary measrres. Adurable power of attomey for health care is an altemative to a living will. Itputs decisions rcgarding treatment in the hands of a third person; the agent isempowered to respond to changing circumstances when the patient's wishesare not known.

Disposition ofDecedent's Body. All states have enacted Uniform Anatomi-cal GiftActs, which allow a pe$on to donate his body to any hospital, physi-cian, or medical school for research or hansplantation.

8.

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VI. W[LS: CONSTRUCTION PROBLEMS

A. ADMISSION OF EXTRINSIC EVIDENCE: AMBIGLTITI MISTAKE'

AND OMISSION

In general, exffinsic evidence is not admissible to change the plain meaning

of i wil l. Some jurisdictions do not apply this rule rigjdly but invoke a pre-

sumption lhat can be overcome with srong evidence ol a conttary meanlng'

Parol evidence may be admissible to resolve ambiguities in a will'

1. Latent Ambiguities. A latent ambiguity exists when the language of the

will, though clear on its face, is susceptible to more than one meanlng

when appiied to the extrinsic facts ln these cases, parcl evidence is ao-

missible to rcsolve the ambiguity'

2. Patent Ambiguities. Apatent ambiguity exists when the uncertarnty ap-

pears on the face of th€ will. The traditional view is that parol evidence ls

;ot admissible to clarify a patent ambiguity The modem ffend is to ad-

mit parol evidence in these instances as well'

3. No Extrinsic Evidence to Correct Drafter's Mistake-Mahoney v'

Grainger' 283 Mass. 189, 186 N E 86 (1933)

a. Facts, Upon Sullivan's (T's) death, her only heir at law was her

aunt. However, shortly before T's death,T executedawill, insfuct-

ing her attomey to leave the rcsidue of her estate to her 25 cousins

an-d "let them share equally." The language of the residue clause

read: "I give, devise and bequeath to my hei6 at law living at the

time ofmy decease, absolutely; to be divided among them equally'

share and share alike." The prcbate cowt denied a petition for dis-

tribution to the first cousins. Certain cousins appeal'

b. Issue. Are T's statements regarding T's understanding of "heirs at

law" admissible?

c. Held. No. Decree affirmed.

l) A testator's statements are admissible only to give evidence

where testamentary language is not clear in its application to

the facts. Extrinsic evidence will not be allowed ifthe property

bequeathed or the identity ofthe beneficiary is clearly and ab-

solutely identified

2) Thete is no doubt as to the meaning of "hei$ at law " A draftert

mistake does not authorize a court to reform or alter a duly

€xecuted and allowed will

Mahoney v.Grainger

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Fleming v.Morrison

4,

d. Comment. This holding was reaffirmed in 19'17 in Gustafson v. Svenson,373 Mass. 273, 366 N.E.2d,'l6l (197'7).

Failure to Comply with Statutory R€quirements--Fleming v. Morrison,187 Mass. 120, 72 N.E.499 (1904).

a. Facts. Francis Butterfield (T) executed a sham will leaving all of hisproperty to Fleming in an effort to get her to sleep with him. The willwas drafted by Goodridge, T's attomey, who also attested the will as awitness. Pdor to having two other witnesses attest to T's signature, Tinformed Goodridge that the will was fake and was made for a specificpurpose. The will was admitted to prcbate. Contestants appeal.

b, Issue. Has the proponent of the will proved the necessaty animustestantli?

c. Held. No. Decree reversed; instrument disallowed.

l) T indicated to his attomey that the will was a sham.

2) It is competent to contradict by parole the solemn statements con-tained in an instrument that is a will, that it has been signed as suchby the person named as testator, and attested and subscribed by per-sons signing as witnesses.

3) If the animus tesldndi does not exist when a will is signed or ac-knowledged before, or attested and subscribed by, each ofthe nec-essary three witnesses, the statutory requirements have not beencomplied with.

4) Herc, if acknowl edgment of a.nimus teslandi of a signatule not origi-nally made with that animrr is enough, ifT had acknowledged theinstrument subsequently before tlree witnesses, the will would havebeen duly executed. But T did not; two witnesses are insufficient.

Extrinsic Evidence Admissible to Ascertain Circumstances Under WhichWill Was Made-Estate of Russell, 69 Cal . 2d.2OO, 4M P.2d 353,7O Cal.Rptr 561 (1968).

a. Facts. The decedent, Thelma Russell, died leaving a validly executedholographic will wdtten on a small card that bequeathed everything sheowned to Chester Quinn, a close ftiend, and to Roxy Russell, her petdog, which was alive on the date the will was executed but predeceasedthe testator. The rcveNe side of the card bequeathed a $10 gold piece anddiamonds to Georgia Nan Russell Hembree (P), the niece and only heirat law of the testato.. P brought a petition for determination of heirship,alleging thar Ro\y was a dog. thal lhe Probale Code enumerates thoie

Estate ofRussell

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b.

c.

entitled to take by will and that dogs are not included, that the gift of halfof

,t" "*u,"

,o Roiy is void, and that P, as the testator's sole heir at law' is

entitled to half oi the re$idue. At the headng, P infoduced without objec-

tion extrinsic evidence that Roxy was the testator's dog Quinn' through his

a omey. inlroduced evidence of hrs relalionship w'lh the lestator' and docu-

mentary euidence consisting of the testator's address book and a cefiain

quiLclaim deed. all of which was admilled over objection The lrial coun

tield Lhar it was the intention of the leslalor lhal Quinn q as to receive her

entire estate excepting the gold coin and diamonds bequeathedto P and that

Quinn was to care foithe dog in the event of the testator's death The coult

h-eld that the lang,rage in the will indicated that Quinn was to use whatever

portion ofthe esiate as might be necessary to care fot and maintain the dog'

P appeals.

Issue. May extrinsic evidence of the circumstances under which a will is made

be considered in ascefiaining what the testator meant by the words used in a

will?

Held. Yes. Judgment reversed

l) When lhe language of a wil l is ambiguous or uncerlain' reson may be

had to extrinsic evidence in order to ascertain the intention of the testa-

tor A latent ambiguity is one that is not apparent on the face of the will

but is disclosed by some fact collateral to it, whereas a patent amblgulty

is an uncertainty that appears on the face of the will We think it is self-

evident thal in lhe Interpretation of a wil l ' a court cannot determlne

whether the terms of the will are cleat and definite in the first place until

it considers the circumstances under which the will was made Extnnsic

evidence of the circumstances under which a will is made may be con-

sidered by the coul't in ascertaining what the testator meant by the words

used in the will

2) Here, extrinsic evidence offeied by P to ruise and resolve the latent am-

biguity as to Roxy and to establish that Roxy was a dog was properly,

co;sidered in order to ascertain what the testator meant by the words of

the will. However, viewing the will in Iight of the surounding circum-

stances, the trial coult ered in holding that the testator intended to make

an absolute gift of her entire estate to Quinn A disposition in equal shares

to two beneiiciaries cannot be equated with a disposition of the whole to

one of them, who may use whatever portion on behalf of the other' We

conclude that the tes;ator intended to make a disposition of all of the

residue of the estate to Quinn and the dog in equal shares As a dog

cannot be the beneficiary under awill, the attempted gift to Roxy is void

Hence, that pofiion of the estate rcmains undisposed of by the will and

oasses to the heirs at law We conclude that the residue of the estate

;hould be distributed in equal shares to Quinn and P

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Erickson v.Edckson

6. Correcting Mistakes.If the allegedmistake involves the reasons that led thetestator to make the will (or the reasons for making ornot makng a particulargift), andthe mistake was not ftaudulently induced, noreliefis granted. Somecourts have recognized an exception ifthe mistake appears on the face of thewill, and the disposition the testator would have made but for the mistake canat least be infelred ftom the insfument. Cases in which such reliefis grantedare rarc because it is unlikely for the mistake and the altemate disposition toappear on the face of the inshument. If a provision was mistakenlv omittedfrom rhe q i l l . or a provision conrained in the wil l is nor what rhe restatorintended, parol testimony is generallynot admissible to show the existence ofthe mistake and what the testator intended to provide had the mistake not beenmade. Thus, mistakes of omission generally cannot be corected, nor can amistake in describing a beneficiary or item of property.

a. Extrinsic evidence ofscrivener's error admissible to ascertain testa-tor's true intent-.Erickson % Erickson. 2 46 Conn. 359- 716 A.2d,92(l998).

Facts. The decedent, Ronald Erickson, executed a will two daysbefore he married Dorothy Erickson (D). The will left everythingto D. If she predeceased him, half of Ronald's estate was to go tohis children and half to D s children. D was appoinred guardiin ofRonald's children (whose mother had died) and executor ofhis es-tate. Ronald's aftomey innocently misrepresented that the will wouldbe valid after the mariage to D, but the will did not contain anylanguage providing for the contingency of the subsequent marriage.(Connecticut law provides that if a testator maries subsequent tothe maling of a \^,i l l and rhe wil l makes no provision foisuch acontingency, the mardage opemtes as a rcvocation of the will.) Elevenyears later, upon Ronald's death, the will was admitted for Drobate.Ronald s daughrer Alicia Erickson {P). appealed. prior ro rrial. pfiled a motion in limine to exclude extrinsic evidence of Ronald,sintent. D made a detailed offer of proof to show Ronald's contraryintent. The trial court granted P's motion, but dismissed p,s appeal,and found that the will provided for the contingency of marriage. pappeals. D cross appeals.

Issue. Should the trial court have admitted extrinsic evidence re-garding the decedent's intent that his will would not be revokedautomatically by his subsequent mariage?

Held. Yes. Judgment reversed and remanded.

a) The nature of the will's provisions and the couple's exfemecloseness at the time of mariage provide clear and convincingevidence of the provision for the contingency of marriage even

r)

J)

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though the will itself did not do so and' under existlng case

law' would have been rcvoked by a subsequent mamage

b) We have previously held that exlrinsic e\idence is not ad-

missible,;ut conclude now that the reasoning of the dissent

ii Connicti,ut Junior Republic v' Sharon HosPital' 188 Conn'

i, q$ A'.21190 (1982), is persuasive and we overrule that

case.

c) [f a scrivener's enor has misled the lestator into executing a

will on the belief that it wiU be valid notwithstanding the

lestalor's subsequent marriage' exLrinsic evidence of lhat error

is admissible lo eslablish the intent of the teslator lhat hrs wll l

be valid notwithslanding the subsequent marriage

d) Ifthe error and the testator's intent are establishedby clear and'

convincing evidence, they will be sufncient to establish that

the will has provided for such contingency

e) b(trinsic evidence is admissible to prove fraud' duress' or un-'

due influence. There is little difference belween erroneous be-

liefs induced by fraud, duress' or undue influence and those

induced by innocent error, as here ln both situations' the in-

fluence of a third party distorts the prccess

f) There is no subversion of the policy of the.stalute of wills ex-

cluding extrinsic evidence because oIlhe nsk ol subverslon or

the tesiator's intent, where the testator cannot persoflally de-

fend his testamentary bequest That statute would not exclude

extrinsic evidence wherc fraud' duress' or undue influence^were

concemed Therefore, that statute does not compel enlorce_

ment of testamentary provisions that the testator never mtenoeo

to make

g) lf fraud were involved' it is arguable tht th: l"ff]:y-Til

the fraudulent conduct would not be allowed to benellt and a

constructive tust would be imposed on their inheritance Analo-

gously' here, extdnsic evidence should be admissible to estab-

lish the testator's true intent

Liability for Drafting Ambiguous Will' If in preparing a will pursuant to

tf," i"rtutor'. in.t-"ti;ns, the attomey omits a clause that makes a gift to a

i"r"n-li"ty, ,ft" "n".ey

is liable to the intended beneficiary for the amount

ii" l"t"itii-v *".ra have received '.rnder the will had the clause not been

""grrg".iiy "til*a. Case law, however, has held that an attomey is rot liable

for draftiry at ambigt ous document'

n

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B, DEATH OF BENEFICIARY BEFORE DEATH OF TESTATOR: LAPSE

When a beneficiary predeceases the testator' the beneficiary's bequest will

lapse (and pass through the residuary estate or through intestacy) in the ab-

sence of an anti-lapse statute, which specifies substitute takers'

1. LrPC Section 2-601. Underthis section' ifa devisee does not survive the

testator by 120 hours, then he is treated as having predeceased the testa-

tor, unless the will contains some explicit language dealing specifically

with simultaneous deaths.

2. UPC Section 2-605. Under this section, if a devisee who is a grandpar-

ent or a lineal descendant of a gtandparent (i) is dead at the time of ex-

ecution ofthe will, (ii) fails to suNive the testator' or (iii) is treated as if

he had predeceased the testator, then his issue who survive the testator

by 120-hours take in his place. If the issue are all of the same degree of

kinship to the devisee they take equally, but if they are of unequal degree

then those of more remote degree take by representation'

3. Anti-Lapse Statutes. The states' anti-lapse statutes vary widely as to

their scope. In many states, the anti-lapse statute applies only if the pre-

deceasing beneficiary was a child or other descendant of the testator'

Under the UPC and in seveml non-LrPC states, the anti-lapse statute

applies if the predeceasing beneficiary was a grandparent or a linealdeicendant ofa grandparent ofthe testator.In nearly all states, the anti-lapse statute operates only if the predeceasing beneficiary left descen-

d;nts who survived the testator. Such descendants take the gift by

substitution. In most states, the antilapse statute does not apply if thegift is contingent on the beneficiary's suNiving the testator

a. Anti-lapse siatute does not apply-Allen * Talley,949 S W2d 59(Tex. Ct. App. 1997).

1) Facts' At the time the decedent, Mary Shoults, executed herwill, she had three brcthers and two sisters alive The will pro-vided that all of her propefiy was to be shared by her livingbrcthe6 and sisters, whom she named At the time of her death'only a brother and a sister were alive, but the deceased siblingsall left children. Irwis Allen, Jr., a surviving child of one ofthe deceased brothers, filed an application for probate and is-suance of letters of administation, as did the suNiving sister,IJra Talley. The court admitted the will but did not appoint anadministrator. After filing petitions for declaratory judgment,Lera argued that the language in the will operates as words ofsurvivorship and precludes the application of the anti-lapse stat-ute. Irwis argued that a class gift was not created and that the

Allen vTalley

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statute applies. Both parties filed motions for summary judgment;the trial court granted I-era's motion. Lewis appeals.

Issue. Does the decedent's will contain words of survivorship, whichpreclude application of the antilapse statute?

Held. Yes. Judgment affirmed.

a) Since both parties agree that the language is not ambiguous,we construe the will based on the exprcss language used.

b) There were no other provisions in the will but that the dece-dent's living brothers and sisters take her whole estate, sharcand share alike. It is clear from the language that the decedentintended that her siblings who were living at the time of herdeath take her estate; otherwise, the phrase "share and sharealike" followed by no other provisions would add nothing tothe meaning of the will. Therefore, "living brothers and sis-ters" are words of survivorship.

4) Comments.

a) A careful will drafter will provide for the contingency of theintended devisee not survivins the testator.

b) The anti-lapse statutes do not operate to save a decedent's in-terest in property held injoint tenancy.

4. Rule of Construction that 'rAnd" Be Read as "Or" to Effectuate Testa-tor's Intent-Jackson v. Schultz, 38 Del. Ch.332, l5l A.2d 284 (1959).

a. Facts. The children of Bessie Bullock (Ps) contacted to sell to the de-fendant (D) a house formerly owned by the testator, their stepfather,Ironard Bullock (T), contending that title passed to them through T'swill. The will bequeathed all property to Bessie Bullock "and of what-ever natwe and kind, to her and her hein and assigns forever." BessieBullock, however, predeceased T. D contends that since Bessie Bullockprcdeceased T, Ps took nothing under T's will, alguing that the words"her heirs and assigns forever" were words of limitation defining thequantity of the estate devised and that, as such, the heirs took nothing byway of substitr.rtion, since the devisee predeceased T. D further contendsthat where the word "and" appears beforc the words "heirs aird assigns,"the sarne rule applies, in conrast to wherc the word "ol' appears, whichhas been deemed to designate those who will take by way of substitu-tion. Ps move for summary judgment requesting the court to gmnt a de-cree of sDecific Derformance under the contract.

Jackson v.Schultz

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b. Issue. will the words "and" or "or" be substituted for each other in arriv-ing at a proper construction of a will for the purpose of carrying out anobvious testamentary pupose of a testator?

Held. Yes. Ps' motion for sunmary judgment is granted.

1) D contends that when a devise is made to a named devisee "hisheirs and assigns forevet" the heirs normally take nothing by wayof substitution if the primary devisee predeceases the testator, suchexpression being deemed one of limitation defining the quantity ofthe estate devised, and that this rule has been appliedin cases wherethe word "and" appears before theclause "heirs and assigns-" How-ever, when the word "or" is used following a primary devise, thesubsequent reference to "heirs" or the like has be€n deemed to des-ignate those who will take by way of substitution in the event thatthe pdmary devisee predeceased the testator and a lapse is therebyavoided.

2) It has also been held, howevet that the words "or" and "and" maybe substituted for each other in arriving at a proper constuuction ofa will, "and" having been read as "or" for the pupose of carlyingout an obvious testamentary purpose.

3) Here, the evidence indicates that T's father was survived by his son(T, IJonard Bullock), a brother, anda stepson, all ofwhom enteredinto an agreement designedto insure that, in the event ofT's deathduring the settlement of his father's estate, his share would go tohis wife, Bessie. This agreement clearly demonstrates T's intentthat his share ofhis father's estate should go to his wife. Addition-ally, T's will should be rcad not only to cary out his intention butconstrued, if possible, to avoid not mercly intestacy but total es-cneat.

4) A decree for specific performance should normally be granted in aland purchase case unless to do so would requirc a buyer to accept adefective title subject to attack by an adverse interest not before thecourt. Here, there is a solid basis for sustaining Ps' claim to a feesimple title in the land here involved. I adopt the rde of consffuc-tion that pemits "and" to be read as "or" when to do so will carryout the testator's intent. Here, the evidence sustains a ruling that thewill be constued as making a substitutionary devise over to Ps.

Rule of Construction Held Inapplicable. In Hofing v. Willis,3l 111.2d 365,201N.E.2d 852 (1964), the court held that while there is some support for theproposition that the phrase "and to their heirs" could be considered as wordsof purchase by reading the word "and" as "ot" the presence of the words "andassigns" makes such a constmction unacceptable. The court stated that it ishardly reasonable to suppose that the grantor wouldcreate a substitutionary

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6,

gift and at the same time designate the assigns of the named takers to take by

way of substitution.

No Class Gift-Dawson v. Yucus,97 Ill. App. 2d 101, 239 N E 2d 305 (1968) Dawsonv. rucus

a. Facts. Nelle Stewart's (T's) duly executed will devised her one-fifth in-

tercst in cettain farm lands to two nephews, Wilson and Burtle' each

taking one-half. Butle died pior to T's death Wilson filed suit to con-

strue the will, alleging the devise was aclass gift and thathe, as survivorofthe class, was entitled to the entire one-fifth interest. Wilson later con-

veyed the interest he allegedly received as survivor to Burtle's two chil-

dren (Ps) and they were substituted as plaintiffs. The residuarybeneficiaries (Ds) contend that the gift to Wilson and Burtle was not a

class gift but instead a gift to two specific individuals The trial courtfound for Ds. Ps appeal.

b. Issu€. Was a class gift to the nephews created in T's will?

c. Held. No. Decree affirmed.

l) Aclass gift is a gift of an aggregate sum to a body of pe$ons uncer-tain in number at the time of the gift, to be ascertained at a futuretime, and who arc all to take in equal or in some other definite pro-portions, the sharc of each being dependent for its amount upon theultimate number of Pelsons.

2) Here, there were two named individuals, making certain the num-ber ofbeneficiaries and their share. The shares do not depend uponthe number who survive T.

3) T used no class gift language, i.e., "nephews"' "cousins," "descen-dants," etc. and the will contained a survivorship gift ofthe residueofherestatei no survivorship gift was created in the clause devisingthe farmland.

Gift to Class and Named Individual lYho Predecease's the Testator-I' l'e In rc'

Moss, [1899] 2 Ch. 314, aff 'd, l lg}l l A C.l87 (H L.) Moss

a. Facts. Walter Moss (T) bequeathed hi s interest in the Dail! Telegraph

newspaper in fust to pay the income toElizabeth Moss (his wife) for life

and, upon her death, in fust for Elizabeth Jane Fowler(his niece) and the

chil&en of Emily Walter (his sister) who shall attain the age of 21, to be

divided equally among them as tenants in common. T left the residue of

his estate to his wife. Elizabeth Jane Fowler died in 1891I T died in 1893

Elizabeth Moss (T's widow) died in 1897, leaving her r€siduary estate to

William George Kingsbury (P). She was survived by the five children of

Emily Walter (Ds), all older than 21. P claims that the share of T's estate

bequeathed to Elizabeth Jane Fowler lapsed upon her death during T's

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lifetime and became part of T's and Elizabeth Moss's residuary es-tates. Ds claim that the bequest to Elizabeth Jane Fowler and themwas a gift to a class, ofwhich they are the surviving membe$. Thetrial court held for P Ds appeal.

b. Issue. Where a gift by will is to a class and a naned individuaiequally, so that the testator contemplates the named individual tak-ing the same share thateach member ofthe class will take, does thetestator intend that the whole shall pass by his gift to the survivingmembers of the class if any member of the class survives, eventhough the named individual does not?

c. Held. Yes. Judsment reversed.

(Lindley, M.R.) The question we have to decide is: Who arethe persons entitled to T's share in the Dail) Telegraph news-paper? One view, adopted by the trial court, is that the sharethat Elizabeth Jane Fowler would have taken if she were alive-one-sixth-has lapsed and fallen into the residuary estate. Idecline to follow this view. Whether you follow the definitionthat a gift to A and the children of B may in effect be a gift to aclass ifthe testator treats the legatees as aclass or whether youcall them a number of peNons who .!Ie to be treated as a classis quite immaterial. Here, the intention of the testator was thatthe share should go to such of the children as shall be living.The altemative view takes the sharc awav wherc it was neverintended to go.

(Romer, L.J.) When a testator gives property to A and a classof persons-say the children of B-in equal shares, he intendsthat the whole property shall pass by his gift if any one of thechildren of B survive him even though A does not. Generally,when the testator gives property to be sharcd at a pafiicularperiod equally between a class properly so called and an indi-vidual, then what the testator must be taken to mean is that youare to see which part of that aggregated body is to share in thatproperty at the time it comes for distdbution. Hence, a gift bywillto aclass and a named individual equally, so that the testa-tor contemplates the individual taking the same share that eachmember of the class will take, is prima facie evidence of a giftto a class. Here, Elizabeth Jane Fowler was only intended toshare as one of a class, and, inasmuch as she did not survive,the rest of the class takes the whole of the property.

C. CHANGES IN PROPERTY AFTER EXECUTION OF WILL: SPE-CIFIC VS. GENERAL DEVISES

1. Ademption. If specifically devised propeny is not in the testator's estate

l )

2)

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at the time of death (e.8., it was sold by the testator or desffoyed)' the gift is

adeerned. This is tnown as ademption by extinction The doctrile only ap-

piies to specific devises and bequests; general legacies are not affected

a. Ademption by extinction-'Wasserman v' Cohen' 414 Mass lT2' 606

N.E.2d 90l (1993).

1) Facts, Frieda Drapkin crcated an inter vivos trust funded at execu-

tion, and retaifledthe dght to add property by inter vivoslransfer

and will and amend, revoke, and withdraw property frcm the tust'

A trust provision ordered David Cohen (D)' trustee' to convey a

buildinj to Elaine Wasserman (P) However' Drapkin h'rl sold the

buildini prior to her death and had never conveyed her interest-in

the proierty to the mrst. P brought an action for dTlarato:y jt]d.C-

ment. requesting the truslee pay her lhe ptoceeds of the sale.of th€

building. The probatejudge dismissed the action P applreo lor cu-

rect appellate review

2) lssue. Does the docttine of ademption by extinction aqpl) to tl:

specific gift of reat estal.e conlained in a revocable inter \ ivos lrusl l

3) Ileld. Yes Judgment affirmed'

a) When a testator disposes during her lifetime of th€ subject of a

specific legacy in her will' that devise is held to be adeemed'

b) A trust, particularly when executed as pa of an estate plan'

should bi consmred according to the same rules traditionally

apPlied to wills.

Abal€ment. Abatement is the process of reducing lestamentary glfls in cases

"hf.. ,h.

"r,uta u..ats are noi sufficienr to pay all claims against-lhe eslate

and satisfy all bequests and devises Al common law all grlts ol personal

oro*nt utur" U"fot" disPositions of real propeny Today' in most slates lhe

li,iin.tion b"r*""n t"al ind personal propeny has been abolished and stal

utes provide a gefleral order in which the types of gifts are abated'

a. UPC section 2'608. Under this section, a specific devisee has the iight

to a general pecuniary devise equal to the net sale price ofdevisedprop-

erty sold bY a conse atol

Exoneration of Liens, Most jurisdictions follow the doctrine of exoneration

of l iens. which presumes lhat specific dispositions oflropeny subjecl to mort-

gages or other encumbrances are to be paid out of the teslalor-s reslduary

Jsite, absent language to the contrary in the testator's will'

a. flPC section 2'607i nonexoneration' Under this section' property passes

without the right of exoneration-a specific devise will pass su'ject to a

Wassermanv. Cohen

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4,

secudty interest existing on the date of the testator's death' regardless of

any provisions in the testator's will to pay the debt'

Satisfaction. Satisfaction applies where a testatot makes an inter vlvos trans-

fer to a beneficiary after executing a will' with the int€ntion of making the

testamentary gift inoperative At common law a gift to a child of the testator

i. p."*rnp,*irvrn pi*al or total satisfaction of any gifts made to the childin

a previously executed will.

a. flPC section 2-607: ademption by satisfactiorl Uflder this sectlon' prop-

erty passes without the right of exoneration-a specific devise will pass

suijict to asecttity interest existing on the date of the testatot's death'

reg"ardless of any provisions in the testator's will to pay the debt

Stock Splits. Under the majodty rule' a specific beneficiary is entitled to ad-

ditional shares of stock produced by a stock split' but is not entitled to addi-

tional shares of stock produced by a stock dividend Under the UPC' the specific

beneficiary of corpoiate securities is entitled to additional or other securities

of the same entity-i.e., both stock splits and stock dividends

5.

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VII. RESTRICTIONS ON TIIE POWER OF DISPOSITION:PROTECTION OF THE FAMILY

A. RIGIITS OF TIIE SURVIVING SPOUSE

l. Introduction to Mariial Property Systems' There ate two basic man-

tal property systems in the United States: (i) the cornmon law system oi

separate pioperty and (ii) the system of community property

a. Separate property system' Under this approach' each spouse is

entitled to whatever propefiy he eams-there is no sharing of earn-

ings. This excludes joindy-owned property

1) Prctection against disinheritance' Nearly all ofthe common

law jurisdictions have enacted elective share statutes designed

to give the surviving spouse some proleclion.against disin-heri-

tance These statutes give the spouse an election to take astatu-

tory share (usually one-third or one-hal0 of the deceden t's estate

in lieu of taking under the decedent's will'

b. Community property system' Under this approach any eamings'

and property acquired from eamlngs' after marriage ls owneo ln

eqoA, onAiulaea.nat"s In general' none of the community prop-

erty siates has an elective sharc statute Each spouse has the power

of iestamentary disposition over only that spouse's one-half com-

munity interesi Thi surviving spouse automatically owns one-half

of the community estate upon the other spouse's death'

2. Rights of Surviving Spouse to Suppo '

a. Social security. The surviving spouse is enlitled to the decedent's

social security benefits-the decedent may not transferthe benefits

to anyone else. However' the surviving spouse may be requircd to

share the benefits with the decedent's dependents'

b. PriYate pension plans' ERISA requires that pensions paid under

covered private pension plans must be paid as ajoint and survivor

annuity to the worker and the worker's spou se ' unless the nonworker

spouse con sents to some other form of distribution of the retirement

benefit.

c. Hom€stead. Most states have statutes that secwe some intercst in

the family home for the surviving spouse and minor children' free

the claims of creditors These homesteads arc known as prcbate

homesteads.

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Personal property set-aside. Some statutes exempt certain items of

tangible personat property ftom execution or levy ifl satisfaction of

creditors'claims.

Family allowance. The surviving spouse or minor childrcn arc en-

titled io Detition for a family allowance to provide for their mainte-

nance d;ring the period in which the decedent's estate 1s ln

administratlon.

Dower and curtesy. Dower was the provision the law made for a

widow out of the husband's property. Upon the husband's death' the

widow was entitled to a life estate in an undivided one-third of the

husband's lands A husband had a comparable interest in his wife's

lands known as curtesy. Upon the wife's death, her husband's curtesy

right gave him a life estate in all (notjust an undivided on€{hird) of

th; Ia;ds of which the wife was seised during marriage However, a

husband ! curtes) estale I un l iLe dower) arose only if issue \r ere bom

to the marriage.

1) Property subiect to dower' Dower attaches to any land the hus-

band owns at the time of the mardage and all subsequently ac-

ouired land. The husband cannot defeat the wife's dower interest

by attempting a tnnsfer of land without herjoinder

2) Testamentary effect. Dower and curtesy rights could be asserted

regardless of the decedent's will. Thus, a wife's dower interest

in her husband's land was not affected by the fact that the hus-

band had devised lhe land to another' To this extent each spouse s

power of testamentary disposition over property was limited by

the other's dower or curtesy ilght

3) Present status of dower and curtesy. Most states have abol-

ished dower and curtesy in favor of elective shale statutes'

3. Rights ofsurviving Spouse to a Share ofDecedent's Property'

a. Elective share and its rationale. The majority of states give the sur-

viving spouse an elective share of the deceased spouse's real and per-

sonal asiets. The spouse can elect to either take under the deceased

spouse's will or renounce the will and take a statutoly share of the

estate (,.rsually one-third or one-half) Section 2-202(a) of the UPC

Drovides a schedule to determine the elective share percentage deter-

mined by the length of the malliage The surviving spouse is entitled

to 50% of the decedent's estate after 15 yearc of marriage ln addi-

tion, if the surviving spouse's assets are less than $50,000, she is en-

titled to a supplemental elective share in the amount of $50'000'

d.

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b. Election rtquired for public assistance-It /e Estate of Cross' 75 Ohio st'

3d 530. 664 N.E.2d 905 (1996).

1) Facts. Carroll Cross died testate, leaving his estate to his sonSay Crcss-'

Cpl, *fto *u. not the child of his surviving spouse' Beulah Beulah' 80'

sifered from Alzheimer's disease and was in a nuning home; her care

was paid for by Medicaid Pursuant to statute' the probate court appointed

a commissionir who investigated the matter and concluded that the court

should elect on Beulah's behalf to take against the estate Beulah would

then rcceive a spousal allowance of $25'000 and half of apprcximately

is,mo. rh" ptoiur" "out,

after a hearing, so elect€d P appealed Beulah

died while the appeal was pending The appeals court reversed' hnding

that the election was not in Beulah's best interest and not necessary to

provide for her support because her cale was paid byMdicaid Beulah s

ud.ini.t uto, (D) uppeals a'Id is joined by the board of commissioners

that rcpresented Beulah before the probate court'

2) Issue. Did the probate court judge abuse his discretionjn electing for

Beulah, who depended solely on Medicaid benefits for her support' to

take against her deceased husband's will?

3) Held. No Judgment reversed Probate counjudgment reinstaled'

a) The prcbate coult has statutory authority to elect on behalf of a

disabled spouse after ascertaining the spouse's adequate supp9l

n""Jt una "o-p-lng

the value of the spouse's share under the will

with her rights under the statute of descent and distribution The

court must-first consider other rcsources and the age' life expect-

ancy, physical and mental condition, and anticipated future needs

of tit" spous" una a"termine if the election is necessary to provide

for her adequate support.

b) The appeals court ignored Beulah's Medicaid eligibility requirc-

ments. imong the rcsources that are considered in determining eli

gibility for M;dicaid is property devised to a recipient from a parcnt

ir spouse, including "those rcsources in which an applicant/recipient

has^a legal interesiand the legal ability to use or dispoqe of "

Medicai-d rules state that an applicant or recipient who fails to use

available income is ineligible for benefits'

c) Here. to maintain Beulah's Medicaid eligibil i ty and to conlinue to'

have her expenses provided by Medicaid, thejudge was reqlired to

elect for Biulah to take against the will and receive her intestate

sharc.

In re Estateof Cross

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1r? re Estateof Cooper

c. No forced sharc in homosexual relationship-I, /e Estate of Cooper, 592N.YS.2d 797, 187 A.D.2d 128 (1993).

1) Facts. Upon William Cooper's (T's) death, the bulk ofhis estate was lef!to his former lover, Emest Chin (P). B who had a homosexual relation,ship withT, petitionedthe courtto allow him to elect againstthe will. T'sexecutrix (E) opposed and applied to dismiss P's action. The court foundfor E. P aDDeals.

Issue. Is a homosexual relationship a "spousal relationship" such that asuryivor is entitled to a right of election against the decedent's will pur-suant to the relevant statute?

Held. No. Decree affirmed.

The statute permits a suNiving spouse the right of election.

A "surviving spouse" is defined as a husband or wife, but even if itwere not, the language ofa statute is generally construed accordingto its natural and most obvious sense in accordwith its ordinary andaccepted meaning.

The traditional definition contemplates the survivor of a union be-lween members of the opposite sex. and we \ee no reason to rejectthat.

t )

a)

b)

c)

d) Any equal protection analysis in the instant case is to be measuredby the rational basis standard, i.e., the legislation is valid ifthe clas-sification drawn is rationally related to a legitimate state interest.

e) The Supreme Court of Minnesota rcjected same sex petitioners'ar-gument that aprchibition on same sex mariages deniedthemequalprotection, holdingt "the institution of marriage as a union of manand woman, uniquely involving the procreation and rearing ofchil-dren within a family . . . [is] 'fundamental to the very existence andsurvival of the race.' This historic institution manifestly is moredeeply founded than the assefted contemporary concept of marriageand societal intercsts for which petitioners contend." lBaker v.Nelson, 191 N.W.2d 185 (I4inn. 1980)l The Supreme Court dis-missed petitioners' appeal for want of a substantial f€deral ques-tion. "Such adismissalis aholding that the constitutional challengewas considered and rejected." Elicks v. Miranda, 422 U.S.332(1e60)l

4) Comment. On appeal, the New York Court ofAppeals dismissed onthe ground that no substantial constitutional question was directlyinvolved. [14 rc Cooper, 82 N.Y2d 801, 624 N.E.2d 696, 604 N.YS.2d558 (1993)t

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d. Surviving spouse's statutory share of assets of inter vivos trust created Sullivanby deceased spouse.-Sullivan v. Burkin, 390 Mass. 864, 460 N.E.2d 571 v Burkin(1984).

1) Facts. Mary Sullivan (P), a widow who exercised her statutory right totake a share of her husband's (Emest's) estate, brought an action seekngdetemination that the assets held in inter vivos hust created by Emestduring mariage should be considered as part of the estate in determiningthat share. Emest had executed a deed of trust under which he trans-fered rcal estate to himself as sole trustee. The net income of the trustwas payable to him during his life and the hustee was instucted to paito him all or such part of the principal of the trust estate as he mightrequest in writing periodically. He retained the right to revoke the trust atany time. On his death, the successor tlustee was directed to pay theprincipal and any undistributed income equally to George and HaroldCronin (Ds) if they should survive him, which they did. Emest died whilestill tustee of the inter vivos tust. He left a will in which he stated thathe intentionally neglected to make any provision for his wife and gmnd-son. He directed that, after payment of debts, expenses, and all estatetaxes levied by rcason of his death, the residue of his estate should bepaid over to the trustee of the inter vivos trust. The Probate Court re-jectedP's claim and enteredjudgment dismissing the complaint. Appealwas taken.

Issue. Are the assets of an inter vivos trust to be considercd in determin-ing the portion of the estate of the deceased to which a widow may claimher statutory share?

Held, No. Judgment affirmed.

a) Atust with rcmainder intercsts given to others on the settlor's deathis not invalidas a testamentary disposition simply because the sett-lor retained a broad power to modify or rcvoke the fust, the dght torcceive income, and the right to invade principal during his life.

b) The fact that the settlor of a trust with rcmainder intercsts given toothers on the settlor's death is the sole trustee does not make thet1!st testamentary.

c) Whether or not the decedent established an inter vivos tmst in orderto defeat P's ight to take her statutory sharc of the assets placed intrust, and even though the decedent had a general power of appoint-ment over the trust assets, P obtained no dght to share in the assetsof that trust when she made her statutory election.

d) In the future, as to any inter vivos trust created or amended after thedate of this opinion, the estate of the decedent, for purposes ofthe

2)

3)

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survlvtng spouse's statutory sharc, shall include the value of assetsheld in an inter vivos trust created by the deceased spouse as towiich he alone retained power during his life to direct dispositionof those trust assets for his benefit, as, for example, by the exerciseot a power of appointment or by revocation ofthe trust.

UPC right to etective share. Under rhe UpC, the surviving spouse has a right::

a p:rc:ntag::lthe decedcnfs "augmented estate" based on the length-ofthe mariage. LIPC section 2_203 combines the properties to be inclu;d inthe augmented estate. Nonprobate assets_such aJ life insumnce policies,pension plans, bonds, and bank accounts_frequently pas. to t"n"ii"lJ".outside of the will. As a result, instances arise wheri the surviving spousemay rcceive too great a share of the decedent's estate, or too tittte. tinjer ifreIIPC, the spouse's share from tle augmentea

".tut" in"tua", tt

" iolio*ing,

l) The probare esrale less funeral e\penses. claims. and various family al_lowancesi

2) The value of property transfered dudng the mariage without the con,sent of the spouse by a.mngements that are, in effeci, will substitutes;

Propeny acquired by lhe surviving spou.e fmm the decedent or olher_wrse translerfed lo the survir ing spouse.

The_\ alue.of the survi\ ing spouses.s propeny and nonprobare transferslo others thar woLrld have been in her augmenied estat; upon her death;arnd

4)

5) Life insurance proceeds payable to any person other than the survivingspouse.

Source ofelective share. Statutes in some states provide that values included:i:1,. ligln".","d :tj"le Lhal pass or have passed lo the surviving ,pour.

-.appleo lrrst to salisty the eleclive share cnd lo reduce an) conrri luijons duefrom other recipients of transfe$ included in tt e uug_"ni"a ertute. '----- ---

9,lTi "T1"i*: Neq yort provichs generously for a suniving spouse. Irserecr\e share slalutes provide lhat Ihe survivrng spouse is entit ledio the en_lire esrale if ir is in rhe $t00.000 range. ln addition to rhe pr"b";;;., ;;rorowrng \r r substi lules are subject to lhe elective sh616.; 111g;ft5 caus. rnar_.rs:r I | lsavtngsaccol /n l rusts l { i j j rconlr ibut tonstojointbanl iaccounts: t i \ Ipropeny payable on dearh ro a person olher rhan rhe decedent; tut .euocableUrerrme lransters. pension plans. and propeny over whjch lhe decedenl had agenerar power ot appointment. The elecrive share is reduced by the value o[any interest (other than a life estate) that passes f.om tle aeceaenito ttre suruiv_rng spouse.ln contrast, Delaware includes in the elective share all DroD_

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erty includible in the gross estate for federal estate tax purposes, regardless ofwhether the decedent files an estate tax retum.

1) Int€r vivos transfer included in computation of €lective share--fr, reReynolds, 87 N.Y2d 633, 664 N.E.2d 1209, 642 N.YS.2d l4'7 (1996).

a) Facts,William (P) and Dorothy (T) Reynolds were married for25 years.T had four children fiom a previous mariage. Shortly before her deathin 1989, T created a trust for the purpose of qualifying for Medicaidb€nefits if nursing home care was ne€ded. Two of her children were namedtrustees, the majority of her property was transferred to the trust, and herchilfuen were named remainder beneficiaries. T relinquished all rightsin the property tlansfelred, but retained the right to appoint remainderbeneficiaries at any time prior to the termination of the trust. Under theterms of the retained power, she could not appoint to herself, her spouse(P), her estate and its creditors, or her creditors. By its terms, the hustterminated one day prior to T's death. Upon T's death, her entire estatehaving been left to her children, P filed a notice of election, which wasgiven effect by the surogate's court. Later, P filed an objection to theprcposed accounting for the estate because it had excluded the trust as-sets from the estate for the purposes of computing his elective share. Thesurrogate cout sustained the objection. The appellate division disagreed.P appeals.

b) Issue. Does an inter vivos trust in which a decedent retained a limitedpower of appointment constitute a testamentary substitute in violation ofthe surviving spouse's right of election?

c) Held. Yes. Appellate division's order modified.

(l) The rclevant statute defines a testamentary substitute as one in whichthe decedent, at the date of her death, retained a power to rcvokesuch disposition orto consume, invade, or dispose ofthe principal.

l-egislative history reveals that the statute was enacted to protectthe right of election of surviving spouses ftom timely uses of vari-ous intervivos tlansfers. A special shrdy initiated for the pupose ofproposing the protective legislation concluded that among the intervivos transfers subject to the elective dghts of a surviving spouseshould be those where a power of appointment has been retained.

T retained a limited power of appointrnent that left her with mean-ingful control over the trust during her lifetime. She retained theright to execute what were testamentary transfers to any number ofbeneficiades. This poweris equal to the power to revoke, consume,invade, or dispose as contemplated by the statute.

In reReynolds

(2)

(3)

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I rc Estateof Garbade

(4) The fact that the power teminated one day prior to T's deatheffected no realistic limitation on its exercise.

h. Waiver. A surviving spouse may voluntarily waive his rights to election, hom€-stead allowance, exempt propefiy, or family allowance by a written and ex-ecuteo agreement.

1) Waiver upheld-h /e Estate of Garbadg 221 A.D.2d 8,14, 633 N.YS. 2d878 (1995).

Facts, In 1990, Respondent (R) marded J. Robert carbade, the de-cedent, a wealthy executive, aftersigning aprcnuptial agreement inwhich R waived her elective share, anong other prcvisions. Theagre€ment also rcquired the decedent to maintain a $ 100,000 policyon his life for R's benefit. Following the decedent's unexpected deathin 1992, R received assets totaling approximarely $340,000 and filednotice ofher election to take her share ofthe decedent's estate. Thedecedent's sons frcm a previous marriage, Petitioners (Ps), movedfor summary judgment, claiming R's right had been waived. Rclaimed the waiver had been procured by fraud, misrepresentation,and duress. The coul't enteredjudgment for Ps. R appeals.

Issue. Was the prenuptial agrcement procured by fraud?

Held. No. Judgment affirmed.

(l) Like any othercontract, aduly executed prenuptial agreementis given a presumption of legality. The party attacking theagreement's validity has the burden ofproving fraud.

(2) R presented evidence to show that it was the decedent who hadfilst raised the issue of an agreement and asked that it be ex-ecut€d before the wedding. The decedent's lawyer had pre-pared the agreement and it was signed only a few hours beforethe wedding. R did not obtain legal counsel, nor did she readthe agreement before signing it. R was not told of the provi-sion waiving her elective sharc and was not provided with acopy of the agreement.

(3) Howevel it was uncontoverted that R readily agreed to theagreement because she did not want the decedent's moneyishejust wanted to be his wife. Prior to signing, R was told thefull scope ofthe decedent's wealth, was advised to obtain coun-sel, and was given the opportunity to read the agrcement.

(4) Ther€ is no evidence of fraud here. R has esrablished only thatshe was derelict in not rcading the agreement and in not con-sultins counsel.

a)

b)

c)

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4. Rights of Surviving Spouse in Community Property.

Intrcduction. In all of the community property states, if an intestate isnot survived by descendants, the intestate's one-half share of the com-munity estate passes to the surviving spouse. Because the other half ofthe community estate belongs to the surviving spouse, the survivingsDouse succeeds to the entirc estate. In several states, the surviving spouset;kes the entire community estate even if the de{edent was survived byd€scendants. In others, the decedent's one-half community share is in-herited by his descendants.

Classilication of assets as community or separate property. This clas-sification is important for tax reasons since under federal tax law theentirc value of a spouse's separate property but only one-half of the com-munity propefiy is included in the deceased spouse's gross estate.

Putting the survivor to an election. Under the widow's election, anestate planning device, the deceased spouse's will purports to dispose ofthe entire community property and not just an undivided one-half share,giving the surviving spouse an electton, such thatifthe surviving spouselays claim to her community interest, she loses the testanentary gifts inher favor On the other hand, if the testator disposes only of his separateprcperty and his one-half share of community property, the survivingspouse may claim both her sharc of community property and her deviseunder the will.

5. Migrating Couples and Multistate Property Holdings.

a. Migration from separate property stat€ to community prcperty state.When a couple moves from a separate property state to a communityproperty state, potential problems arise in determining what the surviv-ing spouse is entitled to upon her husband's death, padiculady if he eamedor acquired the majority of thei Foperty while domiciled in the separateproperty state. This occws because ownenhip of property is determinedin accordance with the laws of the state in which the couple was domi-ciled when it was acquired or eamed. Two states, Califomia and ldaho'give the surviving spouse a remedy in these situations through the con-cept of quasicommunity property Quasi-community property is prop-erty acquired by one spouse while domiciled in another state that wouldhave been classified as community prcperty had it been acquired whilethe spouse was domiciled in the community property state. Real prop-erty located in another state does not constitute quasi-cornrnunity prop-erty. When the acquiring spouse dies, one-half of the quasi-communityproperty goes to the surviving spouse and the other half is disposed ofaccording to the decedent's will. The non-acquiring spouse has no testa-mentary powe$ over the quasi-community plopelty if she dies first-the entire property belongs to the acquiring spouse.

b.

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Estate ofShannon

"il*",**tilrg,*t*rf ,*i:ii;#j,H'*"

i*il';'T*fi,*{,rqf#$i#f,,;*; #l{::..,,x6. Spouse Omitted from premarital Will.

a. Sates without statutes. The stru n ;": #*i.l #H;:"+ri"l$i :'i'!i "Jffi:Til:';sr::*:,l: ;:m; n ffi .,;:n'#i;: ::,#"iiT:;;:

"*iji,:":t"i$*,,,x#fi {f"n*qi:L,hif .l$iiil.ti;;1p ;5,*** gg4,5p*n: ;. 1'.t*im:ft -'..1i:p*'ffi

ft Tf $:,,:'l*i'l;li*.Fil?r,liJiir,*ll,i''ri''lr,***tl#;"Trffriil"fi::;" iil::: lill"r',i":T'iil:: l"l,;;i; Esrare or S han non. 2z-+ ca r

",1r$;;;1;qiff*j.. iffirr"l,*#ll:J#il,jii:;]fi t#iTtffi iHflilf:q*ffiH#

2) Issue. Was p a pretermitted spouse?

3) Hetd. yes. Orderreversed and remanded.

,;T:jil?:il:H:i,."",":i::$iil,T"#::1ff l:fi ,::?i::

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the execution of the testator's will, the omitted spouseshall receive a share.

b) None of the exceptions that would preclude P from shar-ing in T's estate apply T's failue to provide for P doesnot appear from the will to be intentional. No evidenceshows T provided for P outside the will. P did not executean agrcement to waive her sharc.

c) The exclusionary clause, without more, is insufficient toavoid the statutory presumption of revocation of the willas to the omitted spouse based on public policy

B. RIGHTS OF ISSUE OMITTED FROM TIIE WILL

Pretermitted child statutes are designed to protect children who have been

accidentally omifted from the will In most states, the statute operates only in

favor of children bom or adopted after the will's execution. In other states, thepretermitted child statute applies to children alive when the will was executedas well as to afterbom and after-adopted children.

1. Child Born After Will But Before Codicil-'Azcunce v, Estate ofAzcunce, 586 So.2d 1216 (Fla. l99l).

a. Facts. Ren6 Azcunce (T) exeauted a will that established a tlust forthe benefit of his spouse and his then-bom children; there was noprovision for after-bom children. T subsequendy executed a codicilihat republished the tems of the will. T's daughter, Patricia (P)'

was bom after this first codicil but beforc a second' which, agair-,republished the will and first codicil and made no mention of after-bom childrcn. T died of a heart attack at age 38 P petitioned for astatutory share as a pretermitted child The trial court denied the

Petition. P apPeals

b. Issue. May a child who is bom after the execution of her father'swill, but before the execution of a codicil to the will, take a statu-tory share under Florida's prctermitted child statute when the will

and codicil fail to provide for the child and all the other statutory.equirements for pretemitted child status are otherwise satisfied?

c. Held. No. Order affirmed.

l) Under the statute, prior to the second codicil, P was a preter-mitted child, a child born after the making of the will who hadnot rcceived a portion of T's property by way of advancement'

2) The second codicil expressly statedthat itrepublishedthe origr-nal will and first codicil. Thus, P's Fetermitted status was de-stroyed.

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Espinosa v.Spalber, Shevin,Shapo, Rosen& Heilbronner

In re Estateof Laura

)

3) IfT had wished to provide for P, presumably, he would have doneso in the second codicil. P was, in effect, disinherited.

4) There is no ambiguity in the will and codicils that would authodzethe taking of paJole evidence.

No Malpractice Suit Without Priority-Espinosa v. Sparber, Shevirl Shapo,Rosen & Heilbronner,612 So. 2d 1378 (Fla. 1993).

a. Facts. After Ren6 Azcunce's (T's) daughter, Patricia (P), was bom, Tcontacted his attomey (D) and indicated his desire to include p in hiswill. D dmfted a will and restructured the trust. However, because of adisagreement between T andD, T never signed the second will.Instead,T executed a second codicil that did not provide for p p brought a mal-pmctice suit against D. The tdal cout dismissed for lack of privity andentered summary judgment for D. The court of appeal reversed the dis-missal with regard to the estate, affirmed it with regard to B and cetifiedthe question of whether P has standing to bring a legal malpractice action.

b. Issue. May a malpractice lawsuit be brought against an attomey whodrafted a codicil if the plaintiff is not in privity with the attomey or anintended third-pany beneficiary?

c. Held. No. Judgmenr affirmed.

1) To bring a legal malpractice action, the plaintiff musr be in privitywith the attomey, where one pafiy has a direct obligation to theothet or must be an intended third-party beneficiary.

2) Because Tis not alive to tesdfy regarding intended rhid-party ben,eficiaries, the court is obligated to honor T's intent in confomitywith the will's contents.

3) T's estate stands in T's shoes and satisfies the pdvity requirement.

Great-Grandchildren Not Pretermitted Heirs-I2 re Estatc ofl-aura, l4lN.H. 628,690 A.2d l0l1 0997).

a. Facts. Edward Laura (T) executed a will in 1984 and subsequently diedin 1990. The wil l provided rhar T's estare would pass ro his daughrer,Shirley, and specifically disinherited his son Edward and his two grand-children, Richard and Neil, children of his deceased dauehter. Jo Ann.After lhe wil l was executed. Neil had two children, Cecil ia and Neil [ l(I's great-grandchildren). kior to his death in 1990, T attempted to ex-ecute a codicil to the 1984 will that would have divided his estate inpropoftionate shares between Shirley and her children, Edward and hischildrcn, andRichard. However, the codicil was not properly witnessed,

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b.

and upon T's death, the 1984 will was offered and accepted for probate. Rich-ard alld T's great-grandchildren (Ps) challenge the will and claim they arepretermitted heirs. The probate coult adopted the master's findings that Pswere not pretemitted heirs. Ps appeal.

Issu€. Are Ps pretermitted heirs under the rclevant statute?

Held, No. Judgment affirmed.

l) The relevant statute states: "Every child bom after the decease of thetestator, and every child or issue of a child of the deceased not named orref€rred to in his will, and who is not a devisee or legake, shall be en-titled to the same portion of the estate, real and personal, as he would beif the deceased were intestate."

2) The statute protects against the omission of a child unless that omissionis shown in the will to be intentional.

3) While Cecelia and Neil III were not narred in T's will, their father wasspecifically disinherited. Where a testator has specifically named an heirto disinherit him, he has refened to the heir's issue for the purpose of thestatute.

4) If a testator's child is mentioned in his will, that child's issue are notpretermitted heirs. Here, T's will specifically names his prcdeceaseddaughter, Jo Ann. Thus, her issue, Ps, arc not pretermitted heirs.

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VIII. TRUSTST CREATION, TYPES' AND CHARACTERISTICS

A. INTRODUCTION

Background. The tflrstee of a tlust owns the legal interest of the fustproperty while the beneficiary owns the equitable interest

The Settlor. The settlor is the person who creates the trust. A tlust cre-ated during the settlor's lifetime is an inter vivos trust. Atrust crcated mthe settlor's will is a testamentary trust.

The Trustee. The trustee may be a third party or abeneficiary. Failure toname a trustee will not defeat a trustl a court will appoint a rustee.

The Beneficiaries, Beneficiaries hold equitable interests. They have apersonal claim against the trustee for breach of trust, and equitable claimson the trust property itself-

Use of Tfusts in Estate Planning. Trusts can be used to avoid the pro-bate process. Also, trusts can be used to securc certarn tax advantagesand for propefiy management, including transfering propefty to minorsor incompetents.

A Trust Compared with a Legal Life Estate. In most cases, creatlng atrust with the donee as lifebeneficiary is preferable to givingthe donee alegal lifeestate, since resolution of various adminiskative problems withthe estate is facilitated by having a trustee.

4.

6,

Jimenezv Lee

B. CREATION OF A TRUST

1. Intent to Create aTrust. While the settlor must have the intent to createatrust, no pafiicular words need to be used.It is sulTicient for the grantorto convey property to a grantee to hold for the use and benefit of another'

a, Need not expressly direct that subiect matter be held in trust-Jimenez v. Lee, 274 Ot.457,541 P.2d' 126 (1'916).

1) Facts.In 1945, the patemal grandmother of Betsy Lee Jimenez(P) purchased a $1,000 U.S. Savings Bond registered in thename of P and/or Jason Lee (D), the father of B and/or Dor-othy Lee, the mother of P, to be used for P's educational needs.In 1956, Mrs. Adolph Diercks gave $500 to P and made iden-tical gifts to D's other two children. Mrs. Diercks depositedthe $1,500 in a savings account in the names ofD and his threechildren. Thereafter, D cashed the savings bond and investedthe proceeds in common stock of the Commercial Bank ofSdem, Oregon, with the shares registered as "JasonLee, Custo-dian . . . for Betsy Lee [P]." At the same time, D closed the

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b.

joint savings account and invest€d $1,000 of the proceeds in Cornmer-cial Bank stock, takng this stock as custodian for his children P con-tends that the gifts for her educational needs created fusts in each instanceand that the trusts survived D's investment of the trust assets in the Com-mercial Bank stock. P brought an action for an accounting The trialcourt held for D. P appeals

2) Issues.

a) To create a tust relationship, is it essential to exprcssly direct thatthe subject matter of a giit be held in trust?

b) Does a trustee have the responsibility to administer a tust solely inthe interest of the beneficiary of the trust and to prove that any ex-pendtturcs made were made for trust purposes?

3) Held. a) No. b) Yes. Case reversed and femanded.

a) It is undisputed that the gifts werc made for the educational needsof P. While the respective donors did not expressly direct D to holdthe subject matter ofthe gift in tust, this is not essential to create atrust relationship. It is enough if the hansfer of the property is madewith the intent to vest the beneficial ownership in a third person'This was cl€arly shown in the present case.

b) Having decided that a ttust was created for the benefit of B it fol-lows thatD's purchase ofthe Commercial Bank stock as custodianfor P was ineffectual to expand D's powers over the trust propertyfrom that of tustee to that ofcustodian. D's attempt to broaden hispower violated his duty to the beneficiary to administer the tustsolely in the interest of the beneficiary' Here' many of the items thatD lists as trust expenditures are either questionable or clearly out-side the purpose of an educational ffust The trial court theretbreerred in finding that P has received the accounting that she soughtand is entitled to no further accounting.

c) The case must be rcmanded for an accounting to be predicated uponatustee's duty to account and the fustee's burden to prove that theexpenditures were made for trust purposes. In determining whetherD has met this strict burden of proof, the trial court must adhere tothe rule that all doubts are resolved against a trustee who maintainsan inadequate accountlng system

Custodianship Under Uniform Transfers to Minors Act. Under this Act, agift to a minor may be transfered to a person as custodian for the benefit of

the minor The creation of this custodianship is simpler than the creation of a

trust. The custodian is a fiduciary. To th€ extent that the custodial property is

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The HebrewUniversityAssociationv Nye

d.

not expended for the minor's benefit, the custodian is required to transfer theproperty to the minor on his attaining the age of 21 or, ifthe minor dies beforcarlaining rhe age of 2l , ro lhe esrare of the minor

Precatory language and equitable charges. Precatory language-such as"To A with the hope that A will care for B"----creates a monl obligation unen-forceable at law. Uncertainty can be avoided by specifying that only a moralobligation is desired; e.9., "I wish, but do not legally requirc, that A will carcfor B." Likewise, an equitable charge (not a tust) occws when a testator de-vises property to a person provided that person pays a certain sum of moneylo anomer person,

No intention to impose trustee duties-The Hebrew University Associa-tion v, Nye (Hebrew Uniyersity As sociation I ), 148 Conn. 223, 169 A.2d 641( 1961).

1) Facts. Hebrew Univelsity (P) obtained ajudgment declaring it was theowner of a rarc book collection purchased by Professor Yahuda and hiswife Ethel during the professor's lifetime. Ethel had purchased a part ofthe collecdon inventoried in the professor's estate when he died, and ather death, she owned the complete collection. Professor Yahuda and Ethelhad indicated to friends beforc the Drofessor's death that both wished tocreate a scholarship research center in Israel. Professor Yahuda had for-warded some of the books to New Haven for shipment ove$eas, but noconsignee was named and the books remained in New Haven and werepurchased by Ethel at the professor's death. Thereafter Ethel vi sited P inIsrael and announced her gift at a luncheon. The next day, Ethel signed aprcss rclease prep:ued by P, indicating Ethel had made a gift to P Ethelalso provided P with a memorandum listing most of the library's con-tents, and its impoitant books and documents. [See Hebrew UniversityAssociation II, infral Late\ Ethel stated orally and in writing that she"had given" the library to P, she refused offers of purchase, and toldothers the library did not belong to her. Ethel crated and catalogued thebooks, and up to the time ofher death, coresponded with P about deliv-ering the library, and sent some items to a warehouse for delivery. UponEthel's death, P sought a declaratory j udgment determining whether P orNye (D), Ethel's estate's reprcsentative, owned the library but P's com-plaint contained no theory based upon which ownership was claimed. Dappeals.

2) Issue. Is P the owner of the library?

3) Held. No. Case remanded for a new trial.

a) The judgment below provided no basis for the court's conclusionthat a trust was created at the luncheon when Ethel made public herintention to create the kust.

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b) The facts indicate that Ethel intended' and possbil orqcc

to give an executed, prcsent, legal inter vivos gift o P rrmr

deliverY'

c) Because a gift fails for lack of delivery' the intent to glre catr-

not be canLd into effect through the presumption that the do-

nor intended to have made heNelf trustee to make the necessaq

delivery

d1 One may constitute herself trustee of personal propefly and

cleate a tust erforceable in equity' evefl without consideration

or delivery. However, while the term "ttustee" does not have to

be used, the donor must show an intent to impose upon herself

enforceable duties of a trustee'

e) No facs are provided in the opinion below indicating that Ethel

ever imposed austee duties on he$elf

e. Constructive delivery-The Hebrew University Association v'Nye-'

fi"ir". u"ir"^ity Aisociation II), 26 Conn' SDpp 342' 223 A'2d 39i

(1966).

l) Facts. See Hebrew l|niversity Associatiotl l' supra'

2) Issue.Is P the legal and equitable owner of the library with the righ'

to immediate possession of its contents '

3) Ileld, Yes Judgment entered for P

a) P claims constructive delivery by means of.Ethel's memo-

randum. Consfuctive delivery requires delivery as nearly

perfect and complete as the type of property and the-circum-

stances will permit Constructive delivery has been found in

delivery ofkeys, pointing out hiding places' and an inforrnal

memorandum.

b) Here, delivery of the memorandum' along with Ethel's acts

and ieclarations that clearly show herintention to give a gift

and to divest herself of ownership' was sufficient to com-

Plete the gift

2. Necessity of Tlust Property. A trust must have trust property Any type of-'

oroo"nu --ontngent remainders' life insutance policies' leasehold interests-'*i li.uin.. fft" ituin concem is whether lhe particular claim will be deemed

property by a coun

a. Pmmise to make gifts in the tuturc-Unthank v' Rippstein' 386 S W 2d

134 (Tex. 1964).

The HebrewUniversityAssociationv Nye

Unthank v.Rippstein

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r) Facts. C.P Craft wrote a letter to Iva Rippstein (P), promising to pay h€r

$200 a month for the next five years provided he lived that long ln the

margin ofthe letter, he wrote: "l have stdcken out the words 'provided I

iiulifruifong' u.a ft"t"by and herewith bind my estate to make the $200

monthly pay-ments." Ctaft died three days after writing the letter' P brcught

suir againsi the execulors of his eslale (Ds) for declaralory judgment

aal,ral"car;ng rtreir tiauilily to pay lulure Installments as they mature The

tri'al court iranted th" "i""uiotr'

motion for summary judgment The

court of apfeds reversed and rendered judgment for P' holding^that the

*.iting inlu"ttion "ttablished

a voluntaly trust under which Craft bound

his pr;perty to the extent of the promised payments Ds appeal'

Issue. Is a writing promising to make gifts in the future binding as a

voluntarv trust?

3) Held' No. The judgment of the coufi of appeals is reversed and that of

the trial court is affirmed.

a) While the transactions under review are in the form of voluntary

lf lJsls. Lhe) are govemed in general by lhe rules applicable to gifts

The princrpat difference belween such a fusl and a g'l l l les In rne

fact ihat in the case of a gift the thing given passes to the donee'

whileinthecase oi a voluntary hust only the equitable or beneficiaL

title Passes to the beneficiary'

b) Here, the language ol the notation of Craft cannot be expanded to

show an intention on the part of Craft to place his property in fust

The most Craft did was to expl€ss an intention to make monthly

gifts to P accompanied by an ineffectual attempt to bind his estate

in futuro; the writing was no morc than a promise to mak€ similar

gifts in the futwe and as such is unenforceable'

b. Resulting and constructive trusts.

1) Resulting trust' Resulting rusts arise by opelation of law when (i). an

express trust fail s or (ii) aperson pays the putchase pricefor prcperty but

tiG results in the name of another penon who is not related to the pur-

chaser (putchase money resulting trust)

2) Constructive hust. Constluctive trusts are flexible remedies imposed

to prevent unjust en chment The trustee must convey the property to

the wrongedparty Requirements for a consfuctive tust are:

(i) A confidenti al relationshiP;

A transferee's prcmise, express ot implied;

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(iii) A transfer of property in reliance on the promise; and

(iv) Unjust enrichment of the lranslerce

A consfuctive trust may also be imposed to avoid unjust enrichment A

promise or confidential relationship need not exist'

Tfust distinguished from debt. The crucial factor to differentiate between a

t..r.t ,"lutionihip und un ordinary debt is whether the recipient of the funds is

"ntitl"d to o." th". as his own and commingle them with his own monies

1) Tiust bas€d on interest not in existence"Brainard v' Commission-

er,9l F.2d 880 (7th cir 1937)

a) Facts. Brainard, a taxpayet contemplated trading in the stock-mar-

ket. He consulted a lawyer and was advised that it was possible for

him to trade in trust for his children and other members of his fam-

ily. Brainard stated to his wife and mother that he declarcd a trust'

u;on certain terms and conditions, of his stock trading for the ben-

eiit ofhis family. He agreed to assume personally any losses result-

ing from the venture, and to distribute the profits' if any' in equal

shares to his wife, mother, and two children after deducting a rea-

sonable compensation for his services Brainard carried on his trad-

ing operations and at the end of the year detemined his compensation

toie slightly less than $10,000, which he reported in his income

tax for that year The profits rcmaining were then divided among

the memberi of the family in approximately equal shates' which

they rcported in their resp€ctive income ta'{ retums The Board of

TaiAppeals heldthatthe income incontroversy was ta'{able as paft

of gross income. Brainard appeals'

b) lssue. Can a trust be based on an interest that had not come into

existence at the time the ttust is declared and in which no one had a

present interest?

c) Held. No Order of the board affirmed'

{ l) An interest that has not come into existence or lhat has ceased

to exist cannot be held in trust A pe$on can make a contact

binding himself to create a trust of an interest if he should there-

after a;quire it' but such an agreement is not binding as a con-

fiact unl;ss the requirements of contract law are complied with

An expeclancy cannot be the subject matler of a tnrsl and an

altempled crealion. being merely a ptomise to transler prop-

eny in lhe future. is invalid unless supponed by conslderauon

Here, the taxpayer had no property interest in the profits in

Brainard v.Commissioner

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Speeimanv. Pascal

stock trading because there were none in existence at the time. Hisdeclantion amounted to nothing more than a ptomise to crcate atrust. We thereforc must determine whether it complied with thelaw of contracts.

(2) It is elementary that an executory contact, in order to be enforce-able, must be basedupon valuable considention. Here, the declan-tion was gmtuitous. Even if we assume that it was based on loveand affection, this wouldnot be sufficient consideration for a Drom-ise.

(3) This does not mean, however, that the taxpayer had no right to carryout his declaration after the subject matter had come into existence.The question is, therefore, at what times did the respective eamingsthat constitute the trust fund come into existence and at what timesdid the trust attach to them?

(4) When a person putports to declare himself trustee of an interest notin existence, no tust adses even if the intercst later comes into ex-istence, unless there is a manifestation of intent at that later timeMere silence ordinarily will not be such a manifestation.

(5) Herc, the profits in question werc not impressed with a trust whenthey first came into existence. The taxpayer's crediting the profitsto the beneficia.ies on his books seems to constitute his firct subse-quent expression of intent to become a trustee of the fund. Beforethat, the declaration could not have been enforced against him, andhis mere silence should not be considered an expression of his in-tenlion lo establish a trusl.

2) Gift made of property not in existenc€ at time of gift-Speelman v. Pa.scal,l0 N.Y2d 313, 178 N.E.2d,723,222 N.y.S.2d 324 o96t\.

a) Facts.In 1952, Gabriel Pascal Enterprises, Ltd. made an agreement withthe estate of George Bemard Shaw that granted to the corporation theexclusive .ights to prepare and prcduce a musical play based on Shaw,sPygmaliott and a motion picture version of the musical. prior to thisagreement, Pascal had produced a nonmusical movie venion ofthe playunder rights obtained by Pascal from Shaw during Shaw's life. The newagreement provided that the Shaw estate would rcceive 3Ea of the rc-ceipts of the musical play and movie. It also provided that the licensewas to terminate ifthe licensee did not arrange to have the play producedwithin certain time periods. At a time when the license still had twoyears to run, Gabriel Pascal, who died shotly thereafter, wrote, signed,anddelivercd to Speelman (P) a letter that confirmed that he would giveto P57o ofthe profits obtained in England and throughout the world and27o of the profits in the United States. P brought suit to enforce pascal,s

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2) Issues.

promise to pay the share of the profits The trial cout held for

i. ut . put"ui(o)' puscal's widow' appeals'

b) lssue' Ma) a \alid present gif l be madeof property that is nol

in existence at the time the gift is made?

c) Held' Yes Judgment affirmed'

(1) The questlon nere is: Did the delivery of the letter constl-

tute a \ alld' complete' presenl gift to P by way of assign-

menl ol a share;n future royaltieri We hold lhal rt did'

There arc many mstances of courts enforcing assignments

of rights to sums that were expected thereafter to b€come

due to the asslgnor' In thoseiases ihat failed' thereJlad

nol been such a completed and ine\ ocable dellvery ol tm

subJect matter of the gift as to pul the gil't bey:i:"tT;::-

ladon by the donor Here there was nothing lelt lor ras-

cal to do to make an irevocable ffansfer to P of palt of

Pascal's nght to receive royalties from the productions'

3. Necessity of Trust Benefrciaries' A trust must have a beneficiary' However'

the ben€ficiary may be unbom or unascertained when-the tlust is created^Jf

there is more than one beneficiary and they are too ifldefinite to be.ascertaiied

"i itt" ,rrn" ,fl" *" u"comes effective' the trust may fail' in which case there

*iiil" "

t".ti,*g trrrst in favor ofthe settlor' his heirs' or other successors rn

lllrcrest.

a. Identification of beneficiaries-Clark r Campbell' 82 N H 28l' 133

A. 166 (1926).

1) Facts. The will of the decedent bequeathed to his trustees anicles

of personal property "such as books' photogtqht" 1b".T:'.!t^"]:l:tstatuary letc ]" to give to the decedent's friends as the trustees shall

select. The lower coufi reseryed the question of whether the enu-

meration of the chattels was intended to be restnctive or mercly

indicative of the variety of personal propetty bequeathed On- ap-

f"ui, i, i, u'go"a thut the bequest foi the benefit of-the testator's

iriends must fail for uanl ofcenainty ol benelrcrarles

Clark v.Campbell

a)

b)

Does a bequest to a ttustee to distribute personal property to a

Lstator's fiiends constitute a private tiust?

Must a private rust have a beneficiary or a class of beneficia-

i".l"ati"Ji",rt" *rll capable of coming into court and claim-

ing the benefit of the bequest?

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ln reSearight'sEstate

b.

3) Held. a) Yes. b) Yes. Case discharged.

a) At common law, there cannot be a bequest to an indefinite person.There must be a beneficiary or a class of beneficiaries indicated inthe will capable of coming into coufi and claiming the benefit of thebequest. This principle applies to privat€ tusts but not to publicausts and chadties. Here, the language of the will, ganting the tlust-ees property of the described class to give to the testator's friends asthey shall select, clearly discloses an intention to create a privatetrust.

b) However, we hold that the will does not provide for definite andascertainable beneficiaries. Thus, it cannot be sustained as a privatetrust. The word "ftiends," unlike "relations," has no accepted statu-tory or other controlling limitations and in fact has no precise senseat all. No sufficient critedon is fumished to govem the selection ofthe individuals from the class.

c) When a gift is impressed witb a tust ineffectively declared and in-capable oftaking effect because of the indefiniteness ofthe benefi-ciary, the donee will hold the property in trust for the next takerunder the will, or for the next ofkin by way of a resulting tnist. Thetrustees therefore hold the property under consideration to be dis-posed of as pan of the residue.

Honorary trusts-.h /e Searight's Estate, 87 OhioApp.417,95 N.E.2d779r1950).

1) Facts. The will of the decedent, ceorge Searight, bequeathed his dog,Trixie, to Florence Hand, and directed his executor to deposit 91,000 tobe used by him to pay Hand the sum of 75C per day for the care of thedog as long as it shall live. Hand accepted the bequest ofTrixie and rheexecutor paid her 75C per day for the keep and carc of the dog. The trialcourt held the provision in the will valid. This appeal followed.

2) Issues.

a) Is the creation of a trust for the benefit of a specific animal theproper subject of an honorary trust?

b) Does a bequest for the benefit of a specific animal "as long as itshall live" violate the Rule Against Perpetuides?

3) Held. a) Yes. b) No. Judgment affi.med.

a) A bequest for the care of a specific animal is an "hononry trust,"that is, one binding the conscience of the trustee, since there is no

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beneficiary capable of enforcing the fust. The modem authori-ties uphold the validity of such gifts wherc the percon to whornthe poweris given is willing to carry out the testator's wishesWe hold that the bequest for the carc of the dog' Trixie, is noL

in and of itselfunlawful.

b) Nor does the bequest violate the Rule Against Perpetuities ltis to be noted that unless a trust established for specific ani-mals limits the duration of the trust-that is, the time dunngwhich the power is to be exercised-to human lives, we willhave honorary tusts established for animals of g1€at longevitythat possibly could continue longer than the maximum period

allowed by the Rule Against Perpetuities Herc, however, therule is not violated since the money given for the purpose ofcaring for the animal is limited to $ 1,000 at 75t per day This

sum of money will b€ fully exhausted in three years and 238 l/3days. It is thus apparent that the testator provided a time limitfot the exercise of the power given to the €xecutor and thatsuch time limit is less than the maximum period allowed under the Rule Against Perpetuities.

4. Oral Inter Vivos Ttusts of Land. An oral inter vivos trust of personal prop-

erty is enforceable, but ifthe subject matter of the oral aust is land, a wntten

insfument is required to make the trlrst effective. However, some courts will

impose a conskuctive trust upon property if the transferee stood in a confi-

dential relationship to the transferor'

a, Oral promis€ to reconvey land held sufficient to impose a construc- Hieble v'

tive trust-Hieble v' Hieble, 164 Conn. 56' 316 A.2d71'7 (19'72)' Hieble

1) Facts. Mrs. Hieble (P) transfened title ofher real estate by deed toher son (D) and to her daughter. The motivation for the transfer wasthat P feared a recurr€nce of cancer. She and the grantees orallyagreed that the tansfer would be temporary; that she would remainin control of the propeny a'ld pay all expenses and taxes; and thatonce the illness had passed, the grantees would reconvey the prop-

erty to P upon request. Five years after the conveyance, P requestedthat D reconvey his title to her' D refused. P brought suit against D

seeking a reconveyance of the propeity. The bial court held for P D

appeals.

2) Issue. Will a constructive trust be imposed on property when thedonee by deed has received realty under an oral promise to hold andrcconvey to the grantor but refuses to pedorm his promise?

3) H€ld. Yes. Judgment affirmed.

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Olliffev. Wells

a) D has not attacked the cowt's finding that the agreement wasin fact made, nor does he contest the receipt of parol evidenceas having violated the Statute of Frauds. Since the finding offacts is not challenged. the conclusion of the court that rheparties stood in a confidential relationship must standunless itis uffeasonably drawn. We grant that the bond between parentand child is not per se a fiduciary one; it does generate, how_evel a natulal inclination to repose great confidence and ftust.

b) This casecomes squarely within the general rule tlat when theowner ofan intercst in land hansfers it inter vivos to another intrust for the transferot but no memorandum is signed as re-quired b) the Slarute of Frauds, and the transferei refuses ropedorm the trust, the ftansferee holds the interest in a con_structive trust for the fansferor if the transferee at the time ofthe transfer was in aconfidential rclationship to the tmnsferor.

5. Oral Trusts for Disposition at Death. If a testator devises property to hisexecutors in trusts not defined in the will but the existence of which the testa_tor has communicated to the executors beforc the will's execution, some couftshold that those trusts may be proved by oral evidence. Other courts refuse tofollow this line of decisions, holding that the trust has not been sufficientl\defined by the will to rake effect, and rhe equirable inreresr goes by way ofrcsulting trust to the heirs as propefiy ofthe deceased.

a. Tiusts not sufficiently defined-Olliffe v. Welts, l30Mass.22l(1881).

l) Facts. The will ofthe decedent, Ellen Donovan. left the rcsidue ofher estate to Rev. Wells @) to distibute in such manner as in hisdlscretion shall appear best calculated to carry out the wishes tharshe had expressed to him or may express to him. The heirs of th€decedent (Ps) brought suit against D, claiming that the residue shouldbe distributed to them. In his answet D stat€d that the decedent hacstated to him her wish that her estate be used for charitable pur.poses. D further stated that he desired and intended to distribute thercsidue for these purDoses

Issue.Ifa will shows the devisee to take legal title only and not thebeneficial intercst, and the tustis not sufficientlv defined bv will tolake effect. wil l a coun impose a resulring rrusion the heiis of rhedecedent as to the property of the decedent not disposed ofby will?

Held. Yes. Judgment for Ps.

a) It has been held that ifa testator devises property to his execu_tors in trusts not defined in the will, but which, as he states in

J'

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the will, he has communicated to them before the will'sexecution, the trusts, if for lawful purposes, may be provedby the admission of the executors or by oral evidence andenlorced againstthem.It has also been held thatthe ffustsmay be enforced against the heirs or next of kin.

b) We reject this line of cases. The will on its face showsthat the devisee takes the legal title only and not the ben-eficial interest, and the tust is not sufficiently defined bythe will to take effect. Thus, the equitable interest goes,by way of resulting trust, to the heirs as property of thedeceased, not disposed of by will. They cannot be de-prived of that equitable interest unless signified in thoseforms that the law makes essential to every testamentarydisposition. A tnist not sufficiently declared on the faceof the wjll cannot therefore be set up by exrinsic evidence to defeat the ghts of the heils at law.

C. DISCRETIONARYTRUSTS

ln a mandatory trust, the tnistee must distribute all the income. In a discre-tionary tlust, the trustee has discretion to distribute either the income or theprincipal or both.

1. Tfustee's Duty-Marsman v. Nasca, 30 Mass. App. Ct. 789, 573 N.E.2d Marsman1025 f1991). v. Nasca

Facts. Testator was survived by her secondhusband (ID, for whomshe provided in a trust. Trustee (T) was directed to pay quart€rlyincome to H and, aiterhaving consideredH's sources ofincome, topay principal for H's comfortable support and maintenance. H ob-tained title by operation of law to the Wellesley home owned astenants by the entirety, but testator also indicated in her will herintent to convey the property to H. Upon Testator's death, Farr, theattorney, met with H. H was forced to reduce his styie of livingdramatically andto apply for a mortgage to pay bills. Fafi was awareof H's status because he replied to an inquiry ofthe mortgage bankand H had asked Farr for money on one occasion. Farr asked H tosuppoft his need in wdting and wrcte to H that FarI thought thetrusi language was "broad enough to permit a distribution ofprinci-pal." H never asked again from the date of Testator's death in 1971until H was admitted to a nursing home in 1983. Farr had given himonly $300 beyond the income ofthe trust. H remaried in 1972 andexecuteda simple will draited byFarr,leaving mostof H's propertyto his wife (P). By 1974, H could not meet expenses and conveyedhis home toTestator's daughter by a former marriage and her hus-

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b.

band. The daughtertook over the mortgage payments, taxes, insurance, andmajorrepairs. Hretained a life estate. Farrhadnever advisedH he couldusethe trust principal for the expenses of the home. The daughter died before H.Upon H's death the daughter's husband asked P to vacate. P brought thisaction in probate court. The court found T in breach of his duty to H andordered the husband to convey the home to P and also ordered Fan to reim-burce Testator's daughter's husband from the remaining portion of H's hustfor the expenses he and Testator's daughter had paid for the upkeep of theproperty.Ifthe trust was insufficient, the court found Farr personally liable.P appeals the denial of attomeys'fees. Testator's daughter's husband andFarI appeal from the denial oftheir motions to amend the findings and for anew trial.

Issues.

l) Does a trustee, holding a discretionary power to pay principal for the"comfortable support and maint€nance" of a beneficiary, have a dutyto inquire into the financial resources ofthat beneficiary so as to recog-nize his needs?

2) If so, was the court's remedy for such failure colrect?

Held. l) Yes. 2) No. Judgment vacated and rcmanded.

The requircment that a trustee's power must be exercised with soundjudgment following from a due appreciation of trust responsibility im-poses upon a trustee a duty of inquiry into the beneficiary's needs.

T also failed to meet his responsibilities ofdistribution under the trust.

The conveyance was supported by sufficient consideration, andTestator's daughter and her husband had no notice of a breach of trustand werc not themselves guilty ofa breach offiduciary duty; they can-not be charged as constructive trustees of the property.

The remedy for T's failure to expend trust principal in this circum-stance is to imprcss a conshuctive trust on the amounts that shouldhave been distdbuted but were not because of T's error On remandthese amounts will be determined and paid to H's estate.

The exculpatory clause in Testator's will, drafted by Farr and holdingFarr harrDless, was incorrectly invalidated by the pfobate court sincethere was no evidence that the insertion of the clause was an abuse ofFarr's fiduciary relationship with Testator at the time the will was drawn.

Far's actions were notbreaches of trust committed in bad faith orinten-tionally or with reckless indifference. Nor were they willful neglect.

l )

2)

3)

4)

5)

6)

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D. SPENDTHRIFT TRUSTS

In a spendthrift trust, the beneficiaries cannot volunta.ily alienate their inter-ests and their interests are protected ftom creditors.

1 lmmunity from Alimony and Child Support..Shelley v. Shelley,223Or. 328, 354 P.2d. 282 (1960).

Facts. Hugh Shelley left a hust the income of which was to be paidto his wife, Gertrude Shelley, as long as she lived, and after herdeath to his son, Grant Shelley. The trust also provided that eachbeneficiary was prevented from alienating that beneficiary's inter-estinthe estate, nor wouldthe interest or estate be subject to claimsofcreditors. Grant Shelley was first manied to Patricia Shelley, andtwo children were bom of this malriage. Thereafter, Patricia divorcedGrant, with the divorce decree requiring payment for suppof. Grantlater maried Befty Shelley (P), and two children were born of thismarriage. P later obtained a divorce from Grant, with the divorcedecree requiringboth support andaUmony. The U.S. National BankofPortland, Oregon (D) investedthe trust assets in securities, whichare now heid by it together with the undisbursed income from thetrust. P obtained an injunction reshaining the disbursement of anyof the trust assets. Patricia Shelley brought a gamishment proceed-ing by which she sought to subject the trust to the claim for suppofimoney provided for in her divorce decrce. D then brought a bill ofinterpleader, tendedng to the court all ofthe funds held in trust mdpraying for an order establishing the rights of the paities. The t alcouit entered a decrce subjecting the accrued income ofthe trust tothe claims of P and Patricia ShelJey; subjecting future income ofthe trust to the pe odic obligations brought by P and PatriciaShelley; and holding that in the event the trust income was insuf-ficient to satisfy such claims, the corpus ofthe trust was subject toinvasion.

Issue. Is a spendthrift provision of a trust effective against the claimsof the beneficiary's former spouse for alimony and for support ofthe beneficiary's child?

Held. No. Decree affirmed in part and reversed in part.

l) Although a trust is a spendthdft tlust or trust for suppoft, theinterest of the beneficiary can be reached in satisfaction of anenforceable claim by the spouse or child of a beneficiary forsupport, or by the spouse for alimony. The privilege ofdispos-ing of propeity is not absolute: jt is hedged with various re-strictions where there are policy considerations warranting thelimitation.

Shelley v.Shelley

a,

b.

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2) Public policy requires that the interest ofthe beneficiary ofa trust shouldbe subject to claims for child suppon. It is clear that parents have theobligation to support their children. Were we to bar claims for support,we would have the spectacle of a parent enjoying the benefits ol a trustwhile the community pays for the support ofthe children. With regard toalimony for the spouse, the same considerations apply; in many cases, ifthe benefici ary's interest cannot be reached, the state may be called uponto support the spouse.

We hold that the beneficiary's intercst in the income of the trust is sub-ject to the claims of P for alimony and to the claims for support of tlechildren as provided under both divorce decrees. We adopt the view, how-ever, that the claimants may reach only that much ofthe income that thetdal court deems reasonable.

The question of the claimant's right to rcach the corpus of the trust in-volves other considerations. There is nothing in this trust that would in-dicate the testator's intent to make P either directly or indirectly thebeneficiary of the trust. At least with respect to the corpus, an Oregonstatute makes tle subject matter of the tlust free from attachment. It foi-lows that the lower court erred in making the corpus of the trust subjectto P's claim for alimony.

Whether the children can reach the corpus involves still a different prob-lem. The ftust states that disbursements to Grant Shelley's children wereto be made "in case of any emergency whereby unusual and extraordi-nary expenses are necessary. . . ." D claims that the expenses claimed inthis case are not unusual or extraordinary We disagree. We conshre theclause to include the circumstances involved here-where the childrenare deserted by their father and are in need of support.

The decrce of the lower court, permitting the corpus of the trust to beinvaded, was too broad. Firct, it improperly included P's claim for ali-mony; and second, it permitted encrcachment upon the cor?us withoutrelerence to whether the ffustee has exercised his discretion or whetherthere has been an emergency as contemplated by the testator. The decreetherefore should have permitted an invasion of the corpus only ifit wasnecessary first to reach the income under the circumstances mentionedand such income was then insufficient. Further, the decree should havemade such corpus available only in the event ofthe fiustee's exercise ofdiscretion under the emergency circumstances provided for in the tust.

4)

6)

d. Comment. Ohio recognized spendthrift trusts in 1991. lscott v. Bank OneTrust Co., 62 Ohio St.3d 39, 577 N.E.2d 1077 (1991)l In New York by statuteall trusts are spendthrift trusts unless the settlor expressly makes thebeneficiary's interest tmnsfemble.

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Cr€ditors' Rights in Support Thusts and Discrttionary Trusts'

a. Support trusts. A suPport trust is one in which the trustee is directed to

make distributions as necessary for the education and maintenance of

the beneficiary, and to expend the income and pdncipal only for thatpurpose. In a support tust, creditors of the beneficiary cannot reach the

beneficiary's interest. However, suppliers of necessaries may rccover

through the beneficiary's right to support.

b, Discretionary trusts. Adiscretionary trust is one in which the ftustee is

given discretion whether to apply or withhold payments oi income or

pincipal to or from a particular beneficiary, or (in some cases) to distdb-

ute the same to some other beneficjary Before the fustee exercises her

discretion to make payments to the beneficiary the beneficiary's interest

cannot be reachedby his creditors. If, however' the trustee decides to pay

over orto apply some amount of trust income or principal to the benefi-ciary, the rightthereto vests in the beneficiary andhis creditors may then

reach it.

1) IRS unsuccessful..United States v. O'Shaughnessy' 517 N w2d574 (Minn. 1994).

a) Facts, O'shaughnessy is a beneficiary of two separate identi-cal tusts establishedin 1951 ('1he l95l Trusts") by his grand-parents for the benefit of their grandchildren. The trustees havediscretion to distribut€ or withhold trust assets du ngO'Shaughnessy's lifetime. Howevet, the 1951 trusts give

O'Shaughnessy a limited power of appointment exercisableonly by his last will and testament to a cefiain class of indi-viduals. If the power is not exercised, the trust agleements pro-

vide for the distribution of the principal and undistributedincome at O'Shaughnessy's death. The IRS (P) assessed a taxdeficiency ($41 2.q21 .27 ) againsl O Shaughnessy and anemptedto levy the fust property or rights to such property to satisfythe deficiency. No distribution ftom the trusts was pending whenthe levy was served. P filed suit seeking enforcement of thelevy. The tustees and First Trust Bank (Ds) moved to dismiss.The disttict court detemined that the issue raised by the mo-tion to dismiss raised a question of state law appropriate forcertification to this court.

Issue. "UnderMinnesota law, does the beneficiary ofa discre-tionary trust with the provisions described herein have 'prop-

erty'or any'right to property'in nondistributed hust principalor income before the trustees have exercised their discretion-arv Dowers ofdistdbution under the trust agrcement?"

United States v.O'Shaughnessy

b)

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c) Held. No. Cefiified question answered in the negative

(1) Under an express discrctionary trust, there is a legal in-

terest vested in the trust€e and an equitable interest vested

in the beneficiary. The beneficiary is entitled only to what

the trustee' in his uncontrolled discretion, sees fit to dis-tribute. The ben€ficiary cannot compel the tustee to d1s-tribule $ hal is a "mere expectancy '

(2) The beneficiary's crcditors have no remedy against the

trustees until the trust property is distdbuted'

(3) The trust states that the trustees "may" pay all or sucl'part of the trust assets as they see fiti as long as the trust-ees acl in good faith. from proper motives and reason-ably, the court will not interfere with their decisions'

3. Medicaid Trusts. To qualify for Medicaid, an individual's financial rcsources

must not exceed a few thousand dollars. Whether tusts that provide suppon

to the individual are counted arnong the individual's resources for Medicaid

purposes depends on the t)?e of trust.

a. Discretionary trusts. If an individual's assets form all or part of the

tust and if the trust was established by the individual, a spouse, or a

peNon acting on the individual's behalf, for purposes of Medicaid' a

irust is deemed to be crcated by the individual. All of the assets oi a

revocable rusl are considered available resources Any income orprinci-pal that may be paid to the individual under any circumstances under the

tems of an inevocable tust are considercd rcsources'

l) Exceptions. A dtscretionary trusl created by will by one spouse for

the benefit of the sutvivor is not deemed an available resource lf a

tust is created for a disabled person to prcvide care for the indi-vidual over and above what Medicaid may provide, and therc is aprovision for the trust to reimburse Medicaid upon the individual'sdeath, the trust is not considered an available resource'

b. Third-person trusts. Income or pdncipal actually or legally available

to a beneficiary of a mandatory or support tust established by a thidperson is considered a resowce. A discrctionary trust giving the appli-cant no legal right to the income is not considercd a resource available tothe individual unless the purpose was to provide for the applicant's sup-port.

c, Car€ful drafting. This area of the law demands great caution Judicial

interprctations of trust language are not consistent. Public policy consider-ations are unsettled. What works in onejurisdiction may not work in an-

other.

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E. MODIFICATION AND TERMINATION OF TRUSTS

Modification of Distributive Provisions. Some courts will permi! adeviation of the terms of an express gift in instances wherc an unforc-seen emergency threatens the accomplishment ofthe testator's purpose.

Tfust modification denied..l, .e Trust of Stuchell, 104 Or App. /r re Trust332. 801 P2d 852 (1990). of Stuchel

Facts. Petitioner's (P's) four children were remainder benefi-cia.ies of a trust. One of them, Harrell, was mentally retardedand unable to live without assistance. Harrell lived in a statefacility and received Medicaid and Social Security benefits,both of which have income and rcsouce limitations for par-ticipants. P requested the court to apprcve a modification ofthe trust so as to prcvent Harell's remainder ftom being dis-Fibuted to him if he suNives the trust's income beneficiaries.The proposed modification was designed to prevent Harell'sdisqualification for public assistance. P appeals from the trialcourt's dismissal of her petition.

Issue. Should P's proposed modification be approved?

Held. No. Judgment affirmed.

a) P relies on common law autlority for allowing a court toapprove the proposed modification. A tlust may be termi-nated under very limited circumstances: (i) all beneficia-ries agree, (ii) no beneficiary is under a legal disability,and (iii) the trust's purposes would not be frustrated indoing so.

b) To extend the rule, P rclies on Restatement (Second)Trusts, section 167(l), which provides tbat a court maypemit the trustee to do acts not authodzed by the temsof the tust.

c) However, Commentb to section 167(1) states that a courtwill not permit a deviation from the terms of a trust"merely because such deviation would be morc advanta-geous to the beneficiaries than a compliance with suchdirection." This limitation precludes permitting the pro-posed amendment, the only purpose of which is to makethe trust more advantageous to the beneficiaries.

Termination of Tlusts. If the settlor and all beneficiaries consent, a trustmay be terminated. The weight of authority provides, however, that atrust cannot be terminated Drior to the time fixed for termination, even

l .

r)

3)

7

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ln re E'stateofBrown

though all the beneficiaries consent, if temination wouldbe contrary to a materialpurpose of the settlor.

a. R€maining material purpose--I/, te Estate of Brorvn, 148 Vt.94,528 A.2d'152 .L981).

1) Facts. Andrew Brown died in 1977, settling his entire estate in a truslThe relevant portion of the trust instrument provided that the trust wouldbe used for the education of the children ofhis nephew, Woolson Brown.After this purpose was accomplished, the income from the rust and asmuch of the pdncipal as was necessary would be used by the trustee iorthe care, maintenance, and welfare ofWoolson Brown andhis wife (Ps),so that they might live in the style and manner to which they were accus-tomed dudng the remainder of their natural lives. Upon their demise,any remainder of the trust was to be paid to their thenliving childrcn inequal shares.

The trustee complied with the terms of the tust by using the proceeds topay for the education of the children of Ps. After he determined that theireducation was complete, the truste€ began distribution of ffust income tothe lifetime beneficiaries, Ps.

In 1983, Ps petitioned the probate court for termination oftrust, arguingthat the sole remaining purpose of the tust was to maintain their lifestyleand that distdbution of the remaining assets was necessary to acconr-plish this purpose. The rernaindermen (Ps'children) filedconsents to theproposed termination. The probate court denied the petition to termi-nate, and Ps appealed to the Washington Superior Court. The superiorcourt reversed, concluding that continuation of the trust was no longernecessary because the only material purpose, the education of the chil-dren, had been accomplished. An appeal by the tustee followed.

2) I6sue. If any matedal puryose of the trust remains to be accomplished,may the tust be teminated if all beneficiaries consent?

3) Held. No. Judgment reve$ed.

a) An active trust may not b€ teminated, even with the consent of allthe beneficiades, if a material purpose of the settlor rcmains to beaccomplished.

b) If either a support trust or a spendthdft trust were involved, temi-nation could not be compelled by the beneficiaries because a mate-rial pupose ofthe settlor would remain unsatisfied.

c) The tust at issue does not qualify as a support trust. A support trustis created when the trustee is directed to use hust income orDdnci-

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pal for the benefit ofan individual, but only to the extent necessaryto support the individual. Because the fusteemust, at the very least,pay all of the trust income to Ps, the trust cannot be characterized asa suppofi mlst.

The trust also does not qualify as a spendthrift trust. Afust in whichby the terms of the trust or by statute a valid restraint on the volun-tary and involuntary transfer of the intercst of the beneficiary isimposed is a spendthrift trust. The tems of the tust instrument donot manifest Andrcw Brown's intention to create a spendthrift trust.The mere fact that an interest in a trust is not tmnsfemble does notmake the trust a spendthritl trust.

Termination cannot be compelled here because a material purposeof the settlor remains unaccomplished. The settlor's intention toassure a lifelong income to Ps would be defeated if termination ofthe fust were allowed.

Tfusts remaining indestructible beyond the perpetuities period. A trust isnot void merely because it can extend beyond the perpetuities period. TheRule Against Perpetuities applies to interests in a trust and requires that theyvest or fail within the period provided by the Rule, but it does not limit theduration of the trust. Nonetheless, a trust cannot remain indesfuctible by thebeneficiaries beyond the perpetuities period.

d)

b.

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IX. POWERS OF APPOINTMENT: BIILDING FLEXIBILITY INTOTIIE ESTATE PLAN

A. INTRODUCTION

1.

2,

rypes of Powers, The creator ol a power of appointment is called thedorrl. The person granted the power is called the dore€. Those personsto whom the donee may appoint propefiy are the objects.

a. General and special powers. All powers of appointment can bedjvidedinto general powers and special powers. A general power ison€ exercisable in favor of the donee. her estate. her crcdito$. orthe creditors of her estate. A special power is one not exercisable infavor of the donee, her estate, her creditors, or the creditoN of herestate.

Does the Appointive Property Belong to the Donor or the Donee?Under the relation-back doctrine. the donee was considered to have au-thority to fill in blanks in the donor's will; property subject to apowerofappointment was viewed as owned by the donor and the power was con-ceived as merely authority of the donee to do an act for the donor. Spe-cial powers are still treated according to this doctrine.

Creditor's Right to Property Subject to a Power ofAppointment.-Irwin Union Bank & Tfust Co. v. Long, l60 Ind. App. 509, 312 N.E.2d908 (1974).

a. Facts,In 1957, VctoriaLong (D) obtained ajudgment in the amountof $15,000 against Philip Long as part of a divorce decree. In thisaction, D seeks satisfaction of thatjudgment by punuing funds al-legedly owed to Philip as a rcsult of a trust set up by Lau.a l,ong,his mother D alleged that the Irwjn Union Bank and Trust Com-pany was indebted to Philip as the result ofits position as trustee ofthe trust created by Laura. The tuial coud ordered that any income,propefiy, or profits that were owed to Philip and not exempt fromexecution should be applied to the divorce judgment. Thereafter,the trial coufi ordered that 47o of the tlust corpus that benefitedPhilip was not exempt frcm execution and could be levied upon byD. The primary issue mised on appeal is whether the trial courte.red in allowing execution on the 4% ofthe trust corpus.

b. Issue. Can a creditor reach property covered by an unexercisedpower of appointment?

c. Held. No. Judgment of trial couit reversed and case rcmanded.

l) Where a beneficiary was given a power under a testamentarytlust to dist.ibute property not his own by electing to withdraw

Irwin UnionBank & TrustCo. v. Long

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not more than 4% of the fust corpus under certain circum_stances, the power given to the beneficiary was a "power olappointment," and the beneficiary's former wife was not en-titled as a creditor under a divorce decree to reach propertycovered by a power of appointment that was unexercised.

2) The beneficiary of a trust had no control over the trust corpusuntil he exercised his power ofappointment and gave notice tothe trustee that he wishedto receive his 47o ofthe trust corpus.Until such exercise was made, the trustee had the absolutecon-trol and benefit of the kust corpus within the terms of the trustinsfiument.

4. Thx Reasons for Creating Powers. The donee of a general power ofappoinftnent over income or principal is regarded as the owner of thatproperty. The income is taxable to the donee. If the power of appoint-ment is exercised during the donee's lifetime, the transferred property issubject to gift taxation.Ifthe power of appointment is not exercised dur-ing the donee's lifetime, the property is a part of the donee's federalgross estate and is subject to taxation. Note that property subject to aspecial power of appointment is not treated as owned by the donee.

B. CREATION OF A POWER OF APPOINTMENT

1. Intent to Crcate a Porver. The creation of a power of appointment mustbe accompanied by the donor's express or implied manifestation of intent.

2. Powers to Consume. The issue of whether a power to consume princi-pal has been created arises in connection with powers of appointment.

a. Inconsist€nt clau.$es in will--Sterner y, Nelson' 210 Neb. 358, 314N.W2d 263 (1982).

1) Facts. The will ofthe decedent, OscarWurtele (T), bequeathedto his wife, Mary, all his property "absolutely with full powerin her to make such disposition of said property as she maydesire." It also provided that upon the death of his wife (or ifshe predeceasedT), the remaining property should vest inT'sfoster daughter and her children (Ps). After T's death, Maryremarried. Mary died testate, leaving property to various indi-viduals, including her husband, but not to Ps referred to in T'swill. The trial cowt held that the language inT's will created afee simple absolute in Mary. Ps appeal.

2) Issue. If a will conveys absolute title in fee simple, will aninconsistent clause in the instrument attempting merely to limitthat title or convey to the same person a limited title be disre-sarded?

Stemerv. Nelson

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Seidel vWemer

3) Held. Yes. Judgment affirmed.

a) The general mle is that when there is a bequest to one ingeneml terms only, expressing neither fee nor life estate,and therc is a subsequent limitation over of what remainsat the firct taker's death, if there is also given to the firsttaker an unlimited and unrestricted power of absolute dis-posal, the bequest is constued to pass a fee. The attemptedlimitation over is void. [f a will conveys an absolute titlein fee simple, an inconsistent clause in the inshument at-tempting to limit that title orconvey to the same person alimited title will be disrcgarded.

b) Here, the $ant to Mary Wurtele was clear and unambigu-ous. She was to have the Foperty "absolutely with fullpower in her to make such disposition of said property asshe may desire."We find no reason why the cornmon lawrule should not be applied to this bequest. Accordingly,we hold that the bequest to Mary Wurtele was a fe€ simpleabsolute.

b. Taxation of powers to consume. A power to consume that allowsthe donee to appoint propefiy to himself during his lifetime is ageneral power of appointrnent and is taxable. However, if the poweris limited by asceitainable standards, it falls within an exceptionand is not taxable.

C. RELEASE OF A POWER OF APPOINTMENT

Powers of appointment (except powers in tust or imperative powe6) may bereleased in al I j urisdictions, puGuant to case law or statute.

1. Contract to Exercise a Power ofAppointment-Seidel v. Werner,81Misc. 2d 220, 364 N.Y5.2d963 (19'75).

Facts. The decedent, Steven Wemer, entercd into a sepamion agrce-ment with his second wife, Harriet, whereby he agreed to make awillin which he wouldexercise his testamentary power ofappoint-ment over his share of a trust, known as the Abraham Wemer TrustNo. 1, by establishing a tuust for the berefit of their children, Annaand Frank Wemer. l-€ss than four months after the divorce judg-ment, of which the separation agreement was made a pafi, the dece-dent executed a will, which, instead of executing his testamentarypower of appointment in favor ofAnna and Frank Wemer, left ev-erything to his third wife, Edith (D). The trustees of the fust (Ps)are suing for a declaratory judgment to determine who is entitled tothe decedent's share ofthe trust fund.

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D.

b. Issue. May the donee of a power of appointment that is not prcs-ently exercisable contract to make an appointment?

c. Held. No. Summary judgment $anted for D.

1) The donee of a power of appointrnent that is not presently ex-ercisable, or of a postponed power that has not become exer-cisable, cannot contract to make an appointment. Such acontract cannot be the basis of an action for specific pedor-mance or damages, but the promisee can obtain rcstitution ofthe value given by him for the promise unless the donee hasexercised the power pwsuant lo lhe contract.

2) Howevef Halaiet, Anna, and Frank Wemer argue that at a mini-mum the agreement should be construed as a release of hispower of appointment, and that Anna and Frank shouldbe per-mitted to take as on default of appointment. This argument isinapplicable to this case since it is clear that the parties did notintend a release of the power of appointment Nor is the effectof the promised exercise of the power the same as would fol-low from rclease of the power, since the agrcement providesfor appointment of a greater principal to Anna and Frank thanthey would get in default of appointment. Also, under the trustinsfument, on default of exercise of the power, the propertygoes to the four children absolutely, whereas under the separa-tion agreement the decedent shall create a trust payable toHarriet as trustee for the support of Anna and Frank. Finally,under the separation agrcement, if Anna and Frank fail toqualify, the principal would go to the decedent's estate, whercasunder the trust instrument, in default of appointment and aninability ofAnna and Frank to take, the decedent's sharc wouldgo to his other children, ifliving, and if not, to his next ofkin.Under these circumstances, it is too strained to construe theseparation agrc€ment as the equivalent of a release of the powerof appointment. Accordingly, D is entitled to the decedent'sshare in the pdncipal of the Abraham Wemer trust.

EXERCISE OF A POWER OF APPOINTMENT

1. Exercise by Residuary Clause in Donee's Will. Courts are split overwhether a residuary clause should presumptively exercis€ a general orspecial power of appointment. The Uniform Probate Code, section 2-610, provides that a general residuary clause in a will, or a will makinggeneral disposition of all of the testator's property, does not exercise apower of appointment held by the testator unless specific reference ismade to the power or therc is some other indication of intention to in-clude the property subject to the power

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Beals v. StateStre€t Bank& Trust Co.

Partia.l rclease of general pow€r of appoinlment-Beals v. Stlte Str€et Bank& Tfust Co., 367 Mass. 318, 326 N.E.2d 896 (1975).

1) Facts. The will of the decedent, Arthur Hunnewell (T), placed the resi-due of his property in a trust, the income of which was to be paid to hiswife during her life. The will dirccted thar ar the death of the wife thetrust was to be divided into pofiions, one for each surviving daughter andfor the then-surviviflg issue of any deceased daughter The will directedthat the income of each pofiion should be, on a daughter's death, paidand disposed ofas she may direct and appoint by her last will. Followingthe death of her mother, one daughter, Isabella Hunnewell Dexter, re-quested the trustees to make the principal payments by transfer.ing vir-tually all of her trust sharc to the Dexter family office in Boston.Thereafter, Isabella executed an instrument partially rcleasing her gen-eral power of appointment under her father's will. Isabella, who diedwithout issue, did not expressly exercise her power of appointment un-der her father's will but did leave a will that left the residue of her esrareto the issue of her sister Margaret Blake, who had predeceased Isabella.In default of appointment, the Blake issue would take one-half of Isab€lla,strust share. If Isabella's will should be teated as effectively exercisingher power of appointment, the Blake issue would take the entire trustsharc and the executors of the will of Isabella's sister Jane would notreceive that one-half of the trust share that would otherwise eo to Jane indefault of appointmenl. The lrusrees (Ps) of T's wjll filed a peririon forinstrucdons, seeking a determination of the distdbution to be made. Thetrial court reserved decision and reported the case to the appeals court.The case was then transfered to the suprcme court.

2) Issue. Does the partial release of a general power of appointment obvi-ate the application of the rule of conskuction that presumes that a gen-eral residuary clause exercises a geneml power of appointment?

3) Held. No. Judgment ordered.

a) We arc unawarc of any decided case that, in this context, has dealtwith a testamentary general power reduced to a sp€{ial power byaction of the donee. We conclude that the residuary clause ofIsabella's will should be prcsumed to have exercised the power ofappointrneflt. We believe that a presumption of exercise is morcappropriate in this case than a presumption of nonexercise.

When this court first decided not to extend to a sDecial Dower ofappointment the rule ofconsuuction thal a general residuary clauseexecutes a geneml testamentary power unless a contrary intent isshown by the will, we noted significant distinctions between a gen-eral power and a special power. A general power was said to be a

b)

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close approximation of a property interest while a special powerlacked this quality.

c) The rationale for the canon of construction applicable to gen-eral powers should be applied in this case. The power was ageneral power at its inception. Isabella had the use and enjoy-ment of the major portions of the property and this is a factorproperly considered as weighing in favor of th€ exercise of apower oi appointment by a will. Here, the partial rclease of ageneral power does not obviate the application of that rule ofconstruction that presumes that a geneml rcsiduary clause ex-ercises a general power of appointment.

Limitations on Exercise of a Special Power. Donees of geneml powe6 ofappoinhnent can usually appoint outright or in fulher trust. They can alsocreate new poweN of appointment. The donee's authority is more limited witha special power of appointment. A special power must be exercised in accor-dance with the instrument creating the power, and the donor may impose re-strictions on the way the power may be exercised.

a. Crcation oflimited interest, Unless the donor has expressed a contmryintent, the donee of a special power may appoint limited interests to ob-jects of the powet or appoint in futher trust. In some states the donee ofa specialpower may not appoint in further trust unless it appears that thedonor intended to allow such an appointment. The rationale for this mi-nodty view is that the donor presumptively intended that the trust beterminated and the assets distributed to persons selected by the donee.The special power gives the donee only the right to select the rccipients.

b, Exclusive and nonexclusive powers. A special power is either exclu-sive or nonexclusive. If the donor intends that the donee be able to ex-clude one or more of the class of objects, perhaps appointing all thepropedy to one object, the power is exclusive. If the donor intends thatall membe$ ofthe class benefit, but that the amount ofeach share shallbe determined by the donee, the power is nonexclusive. The presump-tion is that the donor intends the power to be exclusive. However, courtsoften have found that the presumption is overcome by particular lan-guage in the creating instrument.

Fraud on a Special Power. The donee of a special power may not appoint tonon-objects of the power If the donee of a special power appoints to a classcomposed of objects and non-objects, the appointment to the non-objects isvoid. An appointrnent to an object with an express condition that the objectpay over an amount to a non object is a fraudulent appointnent. The condi-tion is void. If the donee of a special power appoints to an object in consider-ation of a benefit to a non-object, the appointment is void to the extent it wasmotivated by the purpose ofbenefiting non-objects.

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E,

4. Ineffective Exercise of the Power. If an attempted exercise of a powerof appointment is ineffective, the donee's intent may still be effectuatedby allocation and capture.

a. Allocation of assets. Under the doctrine of allocation, when thedonee of a power blends her own property with the appointive prop-erty, and exercises the power in an invalid way, the donee's ownproperty and the appointive property will be allocated, if possible,to give maximum effect to the donee's intent. Thus, the done€'s ownpropefty may be allocated to the appointees, and the appointive plop-erty may be allocated to legatees of the done€'s own propefiy.

b. Capture. Ordinarily, if the donee of a power makes an ineffectiveexercise, the property goes in default of appointment. If there is nogift in default, the propefiy revefis to the donor or the donor's es-tate. The exception to this is tbe captue doctrine. If the donee of ageneral power of appointrnent ineffectively exercises the power, butmanifests an intent to assume control of the appointive property forall purposes, the property is captured in the done€'s estate. The ques-tion is whether the donee intended to captwe the propefiy; if so, thepropefiy does not pass in default of appointment. The intent to cap-ture the property can be found in a general blending clause in a willthat expresses the donee's intent to dispose of her own property andany property over which she has power of appointment. An intent tocapture can also be found in a residuary clause that disposes of thedonee's property and the appointive assets in the same manner

FAILIJRE TO EXERCISE A POWER OF APPOINTMENT

Appointive property passes in default of appointrnent if the donee of a generalpower fails to exercis€ it. The property reverts to the donor,s estate if there isno gift in default of appointment. Appointive property passes to the objects ofthe power ifthey arc an ascertainable, limited class if the donee of a specialpower fails to exercise it and there is no gift in default of appointment.

1. Disposition ofProperty When Special Power ofAppointment Is NotExertised-Loring v. Ma$hall, 396 Mass. 166,484 N.E.2d 1315 (1985).

a. Facts. Marian Hovey (T) died in 1898, survived by a brother, asister, and twonephews. By her will, T left the residue of her estatein fust, the income payable in equal shares to her brother and sisterdu.ing their lives. Upon her brother's death in 1900, his share of theincome passed to her sister, and, upon hersister's death in 1922, theincome was paid in equal shares to her two nephews. One nephewdied in 1928, unmarried and without issue. His share ofthe incomethen passed to his brother who remained the sole income benefi-ciary until his death in 1946.

Inring v.Marshall

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b.

T's will gave Cabot Jackson Morse, the su iving nephew, a special power loappoint the trust principal to his "wife and issue" with the limitation that orlyincome could be appointed to a widow who was living atT's death. Cabot wassuryived by his wife Anna, who was living atT's deatb, and by his only child,Cabot Jr, who died in 1948, two years after his father Cabot left a will, whichprovided that the power of appointment he had underT's will was to be exer-cised by appointing to his wife the right to the income during her lifetime.Consequently, the trust income following Cabot's death was paid to Annauntil her death in 1983, when the principal became distributable. The trusteesthereupon sought inskuctions as to who is entitled to the remainder of theMarian Hovey Trust now that the trr.lst is distributable. Among the claimantsare several charities who were to rcceive the whole trust fund ifneither nephewleft appointees.

Issu€.Ifthe donee of a special power fails to exercise it and there is no gift indefault of appointment, may the appointive property pass to the objects of thepower?

Held. Yes. Judgment so ordercd.

l) When a special power of appointment is not exercised and absent spe-cific language indicating an express gift in default of appointment, theproperty not appointed goes in equal shares to the members of the classto whom the property could have been appointed.

2) Applying this rule of law there is no specific language in the will indi-cating a gift in default of appointment in the event Cabot should fail toappoint the principal.

3) T's will discloses an intent to keep her propety in the family. The inter-ests T gave to her sister and brother were life interests, as werc the inter-ests given to her nephews. The sharc ofany nephew who died unmarriedand without issue, as one did, was added to the shale of the other nephew.Each nephew was limited to exercising his power of appointment in fa-vor of his issue and his widow. The apparent intent to keep the assetswithin the family is sufficiently stong to overcome any claim that T'swill provides for a gift to the charities in default of appointment.

4) Where a testamentary trust provided that the last surviving income ben-efici ary had a power of appointment of trust principal and the last surviv-ing income beneficiary of a trust appointed only the rust income, in theabsence ofany express gift in default of appointment the surviving issuethe donee of the power of appointment (i.?., the estate of Cabot Jr.) wasentitled to distribution of the tust principal.

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X. FUTUR.E INTERESTS: DISPOSITIVE PROVISIONS OF TIIE TRUSTINSTRIJMENT

A. INTRODUCTION

A future interest is d nonpossessory intercst capable of becoming possessoryin the future. The law of future intercsts d€als with situations where the ben-eficial enjoyment of land by a successor occurs at some time in the futue.Certainty of beneficial enjoyment is not requiredi howevet there must be atleast the possibility of future beneficial enjoyment.

B. CLASSIFICATION OF FT]TURE INTERESTS

l . Future Interests in the Tlansferor:, The three types of future intercststhat can be retained by the transferor are rcversion, possibility of re-vertcl, and ight ofen /Jr'. These interests will or may become possessoryin the transferor or her successors in interest.

a. Reversion, A reversion is a future interest left in the grantor aftershe conveys a vested estate of a lesser quantum than she has (usu-ally a life estate).

b. Possibility of reverter. A possibility of rcverter arises when a grantorcarves out of her estate a deteminable estate ofthe same quantum(the determinable estate will end if some future event occurs).

c. Right of entry. A right ol entry occurs when a gnntor creates anestate subject to a condition subsequent andretains the powerto cutshort or teminate the estate upon the happening of that condition.

Future Interests in Transferees, The three types of future interests inbansferees arc y?.rt?d remainders, contingent remaintlers, and execu-tory interests.

Remainders. A remainder is a future intercst created in a eranteelhat is capable of becoming a presenl possessory esrate ufon rheexpiration of a pdor possessory estate created in the same convey-ance in which the remainder is c.eated. A wfted remainder is cre-atedin an ascertained person in being and is not subject to aconditionprecedent (i.e., it is capable of becoming possessory whenever thepreceding estate terminates). Acontinge t temainder, on the otherhand, is created in an unasceftained penon or is subject to a condi-tion precedent (i.e., it is contingent on something happening beforeit can become possessory).

Executory interests. Any interest in a transferee that cannot be arcmainder must be an executory intercst. An executory interest is atuture interest that must, in order to become Dossessorv. divest or

2.

b.

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cut short some intercst in another transferce (a shifting executoryinterest) or divest the transferor following a certain period of timeduring which no tmnsferce is entitled to possession (a springingexecutory interest).

3. D€structibility of Contingent Remainders. This doctrine holds that ifa legal contingent remainder in land does not vest before or at the telmi-nation of the prcceding freehold estate, the remainder is destroyed. Inabout thrce-fourths of the states, the desttuctibility rule has been abol-ished by stalule orjudicial decision.

C. CONSTRUCTION AND DRAFTING PROBLEMS

1. Prcference for Vested Interests. If an interest might be classified asvested or contingent, the common law preference is to classify it as vested.

a. Tfansferability and t&xation. Over 40 states have made contin-gent interests transfemble by statute orjudicial decision. Reversions,remainders, and executory interests arc descendible and devisableat death in the same manner as possessory interests. The federalgovemment subjects to gift or estate taxation any gratuitous tans-fer of a property interest.

b. Acceleration into possession.

1) Renunciation valid--Itt /e Estate of Gilbert, 156 Misc 2d3',79, 592 N.Y.S.2d 224 (1992).

a) Facts. I-ester Cilbert (D) renounced his share of twowholly discretionary trusts under his father's will. Theestate was worth $40 million dollars. D, age 32, had nochildren and was a member of a group of people whoshared a similar religious doctrine. The executor (P) peti-tions this coufi to declarc D's renunciation null and void.

b) Issues.

Would permitting the renunciation violate thetestator's intent to provide for D?

Does D possess a cunent propefiy interest that hecan tenounce I

1n re EstateofGilbeft

( l )

(2)

c) Held. (1) No. (2) Yes. Judgment for D.

(l) The decedent's intention is not contolling. The lawdoes not compel a man to accept an estate againsthis wil l.

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First NatiomlBank of BarHarbor vAnthony

(2) The contolling statutes provide rhat a beneficiary of a dispo_sition may renounce all or pan of his inrerest jn a rransfei ofproperty by a person duing his lifetime or by will. properry is"anything rhat may be the subject ofown€nhip.,,

(3) D's renunciation applies to his remainder interest in one elec_tlve share trust, contingent upon D suniving his mother, andto his cufient interest in a trust under which he may have theright to compel the fustees to distribute trust property to himunder certain circumstances.

(4) The filing of a rcnunciation has the same effect with resDect tothe renounced inreresl as if D had predeceased hrs father \ ith_out issue.

Requiring survival to time ofpossession. Generally, a remainderman needrlot live to the time ofpossession. If the remainderman predeceases the lifetenant, the rcmainder passes to his estate. The testator may. however. ex_pressly require sur\,ival, and in some cases couns wil l Infer a requiremenlofsurvival.

l) Pr€sent vest€d interest--First National Bank of Bar Harbor v. An.thony, 557 A.2d 957 (Me. 1989).

b)

FactJ. John Anthony (T) created a revocable inter vivos trust Dro_viding for income lo be paid to him tor I ife. lhen his widow, shouldshe survive him, and upon her death the corpus to be divided inequal shares to T's three children, John, peter, and Dencie. T's wifeand John predeceased T. Upon T's death, his will was admiued toprobate and left two-thirds of T's estate to peter and one{hird toDencie; the heirs of John were expressly omitred. The bank (p), astrustee, filed a complaint in superior court requesting constructionof the trust. John's children (Ds), T,s gandchil&en, filed a motionfor summary judgment, assefiing John,s interest in the trust wasvested, not contingent, at the time of its creation. The summarvjudgment morion was granted againsl Ds. Ds appeal.

Issue. Was John's remainder interest a prcsent, vested intercst atthe time ofthe creation of the inter vivos tuust?

Held. Yes. Judgment vacated.

(l) Because a will is not operative until the testator's death, anlnrcrest ln a testamentary trust cannot vest prior to the death.An inter vivos trust is operative from the date of creation.

(2) The terms of T's trust included T's right to change beneficia_des, an absence ofcontrol over how the children misht dis_

a)

c)

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Dose of thet sharcs' and no condition of survival of any children

ihis plan effectively eliminated any futher idterest of T unless he

chose to inteffene.

(3) T's failure to change the trust terms suggests a disposition to a pre-

deceased child's estate rathel than a reveNion

f4) Other states have held that an inter vivos trust rcserying to the sett'

lor income for life plus power to rcvoke, with a remainder over at

the settlor's death, crcates a vested interest in the remaindermensubject to defeasance by exercise of the revocation power' Enjoy-

ment is postponed until termination of the life estates, but upon

execution of the trust instrument, there is a present ight to the re-

mainder.

2) Heirs determined as of the date of death of the testator-'Security Trust Security Tmst

Co. v.Irvine.33 Del.Ch.375,93 A.2d,528 (1953). co v kvine

a) Facts. The will of the decedent, James Wilson (T), devised all real prop-

erty to the Security Trust Company (P) in trust for T's two sisters, Martha

and Mary wilson, during their joint lives and duing the lifetime of the

survivor oi them, and further prcvided that if his sister Margarct Irvine

should be left a widow, then she should share equally with the other two

sisters. Upon the death of Martha and Mary, the estate would be divided

equally among T's brotheN and sistets' sharc and sharc alike, with the

isiue of any deceased brother or sisterto take his or her parent's share T

was survived by five brothe6 and sisters From these' Mary Wilson was

the last suwiving life tenant Pbrought an action to determine: (i) whether

the residuary estate left to T's brotheN and sisters vested as of the date of

the death of the last life tenant or as of the date of his death; and (ii)

whether Martha and Mary take as members of the class of brothers and

sisters should it be decided that the estate vested as of the date of T's

death

b) Issues.

(1) In the absence of a contrary intent, will the heirs be determined as

of the date of death of the testator?

(2) In the event of the death of devisees leaving no issue, arc the inter-

ests of thos€ devisees divested by their death?

c) Held. (1) Yes. (2) No. Judgment so ordered'

(l) The law favors early vesting of devised estates and will presume

that words of survivorship relate to the death of the testator' In the

absence of a clear intent to the contrary the heirs will be deter-

mined as of the date of the death of the testator and not at some

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Clobberie'sCase

3)

futwe date. The fact that a life tenant is a member of a class doesnot prevent the life tenant from participating in the remainder of th€testator's estate as part of the class. Here, the life tenants shouldparticipate in the remainder devised by the testator to his brothersand sisters.

(2) The weight of authority in other srates is to the effect that in theevent of the death of the devisees leaving no issue, the interest ofthose devisees i s not di vested by their death. The interests of Marthaand Mary Wilson and Margaret Irvine were not divested by theirdeaths without issue and that their interests in T's estate should soto their respective estates.

Common law rule where bequest is to be paid at c€rtain age-Clobberie,sC^se,2VenL 342,86 Eng. Rep.476 (1677).

a) Facts. A sum of money was be4ueathed to a woman to be paid to herwith interest upon her reaching the age of 21 or upon the day of hermarriage. She died before either condition was satisfied.

b) Issue. If a bequest is to be paid on the express condirion that the benefi-ciary rcach a cefiain age, and that condition does not occu, does thebequest pass to the estate of the beneficiary?

c) Held. Yes.

(l) When a sum of money is to be paid to a woman upon her reachingthe age of 2l or upon her day of marriage, and she dies before eithercondition is met, the bequest passes to her executor as part of herestate. However, if the money were bequeathed to one ..at', the ageof 21, then the b€quest would lapse.

Controversial change in UPC section 2-707, A few states (Alaska. Colo-rado, Hawaii, Mchigan, Montana, and New Mexico) have adopted a highlycontrovercial 1990 change made by the revisers of the UpC to sectron 2_70'1.Under the new language, absent language to the contrary, the following rulesapply:

(i) All future interests in trust arc contingent on the beneficiary's survivingto the date of distribution.

(ii) If a remainderman does not slrrvive to the distribution date, I_lpC section2-707 creates a substitute gift in the remainderman,s descendents whosurvive the date ofdistribution.

(iii) If a remainderman dies before distribution and leaves no descendents,the remainder fails, and, if there is no altemative remainder that takes

4)

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effecr. lhe lrust propeny passes lo rhe settlor's residuary devi-sees or the settlor's heirs.

This provision destroys the flexibility of the common law and thetansmissible remainder rule; the beneficiary may no longer devisethe rcmainder to whomever he pleases. Spouses suffer most, asonly issue are substituted for the deceased rcmaindermen. Thechange presents numercus prcblems for estate planners; to insulatetheir trusts from the problems inherent in section 2-707, planners instates where the section has been adopted can include in the tustinstruments a general disclaimer that totally disclaims the rules ofconstruction embodied in section 2-707.

2 Gifts to Classes.

a. Gifts of income.

1) Construing class gift to testator's grandchildren-.Dewire v. Dewire vHaveles, 404 Mass. 274, 534 N.E.2d 782 (1989). Haveles

a) Fact-s. A petition for a declaration ofrights was brcught seek-ing construction of a will creating a class gift on behalf ofThomas Dewire's (T's) gandchildren. T died in January 1941survived by his widow, his son (Thomas Jr), and three grand-children. His will placed substantially all ofhis estate in a re-siduary trust. The trust income was payable to his widow forlife and on her death to Thomas Jr. and Thomas Jr.'s widowand children. AfterT's death, Thomas Jr. had thrce morc chil-dren by a second wife. Thomas Jr. died in 1978, a widower,survivedby all six ofhis children. Thomas III, who hadservedas tustee since 1978, died in 1987 leaving a widow and onechild, Jennifer The question ppsented is whether Jennifer takesher deceased father's shal€ in the trust income or whether theremaining class members (the other five grandchildren) takethat income share equally by dght of survivorship.

In his will, T provided that his grandchildren share equally inthe net income of his estate. There is no explicit provision inthe will conceming the distribution of income on the death ofa grandchild, nor is there any statement as to what the fusteeshould do with trust income between the death ofthe last grand-child and the date assigned for termination of the trust 2 I yealsafter that event.

b) Issue. Is the daughter of T's deceased grandchild entitled tosucceed by right of reprEsentation to the gran&hild's incomeinterest in a trust created by a class gift?

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b.

c) Held. Yes. Judgment so ordered.

(1) The gift ofner income toT's grandchildrcn, dividedequally orto be shared equally, is a class gift. The class includes ail sixgrandchildren, three of whom were bom before and three ofwhom werc bom after T's death.

(2) In the absence of a contrary intent expressed in the will or acontrolling statute stating otherwise, members of a class areJoint tenants with rights of survivorship.

(3) T's will violated rhe Rule Against perperuities because Tho-mas Jr could (and did) have children after T's death: the rrustwas thus scheduledto terminate 21 years after a lifenotneces_sarily yetin being. Nevertheless, the language ofthis void pro_vision can be usedto determine T's intention as to dispositionsthat do not violate the Rule.

(4) T provided that the trust should terminate 2l yeals after thedeath of his lasr grandchild. It is unlikely that T inrended thattrust income should be accumulated for21 yeals. He must haveexpected that someone wouldreceive the income durins thoseyears. The only logical recipients would be rhe issue {by rightof representation) of deceased grandchildren, the same grcupofpeople who would take the tn6t assets on temination of thetrust (assuming no violation ofthe Rule Against perpetuities).

(5) Since every other provision in the will conceming the distribu_tion of fust income and principal (after the death of T and hiswife) points to equal treatment ofT's issue per stirpes, there isa sufficient contrary intent shown to overcome the rule ofcon_struction that the class gift ofincome to glandchitdren is givento them as joint tenants with the right of survivorship. Thus,Jennifer in her lifetime is entitled to one-sixth of the net in_come ofthe trust dudng the period ofthe class gift ofincome.

Gifts to children or issue.

1) Meaning of'.children" and ,.issue." The word .'children,' does not in_clude grandchilfuen. The word "issue" includes grandchildren and moreremote descendants.

2) UPC section 2-705. Adopted pe$ons and persons bom out of wedlockare includedin class gift terminology in accordance with rules for deter_mining relationships for pulposes of intestate succession. However, aperson bom out of wedlock is not treated as the child ofthe father unlesshe is openly and notoriously so treated by the father.

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a) Adopted adult not considered an "heir"--Minary v. CitizensFidelity Bank & Trust Co.,419 S.W2d 340 (Ky. 1967).

(1) Facts. The will ofthe decedent, Amelia S. Minary (T), de-vised her residuary estate in trust to pay the income to her hus-band and three sons for their respective lives. The trust was toterminate upon the death of the last surviving beneficiary atwhich time the trust was to be distributed to T's surviving hei$and if no heirs, then to the First Christian Church. Two of thethree sons left no surviving issues, but a third son, Alfred, mar-ried and thereafter adopted his wife. Myra Minary (P), the wifeofAlfred, brought suit against the Citizens Fidelity Bank (D),contending that the trust should be awarded to her since she,having been adopted by her husband, becomes an "heir" forpurposes of the will. The ftial court held for P D appeals.

(2) Issue. Will adoption of an adult for the purpose of bringingthat person under the provisions of a preexisting testarnentaryinstrument b€ permitted?

(3) Held, No. Judgment reverced.

(a) Even though the adoption statute provides that an adultperson may be adopted in the same manner as a child, weare constrained to view this pnctice as an act of subter-fuge that thwafis the testator's intent. Here, were we togive strict effect to the adoption statute, we would thwanthe efforts of the deceased to dispose of her property asshe saw fit. Adoption of an adult for the purpose of bdng-ing that person under the provisions of a preexisting tes-tamentary instrument when she clearly was not intendedto be so covercd should not be pemitted, and we do notview this as doing any great violence to orr adoption laws.

3) Gifts over on death without issue. In these cases, the question to bedetermined is whether the exprcssion means (i) death without issue atany time or (ii) death without issue during the testator's lifetime. Thefirst construction is preferred by a majodty of couts if a possessory feesimple may be divested. The second construction is preferred if a re-mainder may be divested.

c. Gifts to heirs.

1) Determining identity of heirs..Estate of Woodworth, lSCal.App.4th 936,22 Cal. Rptt. 2d 676 (1993).

a) Facts. Harold Woodworth's (T's) testamentary trust established byT's will provided for apofiion of T's estate to go to T's wife (W) as

Minary v.CitizensFidelity Bank& Trust Co.

Estate ofWoodworth

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life tenant and to terminate upon W's death. The rcmaining tust estatewas to go to T's daughter @) if she survived and ifnot, then to D's heiNat law. Upon D's death in 1980, she was survived by her husband (H), aniece, and a nephew. H died testate in 1988, leaving the residue of hisestate to the Regents of the University of Califomia (Rs) for theunive$ity's Berkeley campus. W died in 1991. The rrusree bank (P) pe-titioned the probate court to detemine D's heirs at law The cowt deter-mined the niece and nephew to be D's heiG. Rs appeal.

Issue. Absent evidence of T's intent to the contrary, must the identity of"heirs" entitled to trust assets be detemined at the date of the death ofthe named ancestor who predeceased the life tenant, and not at the dateof the death of the life tenant?

Held. Yes. Judgment rcversed.

(1) There is a common law prcfercnce for vested ruther than contingentremainders, unless an instument discloses a different intent. Thus.a remainder to a class becarne vested in the class when one or moreofits members came into existence and could be ascertained. eventhough the class is subject to open.

(2) When a gift is made to "hei$," the donor is sayihg he wants thepropefiy distributed as if the named person died intestate. Thus, thedeath of the named individual is the nomal time for applying thestatut€ of descent or distribution, absent a manifested intent by Tthat the statut€ be applied earlier or later.

(3) None of the exceptions to the early vesting rule reflected in W?lhFargo Bank v. Title Insurunce & Trust Co,22Cal. App.3d295,99Cal. Rptr 4g (1971), apply here. This is not a situation where the"life tenant is the sole heir, but the will devises the remainder to thetestator's heils."

(4) We have nothing beforc us that rcveals T's intent and nothing fore-closes the possibility that T took into account that D might prede-cease and H might outlive W.

(5) There is no language in the decree that contains any expression offuturity in the description of the ancestor's heirs, such as .,my thenliving heirs at law" The word "then" herc merely indicates time ofenjoyment.

2) The doctrine of worthier title. The docrrine of worthier title provides thatif a settlor transfers property in trust but retains a life estate in himself oranother, and attempts to crcate a remainder in his heirs, a presumption adsesthat the settlor intended to retain a reversion in himself instead of a remainder

b)

c)

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d,

in his heirs. The docrine is a rule of consfuction, not a rule of law Itraises a presumption that no remainder in the settlor's heirs has beencreated, but this presumption can be rebutted by evidence of a contraryintent of the gFntor. The doctrine may still exist in some states.

3) The rule in Sl€lley's Case,T\e rule rn Shelley's Case states that if oneinstument creates a freehold in land in A and puryorts to crcate a fe-mainder in As heirs and the estates are both legal or both equitable, thenthe rcmainder becomes a remainder in fee simple in A. It is a legal prin-ciple that applies notwithstanding the transferor's intent. The rule hasbeen abolished in nearly all states.

The rul€ of convenience. Under the rule ofconvenience, a class closes whenany member has the right to demand distribution of her share, and not whenthe beneficiary actually demands disaibution or when distribution occurs. Ifno members of the class have been bom before the testator's death, the classdoes not close until the death of the designated ancestor of the class. If there isan immediate bequest of a separate fixed sum to each member of a class, theclass closes at the testator's death, even if there are no membets of the classalive.Ifthe giftis postponedin possession after a life estate, theclass will notclose under the rule ofconvenience until the time for taking possession.

1) Class closes when all existing members r€ach stated age--Lux v. Lux v. LuxLux, 109 R.I. 592, 288 A.2d701 (19'72).

a) Facts. The will of the decedent, Philomena Lux (T), provided thatin the event that her husband, Anthony Lur, prcdeceased her, theresidue of her estate should go to her grandchildren, share and sharealike. It fwther provided that any rcal estate included in the residueshall be maintained for the benefit of the grandchildren and shallnot be sold until the youngest of the grandchildren has reached 2lyea$ of age. T was survived by one son (Anthony) and frve grand-children. The youngest gandchild was bom after the execution ofthe will but before T's death. The son informed the trial court thathe and his wife plan to have more children. The trial court appointeda guardian ad litem to reprcsent the interests of the gandchildren. Italso appointed an attomey to represent the rights ofindividuals whoare unknown but who may have an intercst under the will.

b) Issue. When all existent members ofaclass have attained the statedage, should the class be closed and the distribution be made?

c) Held. Yes. Judgment so ordercd.

(1) We hold that the distribution of the trust corpus shall be madeat any time when the youngest of the then-living grandchil-drcn has attained the age of 2 I . When all existent members of

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the class have attained the stated age, considerations of convenience requirethat distribution shall then be made and thar the propeny shall not be ieplftom further utilization to await the uncertain conception of further membersof the group.

Should it become ne.gssary due to a decline in rental incomo to sell the DroD_erty. the trustee has the discretionary power to sell the real estate. The pro-ceeds from the sale shall, because of the doctrine of the subsrirute res. reoiacethe really as the Eust corpus. lncome would be payable to the beneficiariis asit accrues. Should additional children be bom, tho amount of each share ofincome rcceived by a gandchild would be rcduced as each new member ofthe class joins his brothers and sistgrs.

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XI. DURATION OF TRUSTS: THE RULE AGAINST PERPETIJ'ITIES

A. INTRODUCTION

Development ofthe Rule. The Rule Against Perpetuities states: "No

interest is good unless itmust vest, if at all, not later than 21 years aftersome life in being at the creation of the interest." lJohn C. Gray' TheRule Against Perpetuities, s20l (4th Ed. 1942)l An early formulationof the Rule was annollnced in the Duke of Nofolk's Case in !682' andthe Rule was further rcfined over the next few centudes as courts soughtto prevent long-term restrictions on the alienability of land.

Policies Underlying the Rule. The Rule is designedto further market-ability of propefiy and prevent an undue concentration of wealth in thehands ofthe few. The Rule also encourages the socially desirable resultthat wealth be controlled by the living and not by the dead. It alsocurtails trusts, which can protect wealthy beneficiades from bankupt-cies and creditors.

When the Lives in Being Are Ascertained. The validity of an interestis determined as of the time of the purported creation of the intercst."Lives in being" must be persons alive at that time. Generally' the per-petuities period (lives in being plus 2l yea6) begins to run whenevelthe transferormakes an irtevocable transfer' Ifthe interest is created bywill, the period begins at the testator's death. If the interest is createdby deed, or by an irrevocable deed of trust, the pe.iod begins at thetime the deed is delivercd with intent to pass title.Ifa trustis revocableby the settlor, the period begins at the date the rust becomes irevo-cable.

The Validaaing Life. For an inlerest to be valid. the necessary proofmust be made ftom among persons who can affect vesting. Altema-tively, the interest must vest at creation, or vest or fail within 21 yearsafter crcation.

1.

4.

1. The "Fertile Octogenarian." The law conclusively presumes that aperson can have children as long as the person is alive A few stat€shave enacted legislation to deal with the conclusive presumption of

B. THE REQTJIREMENT OF NO POSSIBILITY OF REMOTE VEST-ING: THE WHAT-MIGHT-IIAPPEN RULE

Under the common law rule, any possibility of remote vesting voids theinterest. About half the states have rcfomed this what-might-happen ruleOne of the reforms is the wait-and-see doctrine (covered below).

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Dickerson vUnion NationalBank ofLittle Rock

fetility, prescribing that any person who has attained the age of 65 shall bedeemed incapable of having a chrld.

2. The "Ijnborn Widow." The law presumes that a person's swviving spousemight tum out to be a person not now alive.

Example. O devises "to A for life, then to A's wife for life, then to Aschildren who survive A's widow." It is possible thatA may marry some-one not in being (not yet bom) at O's death (which is the time of thefansfer). She could live beyond lives in being (O's life and A s life) plus2l yean. Thereforc, the devise to the children is void. This is the case ofthe "unbom widow."

Bare possibility is suflicient-Dickerson v. Union National Bank ofLittle Rock, 268 Ark . 292,595 S.W.2d 677 (1980).

1) Facts. NinaDickerson (T) was survivedby her two children. Cecil(P), 50, was single, and Martin, 45, was maried. At that rime thetwo sons had a total of seven children, who werc T's grandchil-dren. T named the bank (D) as executor and directed ihar at rheclose of administration proceedings D transfer to itself as trusteeall the assets of the estate. The will required the trust to continueuntil the death ofboth sons andMartin's widow, and the youngestchild ofeither son has reached the age of 25. At that time, the hustwas to distribute and pay over the entire balance of the trust fundto the bodily heils of borh of her sons.

T died in 1967. The probate court entercd a routine order recitingthat the will had been properly executed and approving theexecutor's fiNt and final accounting and closing the administra-tion of the estate. The order makes no rcference to the validity ofthe trust or the manner in which the assets of the estate were to bedistributed.

In 1977, P filed a complaint against D and its trust officer. Thecomplaint asserted that the trust was void under the Rule AsainstPerpetuities. The complainl charges lhe trusr offrcer wirh

-viola-

tions of his fiduciary duties in failing to deliver all the estate as-sets to T's heirs and in failing to ask the probate court to construethe will with respect to violations of the Rule Against perpetu-ities. The chancery court rejected P's attack on two grounds. First,P should have raised the question ofthe validity ofthe trust in theprobate coufi in connection with the probate of the will and theadministration of the estate. His failue to do so makes the issueres judicata. Second, on the medts, the trust does not violate theRule Against Perpetuities.

b.

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3)

Issue. Is a tust created by a will void under the Rule Against Perpetu-ities because it is possible that the interest of the various beneficiariesmight not vest within the period allowed by that rule?

Held. Yes. Chancery court judgment reversed and case remanded.

Failure of a will beneficiary to challenge the validity of a tust asviolative of the Rule Against Perpetuities in probate proceedingsdoes not preclude him from raising that issue in a lateraction, wherethe validity ofthe trust was not necessarily within the issues beforethe probate court and the probate court made no pertinent decisionsas to the validity of the trust.

Since the bank was both executor of the estate and fustee of thetrust established in the will, the bank was a fiduciary and owed aduty ofgood faith and loyalty to all beneficiades ofthe estate andof the trust. Therefore, the bank could not ignore the possible in-validity of the trust both in probate court and in ex parte chancerycourt prcceedings and then take advantage, to its own pecuniarybenefit, of the beneficiaries' similar course of conduct by assert-ing that the beneficiaries' failure to challenge the validity of thetrust in probate proceedings precluded P from raising that issue ina later action.

A bare possibility that a beneficiary's interest will not vest withinthe pedod allowed by the Rule Against Perpetuities is enough torender that interest void.

b)

a)

d) The terms of this trust present an instance of the "unbom widow."This trust is not to terminate until the deaths of P, Martin, andMartin's widow, but the identity of Maltin's widow cannot be knownuntil his death. Martin might marry an l8-year-old woman 20 yearsafter his mother's death, have additional children by her, and thendie. P might also die. Matin's young widow, however, might livefor another 40 or 50 years, after which the interests would finallyvest. But since P and Martin would have been the last measuringlives in being at T's death, the trust property would not vest untilmany years past the maximum time allowed by the Rule. The hustis therefore void because there is a possibility that the estate willnot vest within a period measured by a life or lives in being at T'sdeath, plus 2l years.

Split contingencies. If the transferor makes a gift upon either of two contin-gencies, one ofwhich must occurwithin the perpetuities period, andthe otherof which might not, the contingencies arejudged separately. The gift is validifthe first contingency occurs; the second contingency is void.

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Ward v.Van der Loeff

C. APPLICATION OF THE RULE TO CLASS GIFTS

1. The Basic Rule: All or Nothing. Pursuant to the Rule, a class gift mus!be valid as to all memben of the class or it is completely void. It cannotbe valid as to some members and invalid as to others. If the gift to onemember of the class might vest too rcmotely to satisfy the Rule, theentire class gift is void. The nrre o:f convenience may operate to savesome class gifts.

a. Class gifts-Ward v. Van der Loeff, u9241A,.C.653.

1) Facts. The will of the decedent, WilliamBumyeat (T),left hisestate in hust for his wife with the remainder to his children.In the event that he had no children, he gave his wife a powerto appoint the trust fund among the children of his brcthersand sisters; in default ofappointrnent, the trust fund was to goin equal shares to the children of his brothers and sisters. Acodicil to the will provided: (i) that the life interest to his wifeshall be terminable on her remaniage unless such remaniageshall be with a natural-bom British subject; (ii) that the powerof appointrnent be revoked; and (iii) that, after the death of hiswife, the trustees would hold the ftust for any or all of thechildren of his brothers and sisters who shall be living at th€death of his wife or bom at any time afterward before any oneof the children attains a vested intercst and attains the age of21 (if a son) or attains that age or maries (if a daughter), inequal shares. T was survived by his wife but no children, byhis father and mother, aged 67, and by two brcthers and twosisters, each of whom had children living at T's death. PhillipBumyeat, another nephew ofT, was bom after T's death andafter the remariage of his widow to a Dutch subject,

2) Issue. Will a gift to a class violare the Rule Against Perpetu-ities if the bequest is to the children of b.othe6 and sistersbom at any time after the death ofa life in being?

3) Held. Yes. Judgment affirmed.

a) (Lord Haldane) In construing rhe words of a will, the ef-fect of the Rule Against Perpetuities must in the first in-stance be left out of sight, and then having in this waydefined the intention expressed, the court must apply theRule to the meaning thus ascertained. Here, the codicil isvoid since it speaks of T's brothers and sisters generallyand there is no expression that excludes the children ofother possible brothers and sisters of the whole or halfblood who might in contemplation of law be bom.

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b) Howevet the codicil does not operate to revoke the gift to thechildren of brothers and si sters contained in the will. The revo-cation in the codicilis confinedto the power of appointment tothe wife. The prcvision in the will stands undisturbed The timewhen distribr-rtion of the estate occurs-herc, when the widowremaried-is when the class ofchildren who will take will beascertained. Phillip Bumyeat is excluded since he was bomafter the widow rcmarried

c) (Irrd Dunedin) There are only two classes ofcases where theprimary meaning of a class gift can be departed ftom. First,where it is impossible under the circumstances that any personindicated by the prima facie meaning can tale under the be-quest. Here, this is not the case since the law presumes thatother brothers and sisters could still come into existence. Sec-ond, where something in the will itselfexcludes the prima fa-cie interpretation. Herc, this also is not the case

b. Consequences ofviolating the rule. Violation ofthe Rule will result inthe violating interest being stricken, with all other valid intercsts leftstandng.

Gifts to Subclasses. One exception to the all or nothing class gift rule is thedoctrine of subclasses. Under this doctrine, a remainder held to be invalid asviolative of the Rule Against Perpetuities do€s not taint and invalidate allother remainden whete the ultimate take$ arc not described as a single classbut as a group of subclasses.

a. R€mainders to oth€r subclasses not invalidated-American S€curity& Tfust Co, v. Cram€r' 175 F' Supp. 367 (D.D.C. 1959).

1) Facts. The will of the decedent, Abraham Hazen (T), bequeathedthe residue of his estate in trust to his wife for life; after her deathhalfofthe corpus was to be given toT's sister and brothers and theother half was to remain in trust for T's adopted daughter, HannahDuffey. Upon the death of Hannah, the income was to go to thechildren of Hannah. if alive, and if dead then to thek issue, andupon the death of each, the share of each was to go to those who areheirs according to the law of descent and distribution. T's heirsbrought this action to have the will stricken as in violation of theRuleAgainst Perpetuities. The lowercout held that the interests ofHannah's children were valid. The court of appeals affirmed. At thetime of T's death, Hannah had two children-Mary and HughDuffey-and after T's death had two more-Depue and HomceDuffey. After the death of Hugh, the trustee brought a bill for in-structions regarding the validity of the remainder over to Hugh'sheirs; again, the remainder was held valid. Thereaftel Depue died

AmencanSecurity &Trust Co.v. Cramer

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and again a suit was hought. While this action was pending, Horacedied and a supplemental bill for instuctions was filed. Although Mary isstillliving, thiscourt will pass on the validity of the remainder regardingall parties concemed.

2) Issues.

a) If a class gift is to be valid, must the class close within the period pro-vided by the Rule Against Perpetuities?

b) When one remainderis held to be invalid as violative of the Rule AgainstPerpetuities, does this taint and invalidate all other remainders if the ul-timate takers are not described as a single class but as a group of sub-classes?

3) Held. a) Yes. b) No. Counsel will submit an appropriate order.

a) A gift will fail unless the members of the class are finally determinedwithin a life or lives in being plus 2l yeals and actual periods of gesta-tion; stated differcntly, the class must close within the period providedby the Rule, if the class is to be held valid. Here, the remainde$ to theheirs of Hugh and Mary Duffey are valid-both Hugh and Mary werelives in being at T's death, and the remainders limited to their hei$ hadto vest, if at all, within the period provided by the Rule. The rcmaindersto the heirs of Horace and Depue are invalid-they both were bom afterT died. and hence the remainders to their heirs could vest later than theperiod pfovided by the Rule. It does not help to show that the Rule mightbe complied with, or that, the way things tumed out, it actually was com-plied with.

b) The invalidity ofthese remaindem does not taint the valid remainders tothe heirs of Mary and Hugh. If the ultimate taken are not described as asingle class-i.e., As children that reach age 25-but nther as a groupof subclasses-i.?., the heils of each of A s children-and if the share towhich each separate subclassis entitled will finally be detemined withinthe period of the Rule, the gifts to the differcnt subclasses are separabiefor the purpose of the Rule. We read the language here as a devise ofrcmainders to subclasses and not as a single class: "upon the death of'each' the share of the 'one' so dying shall go [to] . . . her or his heirs atlaw" Accordingly, the invalidity of one does not invalidate them all.

c) The Rule in Shelleyk Ca.re does not save the two invalid remainderssince the rcmaindeN were not limited to "hei6" but instead wentto "herorhis hei6 at law according to the laws of descent now in force." Whena remainder in fee after a life estate fails, there is a revercion in the heirsof the testator The two one-sixth shares held invalid shall therefore passto the successors in interest of T's heirs.

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3. Specilic Sum to Each Class Member. Another exception to the all ornothing class gift rule is where there is a gift of a stated sum to everymember of the class. The policy underlying this exception is that the

amount intended by the conveyor to be given to each class member canbe deduced without estimating how many persons are in the class

4. Does Vest = Vest = Vest? Difficulties adse regarding the meaning of the

word vest. since orthodox doctrine has insisted that whether an interestis vested or contingent depends upon the form of words set forth in thelimitation.

D. APPLICATION OF THE RULE TO POWERS OF APPOINTMENT

To apply the R'lle Against Perpetuities to powe$ of appointment, the powers

must be separated into (i) general powers presently exercisable, which are

treated as absolute owne$hip for pur?oses of the Rule, and (ii) general testa-

mentary powen and all special powers.

1. General Powers Pr€sently Exercisable.

a. Validity of power. A general inter vivos power is valid if there iscertainty that the power will vest or fail within the perpetuihes pe-riod. Once the Power becomes exercisable, the property is no longertied up. The fact that the donee may exercise the power after lives inbeing plus 2l Yeals is irrelevant.

b. Validity of interests cr€ated by exercis€ or a general power pres-

ently exertisable. An interest created by exercise of a general power

is deemed valid according to the same principles as if the doneeowned the propeny in fee. The perpetuities period runs ftom theexercise of the Power'

2. General T€stamentary Powers and Special Powers.

a. Validity of power. A testamentary or special power is valid if it

may not be exercised beyond the perpetuities period that begins atthe creation ofthe power If the power may be exercisedbeyond theper?etuities pedod, it is void ab initio.

b. Validity of exercise. General and special powers ate treated alikewhen determining the validity of an appointment. The perpetuitiesp€riod begins at the dale the power $as created.

1) The "Delaware tax trap." Under Delaware law, every inter-est created by the exercise of all powers must vest within theperpetuities period. This provision theotetically would permitlife estates to be created in indefinite succession through theexercise of successive special powers of appointment, thus

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Second Na-tional Bank ofNew Havenv. Haris Trust& Savings Bank

avoiding federal tax liability (since property subject to a special powerof appointment is not taxable at the donee's death). Howevet section2041(a)(3) of the Intemal Revenue Code taxes the assets in the donee'sestate if he exercises his special power of appointment by establishinganother power that can be exercised regardless of the fi$t power's dateofcrcation.

2) The secondJook doctrine. Under the second-look doctdne, the exer-cise of a power ofappointment is read back into the instrument that cre-ated the power, and the facts existing on the date of the exercise of thepower a1€ taken into consideration. Thus, the coul't will detemine iftheinterests vest or fail within the time prescribed by the rule, taking intoaccount the facts existing on the date of the appointment.

Rule applied to unconditional power of revocation--Second National BankofNew Haven v.Ilarris Trust & Savings Bank, 29 Conn. Supp. 275, 283A.2d 226 (19',11\.

1) Iacts. Caroline Trowbridge (T) created an inter vivos trust naming theSecond National Bank of New Haven (P) as trustee, with the income ofthe trust to be paid to T's daughtet Margaret Manh, who was also givena general testamentary power of appointment over half of the corpus.The remaining half would be distibuted to Margaret's surviving chil-dren, and if none then to T's other daughter, Mary Brewster Muray, or toher surviving issue per stilpes. T reserved the power to revoke, modify,or alter the terms of the trust respecting payment of the income. Marga-ret Marsh left a will purporting to exercise the power by creating anotherrust giving the income to her daughter, Mary Washbume, for a period of30 years, after which time the tr.rst would be distributed to her or, ifMary died prior to this, then to her surviving children. At issue waswhether the exercise of the testamentary power of appointment byMargaret's will is invalid as violative of the RuleAgainst Perpetuities.

Issue.Ifa settlor resefles an unconditional power of revocation, for pur-poses ofthe RuleAgainst Perpetuities, does the period ofthe Rule beginfrom when a power of appointment is first created?

Held. No. Judgment entered accordingly.

a) When a power of appointment is in fact exercised, the validity ofthe appointment is determined by precisely the same rule as if theonginal testator who created the power had made in her own willthe same provision in favor of the s.!me appointee. The appoint,ment is read back into the instrument creating the power. As far asperpetuities are concemed, the period ofthe Rule is reckoned fromthe date of creation of the Dower, not from the date of its exercise.

2)

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b) However, therc is an exception to this general rule whercan unconditional power ofrevocation is reserved. In thoseinstances, the period of perpetuities is calculated from thetime the power of revocation ceased, usually at the deathof the grantor.

Here, the power to rcvoke reserved by T does not qualifyfor the exception applicable to a full and unconditionalpower of revocation, since she reserved the power to re-voke only as to the payment ofincome. Thus, the remote-ness of the futue intercsts created could not be affectedby any exercise of the power.

Herc, both the gift of the income to Mary Washbume for30 years and the gift of the rcmainder after the 30 years toMary's children vested in interest at the death of Marga-ret March within the period of the Rule. Postponement ofenjoyment beyond the period of the Rule would not in-validate them. Accordingly, Mary has a valid income in-terest in the half of the trust subject to the power ofappointment for 30 years and is then entitled to the prin-cipal. If she dies before then, the principal would be dis-t.ibuted to her estate because her remainder has becomeindefeasibly vested.

If Mary dies before the 30-yearpedod expires, the pdnci-pal goes to her estate; it does not pass to her survivingchildren under the terms of Margaret's trust. That trust'scontingent rcmainder to Mary's children violates the RuleAgainst Peryetuities because it might vest more than 21years after Margaret's death. The result in cases whercfuture interests are voided by the Rule is that the p.iorinterests b€come what they wouldhave been had the limi-tation of the future interest b€€n omitted from the instu-ment. If a divesting interest is void, the interest that wouldotherwise have been divested becomes absolute.

o)

e)

E. SA\INGCLAUSE

A saving clause rectifies any possible violation of the Rule. Such a clauseshould be included even in those judsdictions that have adopted a cy prcs or"wait-and-see" doctdne.

1. Attorney Liability for Violating Rule. Courts are divided asto whetheran attomey who dafts a will that violates the Rule is liable for negli-gence.

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ln re Trttslof Wold

F. PERPETTIITIESREFORM

Three kinds of reforrn have emerged to alleviate some of the harsh effects ofthe Rule: the wait-and-see doctrine, the equitable reformation or cy pres doc-trine, and remedying the most objectionable applications of the Rule withspecific remedies.

1. The "Wait-and-See Doctrine.r' Under this doctrine, the validity of in-terests isjudged by actual events as they happen, and not by events thatmight happen. lsee In re Estate of Anderson, 541 So. 2d 423 (Miss.1989)l

a. Statutory period applies to no[vested interest cr€at€d pursu-ant to power of appointment-Ir, ,'e Trust of Wold, 310 N,J. Su-per 382, 708 A.2d 787 (1998).

1) Facts, Seward Johnson (ofJohnson & Johnson) created trustsin 1944 to benefit his chil&en; Elaine Johnson Wold (P) is thebeneficiary of the trusts. Under the tems of the tust, the hust-ees werc directed to collect income, pay expenses payable outof income. and accumulate the net income until P reached theage of 21. At that time, the trustees had absolute discretion topay to P as much of the income as the trustees deemed to b€for her best intercst. The lust also pemits the tmstees to hansferand pay to "the life beneficiary" (P) "any or all of the trustproperty." Upon P's death, the trustees are directed to pay overthe trust property to her spouse and issue as directed in herwill or, in the absence of a will, to her issue in equal sharcs. Pwishes to create a testamentary trust appointing the proceedsof her fiust in fwther kust for the benefit of her spouse andsurviving issue. The new tust would permit prcperty held byone of P's children to continue in trust for that child's issueupon the child's death.Thus, theissue's (P's grandchild's) inter-est would be considered nonvested since the property wouldpass only upon the happening of a specific event, the death ofP's child. P plans to rely on the New Jersey "wait and see"go-year perpetuities pedod and has requested the trustees topetition this court for direction and interlretation regardingthe application ofthe New Jersey statute to her proposed ex-ercise of her power of appointment under the terms of the1944 trust.

2) Issues.

a) Does the power granted to P to dispose of the fiust resinclude the power to appoint the trust assets by a succes-sive testamentary trust?

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b) Does the New Jersey Uniform Rule Against Perpetuities, * hrc f-provides that an act that would have been invalid at commonlaw is nevertheless valid if it vests within 90 years of its cre-ation and becomes invalidonly ifit continues in existence anddoes not vest within that time period, apply to a nonvestedintercst created pursuant to the exercise ofa power of appoint-ment vested in P by a 1944 tust and measwed from the cre-ation of the 1944 trust?

3) Held. a) Yes. b) Yes. Judgment fot P

a) The trustees have been given the maximum flexibility and dis-cretion in addrcssing the beneficiary's needs.

b) The law ofhusts suppofis P's position. The Restatement (Sec-ond) ofTrusts, section 17, provides that atmst may be createdby "a person having a power of appointment to another pe6onas trustee fot the donee of the power or for a third person "

c) The settlor's clear pupose in establishing the trust was to pro-tect the trust ftom tax burdens to the fullest extent of the law.The proposed testamentary trustwilleffect significant tax sav-ings. Such a purpose, rather than being restricted, is well withinthe contemplation and intent of the tust instrument.

d) While the New JeNey statute generally may not apply retroac-tively, where the applicability of a new statutory period is be-ing determined, the law states that an intercst crcatedpurcuantto a power of appointrnent is deemed created upon the exerciseof that power. Thus, if the power created by P were exercisedafter July 3, l99l (the effective date of the statute), the Rulewould apply to an interest created under that power,

4) Comment. The New Jersey Uniform Statutory Rule Against Perpe-tuities was repealed in 1999. It was replaced with a statute that al-lows a perpetual ttust if the trustee has either an expressed or i mpliedpower to sell or an unlimited power to teminate the trust in one ormore living persons.

2. The Uniform Statutory Rule Against P€rpetuities (1986, as amended in1990), The Uniform Statutory Rule Against Perpetuities ("USRAP") providesfor two rules against peryetuities, the common law Rule and the wait-and-seerule of 90 years. The original &afters of USRAP failed to notice the effect ofthis provision when conjoined with the generation-skipping transfer tax (a taxpayable on the transfer to a pe$on who is at least two genentions removedfrom the transferor). Pursuant to treasury regulations in effect when USRAPwas enacted, the generation-skipping transfer tax does not apply to trusts crc-

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G.

ated prior to 1986 unless the exercise of a special power of appointmentdelays the vesting of an interest beyond the common law perpetuitiesperiod. Under USRAP, a grandfathered trr.rst is not exempt if a specialpower of appointment is exercised in violation of the cornrnon law per-petuities period, thus givingriseto the 90-year wait-and-see rule.In 1990,section l(e) was added to USRAB providing that if the vesting of a giftis based on two altemative contingencies, one of which complies withthe common law perpetuities period and the other complies with theUSRAP period, effect is given only to the common law perpetuities pe-riod.

3. Cy Pres or Equitable Reformation. Under this doctrine, an invalid in-terest is reformed within the limits of the Rule to approximate most closelythe intention of the creator of the interest.

TIIE RTJLE AGAINST SUSPENSION OF THE POWER OF ALIEN-ATION: NEW YORK LAW

l. A BriefExplanation ofthe Suspension Rule. The rule prohibiting sus-pension of the power of alienation proceeds upon a policy assumpdonthat the power of alienation is suspended only when there are not per-sons in being who can convey an absolute fee. The rule applies only ifthe taker of a contingent interest is unbom or unasceitainable Subse-quent modifications of the statute have made it similar in scope to thecommon law Rule Against Perpetuities, with the exception that truststhat might last beyond the statutory period arc morc likely to be heldinvalid under the statute than they would be under the Rule.

2. Application ofthe Suspension Rule to Statutory Spendthrift Trusts,The power of alienation is suspended when a transfer is made in trust if(i) the legal fee simple to the trust property is nontransferable or (ii) theequitable owne$ cannot convey possessory intercsts in absolute fee.

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XII. CIIARITABLE TRUSTS

A. INTRODUCTION

A charitable trust is one for the benefit of a class of pe6ons, and not for thebenefit of the community at large, and must be for relief of poverty or lbr theadvancement of education, rcligion, health, or other charitable purpose. It mustbenefit the general public or some particular class of the public that is indefi-nite in number.

1. Creation ofa Charitlble Trust-Shenandoah Valley National Bankv. Thylor, 192 Va. i35, 63 S.E.2d 786 (1951).

Facts. The will of the decedent, Charles Henry provided that theresidue ofhis estate was to be held in trust by the Shenandoah Val-ley National Bank of Winchester, to be paid by the trustee on thelast school days of each calendar year before christmas and Easter"in as many equal parts as there are children in the first, second, andthird $ades of the John Ken School of the City of Winchester, and(the trustee) shall pay one ofeach such equal parts to each child insuch grades, tobe usedby such childin the fwtherance ofhis orherobtainment of an education." One of the next of kin of the decedent(P) filed suit against the executor and trustee (Ds) challenging thevalidity ofthe will, which undefiook to create a charitable trust. Paryued that the trust did rlot constitute a charitable trust and wasinvalid in that it violated the Rule Against Perpetuities. The trialcourt held that the trust was not charitable but was a private trust,and thus violated the Rule Against Perpetuities and was void.

Issue, Must a trust be public in nature before it will be considered acharitable trust?

Held. Yes. Decrees affirmed.

l) A charitable hust is created only if the settlor properly mani-fests an intention to crcate a charitable ffust. Charitable pur-poses include the relief of poverty and the advancement ofeducation, religion, health, municipal purposes, and other pur-poses the accomplishment ofwhich are beneficial to the com-munity. It is essential that the charity be for the benefit of anindefinite number of persons, for if all the beneficiaries arepe$onally designated, the rust lacks the essential element ofindefiniteness, which is one characteristic of a legal charity.

2) Herc, the time for payment of the funds to the children is whentheir minds would be far removed from studies and indicatesthat no educational Dumose was in the testator's mind. Execu-

b.

ShenandoahValley NationalBank v. Taylor

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I reNeher

tion of the mandate of the trust accomplishes no educationalpurpose. It merely places the income forever beyond the rangeof the ftust. The words of the trust import an intent to have theffustee pay each child an allotted share. The testator's intentwas to bestow upon each child gifts that would bring happi-ness on the two holidays, which purpose falls far short of aneducational trust.

3) It is argued that even if the will fails to create a charitabletrust for educational purposes, it nonetheless produces a de-sirable social effect. We disagree. A trust from which the in-come is to be paid at stated intervals to each member of adesignated segment of the public, without regard to whetherthe recipients are poor or in need, is not for the relief of pov-erty, nor is it a social benefit to the community. Therc is nolanguage in this will that permits the trustee to limit the re-cipients to the schoolchildren who are in necessitous circum-stances. Accordingly, it is mere benevolence-a privatefiust-and not a charitable trust.

B. MODIFICATION OF CIIARITABLE TRUSTS: CY PRTS

Where a general charitable bequest is impracticable, some courts will executea gift cy pres through a scheme ftamed by the court for the purpose of cany-ing out the general puq)ose.

1. Gen€ral Charitabl€ Purpose-.In ie Neher,279 N.Y 370, 18 N.E.2d625 0.939\.

Facts. Ella Neher's (T's) will devised certain real property to thevillage (P), with a direction that P erect a hospital named as a me-morial to T's deceased husband. P accepted the propefiy in 193 l In1937, P petitioned the swrogate's court to conshue and reform therelevant provision of T's will, directing that P would receive theproperty and erect an administration building in T's husband'smemory since a nea$y hospital adequately served P's needs. P'spetition was denied. The appellate division affirmed. P appeals.

Issue. Was T's devise a general intention to devote the property tocharitable purposes insteadofa specific intention to limit the use ofthe prcperty to the operation of a hospital?

Held. Yes. Order re\elsed and remanded.

I ) This was a gift to the entire community. That was the fiIst stateddesien of beneficence.

b.

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2) The direction that a hospital be erected shows an absence of par-

tlculanty as lo type. managemenl' or control' except that P s trust-

ees were to be the goveming board This absence of par(lct antyrs

a strong showing against lhe \iew that the instruction was the sub

stance of the gift

3) We thinkT's intention was a general charitable gift with an added

graft as to T's desires A graft may be ignored when complrance ls

iltogether impracticable' and the gift may be executed cy pres

throigh a scheme devised by the court to carry out the general chari-

table PurPose.

2. Great Incrcase in Available Funds-Itt re Estate of Buck' 21 U S'F L Rev'

691 (Cal. sup. ct. 1986).

a. Facts. In 1975, Beryl Buck (T) died a resident ofMarin County' Califor-

nia. Marin County is the most affluent county in the San Francisco Bay

Area and is the nation's second-wealthiest county of more than 50'000

residents. T's will left the residue of her estate to the San Francisco Fourr-

dation, a community trust administering charitable funds in five counties

in the Bay Area. Her will directed that the residue of het estate be used

for exclusively nonprofit charitable' rcligious' or edutational purposes

in prouiaing "ur"

foi ttte needy in Marin County, and for other nonprofit

charitable, ieligious, or educational purposes in that county'

At the time of T's death' the largest asset in her estate consisted of a

block of stock wofih about $9 million ln 1979, Shell Oil won a bidding

wat and bought the stock in the Buck Trust for $260 million' which in-

creased to we-il over $300 million by 1984 In 1984' the foundation brcught

suit seeking judicial authodzation to spend some portion of the Buck

Trust incolie in the other four counties of the Bay Arca The foundation's

petition for cy pres rested upon the following theory: The enormous ln-

crease in the'value of principal was a change in circumstances raising

substantial doubt whether T, had she anticipated such an event' would

have limited her beneficence to Marin County Forty-six individuals and

charitable organizations in the other four counties (called "objector-bgn-

eficiaries") were allowed to intervene to object to the Marin-only limita-

tion.

b. Issue. Does the doctrine of cy pres apply if there is a dramatlc' unex-

pected increase in tilst funds and a diffetent use of trust funds would be

more advantageous to the community?

c. Heltl. No. Judgment denied the petition for modification'

In re Estateof Buck

I ) Cy Dres applies only uhere the purpose of a rust has berome ille-

gut. i.po.i i l t". ot p.rmanently impraclicable of performance' and

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c.

the testator manifested a general charitable intention. In prac-tice, cy pres has most often been applied in Califomia in suchcases where the charitable trust purpose is literally impossibleto fulfill or in cases wherc it has become rcasonably impos-sible of performance. Ineffective philanthropy, inefficiency, andrelative inefficiency (i.e., inefficiency of trust expenditures inone location given greater relative needs or benefits elsewhere)do not constitute impracticability.

2) If both the testator's intent and the charitable gift can, in fact,be effectuated, i.e., the specified trust purpose has not becomeimpossible or impracticable of performance, there is nojusti-fication for cy pres. Cy prcs may not be invoked upon the be-lief that the modified scheme would b€ more desirable or wouldconstitute a better use of the income. Courts have held thatterms of a charitable trust may not be modified on the groundsthat a different use would be more beneficial to the commu-nity or advantageous to the charity. Cy pres does not authodzethe court to vary the terms of a trust merely because the varia-tion will meet the desire and suit the convenience of the trustee.

3) The residents of Marin County have substantial unmet needsthat are within the scope of the purposes of the Buck Trust.The entire income ofthe Buck Trust is presently insufficient,and will remain insufficient in the future, to address all of theseneeds and opportunities.

SIJPERVISION OF CHARITABLE TRUSTS

Most states authorize their attomey general to enforce charitable trusts onbehalf of a community. Others with a particular identifiable interest in thetrust may also enforce the trust.

1, Donor Has No Standing-Carl J, Herzog Foundation,Inc. v. Univer-sity of Bridgeport, 243 Corlf'],.I,699 A.2d995 (1997).

a. Facts. In 1986, the Carl J. Herzog Foundation (P) made grants tothe University of Bddgeport (D) forneed-based merit scholaNhipsfor medically related education for disadvantaged students. Thescholarships were prcvided to nursing students until 1991 when thenursing school closed. P alleges the funds have been cor[ningledwith D's general funds and are not being used in accordance withthe trust instrument. P rcquested a temporary and permanent in-junction requiring D to segregate $250,000, requesting a full ac-counting of the fund, and requiring the fund be reestablished inaccordance with the original purposes. D moved to dismiss, claim-ing P did not have standing. The trial court dismissed, noting the

Carl J. HerzogFoundation, Inc.v. Udversityof Bridgepofi

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b.

attomey general couldbring an action. The appellate courtreversed, conclud-ing the Connecticut Uniform Management of Institutional Funds Act("CUMIFA") provides dono6 with standing even though no such.ightispro-vided for in the trust instrument. D appeals.

Issue. Does CUMIFA establish statutory standing for a donor to bdng anaction to enforce the terms of a completed charitable gift when the gift instru-ment contained no exprcss reseflation of control over the gift?

Held. No. Judgment reversed.

l) One with standing is either classically aggdeved orprovidedwith stand-ing by statute. Here, P's sole basis is CI-MIFA.

2) At common law, unless a donor who made a completed charitable con-tribution expressly reserved the right to bring an action to enforce theterms of the gift, she had no standing to do so. Generally, such gifts areenforceable by the attomey general. The attomey general has the exclu-sive power on behalf of a donor who attaches conditions to see that thoseconditions arc met, i.e., to corect abuses in the administration of a pub-lic charity.

3) Subsection 45a-533 of CL\4IFAprovides that an institution's govemingboard may seek relief from an onercus or obsolete restriction withoutresort to the couts by obtaining the donor's consent, if living, or fromtbe court ifthe donor is dead. In the case of the absence of a resriction.the subsection permits a goveming board to use a gift only for "educa-tional, religious, charitable or other eleemosynary purposes." The statuteis not meant to supplant but to supplement the doctrines of cy pres andapproxlmatlon.

4) In the absence of exprcss language in the statute providing a donor'saccess to the courts to complain of achange in a resiriction without con-sent, we must look to the legislative history. This history directly refutesP's claim.

We have stated that in the absence of prior authority to aid in interpreta-tion of C['MIFA, we are guided by the meaning of the drafters of theUniform Management of Institutional Funds Act ("UMIFA"). In enact-ing CUMIFA, the drafters intended to implement the intention, mean-ing, and objectives of UMIFA. UMIFA specifically states the donor hasno right to enforce restdctions, no power to change the eleemos),narybeneficiary, and no interest in the fund; she may only lessen a restrictionin effect.

The donor's power here was consideredin the light of adverse tax conse-quences for donors if fIMIFA provided donors with control of their giftafter the gift was completed. In their commentary to UMIFA, the &aft-

6)

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d.

ers clearly stated they wished to protect the donor's federal charitablecontribution deduction, and they anticipated no federal tax problem byallowing the donor to release a restriction.

7) The appellate cout dismissed this language as applying only to tax is-sues and rcasoned it did not answer the question whether the sole right tospeak to the donor's interest in the release of a restriction lies with theattomey general. We disagree. Therc is no language in either statute thatthe drafters intended the donor to supplant the attomey general.

Dissent. This decision condones a donee double crossing the donor and get-ting away with it unless an attomey general does something about it.

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XIII. TRUST ADMINISTRATION: THE FIDUCIARY OBLIGATION

A. GENERAL FIDUCIARY DUTIES AND LIABILITIES

1. Duty of Loyalty: Herein of Self'Dealing. A fustee has a duty to give

undivided loyalty to the beneficiaries The duty of loyalty requires trust-ees to avoid any conflicts of interest between peNonal interests and theinterests of the trust or estate. Thus, dtJ transactions between the indi-vidual and the trust or estate should be avoided. A rustee who engagesin self-dealing is liable even if he acted in good faith and treated thebeneficiaries fairly. The tustee's only defense to self-dealing is consentby the beneficiaries after full disclosure (the transaction must still be farand rcasonable).

a. Tlustee's wife acts as purchaser"Hartman v. Hartle' 95 N J. Eq.r23, 122 A.615 (t923).

1) Facts. The testator Dorothea Geick (T), named her two sons-inlaw executors and directed them to sell her rcal estate anddivide the prcceeds equally among her five children. The ex-e.uton sold part ofthe real estate to one of T's sons, who boughtthe propefiy forhis sistet the wife ofone ofthe executors Shesold the propeity two months later for a $1,600 prcfit. One ofT's daughters (P) filed a bill charying the sal€ to have beenimproper and fraudulent

2) Issue. Is the sale of property by an executor to his wife, with-out previous authority from the coun, illegal and void?

3) Held. Yes. Decree will be advised

a) The settled law tn this state is a rustee cannot purchasefromhimself athis own sale, and his wife is subject to thesame disability.

b) Because the property is now owned by innocent purchas-ers, the executon and the wife will be held accountablefor P's one-fiith share ofthe profits on rcsale

b. Conflict of interest-'In re Rothko' 43 N.Y2d 305, 372 N.E.2d291, 401 N.YS.2d,l49 (1977).

1) Facts. The decedent, Mark Rothko (T)' an intemationallyknown painter, died testate, leaving an estate consisting prin-cipally of798 paintings Bemard Reis, Ttreodoros Stamos, andMorton l€vine were appointed co-executors (Ds). Within threeweeks oftheir appoifltment, Ds agreed to sell to MarlboroughA.G., a Liechtenstein corporation, 100 paintings to be paid

Hartmanv. Hartle

In reRothko

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for in interest-free installments over a 12-year period after an initial paymentof $200,000. They also consigned to Marlborough Gallery, Inc., a domesticcorporation, some 700 other paintings listed in a schedule to be prepared. Itlater came to light that Reis was a director, secrctary, and treasurer ofMarlborough Gallery in addition to being co-executor of the estate; that Stamoswas a not-too-successful artist financially and that it was to his advantage tocurry favor with Marlborough Gallery; and that Levine failed to exercise ordi-nary prudence because he was aware of Reis's conflict of interest. Kate Rothko,T's daughter later joined by her brother, Christopher Rothko, and the attomeygeneral of the state (Ps), bmught suit to remove Ds, to enjoin the sale of thepaintings, to rescind the agreements entered into, to have retumed the paint-ings still in possession of the corporations, and for damages. The tdal counheld for Ps. The app€llate court affirmed. This appeal followed, Ds contend-ing that they acted in good faith and that the plan was fair

2) Issue. While a hustee is administering a trust, must he refrain from placinghimself in a position where his personal interest may conflict with the interestof the beneficiaries?

3) Held. Yes. Order affirmed.

The duty of loyalty imposed on a fiduciary prevents him from acceptingemployment from a third party who is entering into a business transac-tion with the trust. While the fiduciary as trustee is administerjng thetrust, he must refrain from placing himself in a position where his per-sonal interest or that of a third pefton does or may conflict with theinterest of the beneficiaries. Here, to assert that therc was no conflict ofinterest on the part of Reis and Stamos is to indulge in sheer fantasy.Reis was not only a dircctor and officer of Marlborough Gallery but hadfinancial inducements to favor Marlborough through sales of his ownextensive ancollection. So too didStamos benefit as an artist under con-tract with Marlborough.

Levine argues that, having actedprudently and upon the advice ofcoun-sel, a complete defense is established. We disagree. An executor whoknows that his co-executor is committing breaches of tmst and who notonly fails to exert efforts dirccted toward prevention but accedes to thebreaches is legally accountable even though he was acting on the adviceof couNel.

We now tum to the proper measure of damages. In general, when a fusteeis authorized to sell trust property, but in breach of hust sells it for lessthan he should receive, he is liable for the value of the property at thetime of the sale less the amount that he received. Ii the breach of trustconsists only in selling it for too little, the trustee is not chargeable withthe amount of any subsequent increase in value of the property. How-evet if the breach consists ofsome misfeasance other than solely selling

a)

b)

c)

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tbr too low a price, appreciation damages may be appropriate.A trustee may be held liable for appreciation damages if it washis duty to retain the property. The sane rule should applyhere where there is a serious conflict of interest.

c. Co-trustees. A co-trustee does not have the power to hansfer or dealwith the propefty without consulting the other co_trustees. Nor mav atrustee delegate decisionmaking powers to a co_truslee. These powerscan only be exercised by the co-trustees togelher.

d. Insider trading. Under Securities Exchange Commission Rule l0b_5, aperson witl inside infomation about a stockcannotbuy or sell the stockunless he first discloses this information. A fiduciary wlll be bound bythis rule since the obligations of a fiduciaiy do not include the perforriing ofan i l legal acr.

2. Fiduciary Dutiei R€lating to Care ofthe Tfust propefty.

a, Duty to collect and protect trust prcperty. A trustee has the dutv toimmediately collect the tust assets and ascenain thar the executor hastendered the appropriate propefty.

b. Duty to earmark trust prcperty. A trustee has a duty to earmark prop-erty and is liable for any loss that results from the failure to do so.

c. Duty not to mingle trust funds with trustee's own. A trustee has adury to not commingle the trust funds with his own and will be liable forlosses resulting fiom cortuningling.

d. Duty not to delegate. A fustee has a duty not to delegate acts that thetrustee can reasonably be required to perfom penonally. He may del-egate certain nondiscretionary functions, but he has a duty to supervisethose to whom he delegates.

1) Delegation of investment power--Shriners Hospitals for Crip_pled Childrcn v. Gardiner,152 Anz.527,733 p2d lllO 0987).

a) Facts. Laurabel Gardiner established a ffust to Drovide incometo her daughter, Mary Jane. her grandchildren, Charles andRobert, and her daughter-inJaw, Jean. The remainder passesto Shriners Hospitals for Crippled Children (p) upon lh;dearhof the income beneficraries. Mary Jane was appointed rrustee;Charles was named first altemate trustee: and Robert secondaltemate tustee. Mary Jane, not an experienced investor, placedthe trust assets with Dean Witter. Charles, an investment coun_selor and stockbroket made all investment decisions and em_bezzled in excess of $300,000. p brought a petition to surcharge

ShrinersHospitalsfor CrippledChildrcnv. Gardiner

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Dennis v.Rhode IslandHospitalTrust Co.

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Mary Jane for the full amount. The trial coufi denied the petr-tion: a divided court of appeals reversed. Mary Jane appeals.

b) Issues,

(l) Is Mary Jane's delegation of investment power to Charlesa breach of fiduciary duty?

(2) Was Mary Jane's delegation of investment power toCharles the proximate cause of the loss?

(3) Can Robert prcperly continue to act as successor trusteeand as guardian and conservator for the prcdecessor tnrsteeMary Jane?

c) Held. ( 1) Yes. Judgment reversed and rcmanded. (2) Remandedfor findings of fact by tdal cowt. (3) If the trial couft findsMary Jane liable, Robert would have to be removed since, asher guardian and conservator, his intercst would conflict withhis fiduciary duty as tustee to enforce the surcharge.

(1) A trustee breaches the "prudent man" standard when shedelegates her responsibilities to act prudendy and person-ally perform her duties.

(2) Charles was a surrogate trustee, and Mary Jane unreason-ably delegated herinvestment autho.ity tohim.It is ofnoimport that Charles was named as an altemate tustee.

(3) Mary Jane was under a duty to exercise control overChades's investments and evaluate Charles's advice andthen make her own decisions.

e. Liability for contracts and torts. The traditional rule is that a trustee ispersonally liable on any contract the trustee makes, in the absence ofexpress provision in the contract limiting the trustee's liability. A trusteeis similarly liable in tort. A tustee is pe$onally liable to the same exten!that a beneficial owner of the trust propefiy would be liable.

3. Duty of Impartiality: Allocation to Income and Principal. A trustee has aduty of impartiality between the income beneficiary and the remainderman,i.e., she must act to produce a reasonable income while at the same time pre-serving the trust property for the remainderman.

a. Tfustee's duty of impartiality-Dennis v. Rhod€ Island Hospital TfustCo.,744 F.2d 893 (lst Cir 1984).

1) Facts. The great-grandchildren ofAlice Sullivar (Ps) are remain-

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3)

dermen of a trust established by their great-grandmother, and as such, aJeentitled to income until 1991 when the tlust ceases and Ps receive the prin-

cipal. Ps claimed in the district cowt that the bank trustee (D) had breachedvarious fiduciary obligations. The court found that D had failed to act im-partially as between the trust's income beneficiades and remaindermen D

;old the trust's real estate at the lowest point of value. Both sides appeal

different aspects of the judgment.

Issue, Did D act unfairly as between the income beneficiaries and the re-

maindermen?

Held. Yes. Judgment affirmed as modified.

a) The district court found that D failed to keep up the real estate, to reno-vate. modemize, orto take otherreasonable steps that might have given

the remaindermen property roughly capable of continuing to producereasonable income. The record provides adequate support for these con-clusions, and we will not overtum a distdct court's factual determina-tionunless it is clearly erroneous, particularly in a diversity case wherea reasonable constnrction of state law is involved.

D) D di d not appraise the property periodicall y, did not keep proper records'and made no accounting for 55 years. An impa.rtial trustee must viewthe overall picture, not close its eyes to relevant facts.

D could have sold the property in 1950 and reinvested the proceeds soas not to create a "partiality" problem. The Restatement (Second) ofTrusts says a fustee is under a duty to the beneficiary ultimately en-

titled to principal not to retain property certain or likely to deprcciate'even though the property yields a high income, unless D makes ad-equate provision for amortizing the income.

State case law allows the couft considerable discretion in fiduciarybreach cases to fashion a remedy based on a hypothetical sale. Theyear 1950 is not an unreasonable remedial choice because that datemarks a rcasonable outer bound of the time the trustee could pleadignorance of the serious faimess problem.

The district court's surcharge calculation is approved except for theadditional percentage to reflect "appreciation " Therc is no leason tobelieve D would have outperformed inflation.

D's removal is primarily a matter for the disrict court. D can be fe-moved even ifcharges ofmisconduct are not made out.Ill feeling mightinlerfere here with lhe lrust administration.

d)

c)

e)

0

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Fletcher v.Fletcher

4. Full Disclosure Requir€d-Fletcher % Fletch€r, 253 Va. 30, 480 S.E.2d 488( t991).

Facts. Upon the death of her husband, Elinor Fletcher (T) placed all ofher assets in a revocable inter vivos trust for which she was the grantorand tfustge. Several years later, she amended the hust to coDtain, amongother things, a provision establishing several tusts upon her death. Threeof these trusts ($50,000 each) were for the benefit of her adult son, James(P), and his two childrcn. Another adult son and F & M Bank-PeoolesTrust and Asser Management Group fDs) were appointed successor rust-ees. The fust for P authorized the trustees to expend such amounts ofincome and principal necessary to provide him and his chil&en withadequate medical care and insurance for P's life or until his tlust is de-pleted. Upon P's death, any remaining trust balance is to be paid to p'schildren. Upon T's death, her trust became irrevocable and Ds assumedtheir duties. P brought a proceeding against Ds to compel Ds to providefull and complete copies of the trust instruments, alleging that T hadtransfered assets described on a "Schedule A" attached to the originaltust instrument to a "new trust" with Ds as trustees and that Ds hadfailed to provide P wirh the details of this trust. P further alleged that hewas given only certain pages from the original trust and the amendment,and that without a complete listing of the terms and assets of the trust, hecannot determine if the trust is being properly administercd. p allegedhis brother's claim that thek mother wanted the tust kept confidentialftom the beneficiaries is without documented support. Ds assert that uponT's death, when separate husts werc crcated, P was provided with alldocuments that relate to him and his children and was not entitled to anyfurther infomation. Ds filed the trust agreement under seal with the cout,but failed to file "Schedule A." The trial court, after hearing, ruled infavor of P. Ds appeal.

Issue. Did the trial coufi err in finding that P had an absolute right to thecomplete copies of the trust agreement and ordering Ds to Fovide pwith same?

Held. No. Judgment affirmed.

1) While this is acase offirst impression in Virginia, we are guided bytext writers and the Restatement (Second) of Trusts.

2) The beneficiaries are the equitable owners of the ftust property; thefiustees are merely reprcsentatives who keep the tust property safeand administer the trust according to the prcvisions of the tlust in-srument.

3) Because the beneficiary enjoys the trust property indirectly, thatdoes not imply the beneficiary is to have the nature of the trust prop-

b.

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ty and its administration kept ftom him

4) "(W)here a trust is created for several beneficiaries' each of them is

entitled to infomation as to the fust " [Scoft' The Law of Trusts

sl73 (4th ed. 1987)l

5) Even ifthe trust terms regulate the amount ofinformation the trustee

musl give and lhe frequenc) with which it must be gi\en the ben-

eficiary is always entit led to as much jnformation as is reasonably

necessary to allow him to enforce his rights or prevent a breach

6) The lrusr here conlains no provrqion that P should. not be given.in-

formation and there was no e\identiary hearing below regardrng

Ds'assenion that T gave oral directions to that purpose Therefore'

we do not opine on what effect any directive of secrecy by the grantor

would have here.

7) Ds' claim that the grantor's creation of three separate trusts some-

how make the trust three separate and independent trust docum€nts

is without merit. There is one trust agreement based on a "unltary

corpus "

8) The information Ds failedto disclose toPmay have a material bear-

ing on the admini$tration of the trust as far as P is concemed With'

ou] ful disclosure' P cannot judge Ds' investment decisions and

cannot detemine whetherDs are canying out their duty to use rea-

sonable care and skill to make the property productive and are act-

ing imPartiallY

5. Constructive Fraud-National Academy of Sciences v' Cambridge Tiust

Co., 370 Mass 3O3, 346 N.E 2d 879 (1976)'

a. Facts. The will of the decedent, l-eonard T' Troland (T)' left a[ of his

orooertv to be held ln trust by the Cambridge TrusL Company (D)' with

ii"'n.t'in.o-" to be paid to his wife for life as long as she rcmained

unmarried. It further provided that his wife should not devote any major

ponion of her Income lo the suppon or benelit of people other than h€, F

self. T further provided that on his wife's death' D would transter the

trusteeship to tihe National Research Council of Washington' D C ' an

aqency olthe NallonalAcademy of Sciences { P' lo consll lute a ru^st for

,J."u.ln in pty.r'o-pt'y.ics The widow subsequently rcmanied but failed

io notiiy o oi tfti. ihe National Academy of Sciences (P) brought a

petition seeking a rcvocation of the accounts of D and restoration by D

if ttre $lO6,Od *rat was paid to the widow after her remariage The

probate court held for P' ordering revocation of the accounts and charg-

ins D for the amounts effoneously distributed D appeals'

NationalAcademy ofSciences v.CdnbridgeTmst Co.

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Issue. Does the failure to make any reasonable effort to ascertainthe true set of facts constitute a sufficient basis on which to hold atrustee responsible for a constructive flaud on beneficiaries of a trust?

Held. Yes. Judement affimed.

l) Ifaperson makes a representadon of fact in relation to subjectmatter susceptible of knowledge and such reprcsentation is nottrue, and if another party to whom it is made relies and actsupon it, it is fraud and deceit for which the party making it isresponsible. We hold that the "fraud" in the applicable statutecontemplates this standard of constructive fraud, at least to theexteflt that the fiduciary has made no reasonable efforts to as-certain the tlue state of facts that it has misrcpresented in theaccounts. Herc, the probate cowt found that D made no effofiat all to ascertain if the widow had remaried.

6. Changing Tfustees. Unless the trustee has been guilty of breach of trustor has shown unfitness, the beneficiaries cannot remove the trustee andhave a new one appointed. The settlor's special confidence in the desig-nated tustee has priority.

B. POWERS OF THE TRUSTEE

1. General Managerial Powers. The trustee is obligated to carry out thesetdor's intent and in doing so is granted administrative powers as speci-fied in the trust instrument. In addition to the powers listed in the tustinstrument, the fustee's powers can be broadened by state statutes, orthey may be implied to accomplish the purposes of the tust.

2. Powers of Investnent. Under the Uniform Prudent Investor Act, a fusteemust observe the standards in dealing with the trust assets that would beobserved by a prudent person dealing with the property of another. If thetustee has special skills or is named trustee on the basis of representa-tions of special skills or expertise, he is under a duty to use those skills.The hustee must consider the following factors befole investing: (i) safetyof pdncipal, (ii) liquidity, and (iii) rate of retum.

a. Duty to diyersify--Estate of Collins,T2 Cat. App.3d 663,139Cal. Rptr. 644 (1977).

1) Facts. The will of the decedent, Ralph Collins, authorized thetrustees (Ds), the decedent's business partner and lawyer, topurchase every kind of property and make every kind of in-vestment, and fufiher provided that all discretion conferedupon the trustees shall be absolute. After the will was admittedto p'robate and di stribution of the estate made, there was $50,000

b.

Estate ofCollins

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3)

rcmaining for Ds to invest. They loaned the money to two real estatedevelopers, Downing and Ward, who assured Ds that they were not indefault on any of their loans. Thereafter, Downing and Ward Constuc-tion Company went bankrupt, resulting in a loss to the trust fund of$60,000. Ds filed a petition for approval and for setrling of the first andfinal account and for their discharge. The beneficiaries under the trust(Ps) objected on the basis that Ds had improperly invested the $50,000.The trial court held forDs. Ps appeal.

Issue. Is a trust€€ under a duty to the beneficiaries to distribute the riskofloss by a reasonable diversification of investments?

Held. Yes. Judgment rcvelsed.

a) Atrustee is under a duty to distribute the dsk ofloss by reasonablediversification. Here, Ds invested two-thirds of the trust DrinciDal ina single investment.

b) The general rule is that second or otherjunior mortgages are notproper trust investments. Here, Ds invested in real property securedonly by a second deed of trust.

c) Also, in buying a motgage for trust investinents, the truste€ shouldgive careful aftention to the valuation of the property, in order tomake certain that the margin of security is adequate. Here, Ds in-vested without adequate investigation of either the borowers or thecollateral.

Balancing gains and losses. Couns typically apply the prudent person stan-dard to each investment decision of the trustee rather than to the trust portfo-lio as a whole. Thus, the trustee is not permitted to balance gains and losses ifthe breaches of trust are separate and distinct.

ERISA. The Employment Retirement Income Security Act of 1974 (..ERISA")prcvides rules goveming investment ofp€nsion funds by the fustees manag-ing the funds and imposes a prudent investor rule. The trustee must dischargehis dulies solely in rhe interest of the beneficiaries.

b.

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A.

XIV. WEALTH TRANSFER TAXATION: TAx PLANNING

INTRODUCTION

1. A Brief History of the Federal Estate Tax. Under the Tax Refom Actof 1976, Congress urited the gift and estate taxes. The same rate sched-ule was appliedto both gifts and estates, thus removing the tax incentiveto make gifts before death. A single "unified credit" was enacted which,in effect, operates cumulatively to both lifetime and death transfersMoreover, the new unified tax computation requires the estate tax to takeinto account lifetime gmtuitous transfers, so that all gratuitous transfersarc now taxed cumulatively. Federal wealth transfer taxation consists ofthree taxes: (i) gift tax, (ii) estate tax, and (iii) generation-skipping trans-fer tax.

2. Estate and Inheritance Taxes Distinguished. An estate tax is a ta-{ uponthe value of all property owned by a decedent that is transfered to thedecedent's heirs or beneficiaries upon the decedent's death. On the otherhand, an inheritance tax is a tax upon the value of property received byan heir or beneficiary on account of a decedent's death.

a. Estate tax computation. A single set of deductions, exemptions,and graduated rates are applied to the decedent's estate; with fewexceptions, it does not matter how many hein orbeneficiaries sharein the estate, or who they are.

b. Inheritance tax computation. Separate exemptions and lates arcapplied to the share received by each beneficiary and, typically, theIates of tax and allowable exemptions vary according to the rela-tionEhip of the beneficiaries to the decedent.

3. The Unified Federal Estate and Gift Tax. Under the unified system,unified taxes are imposed on the estates of decedents dying after Decem'ber 31, 1976, and for gifts made after that date. The rates are progrcssivebased on cumulative lifetime and death transfels.

4. Liability for Payment ofTaxes.

a. Payment of gift tax. The donor is prjmarily liable for payment ofthe gift tax. However, if the donor fails to pay the tax, the govem-ment has a lien on the donated property to the extent of the tax due,and also has the rightto holdthe donee liable for the unpaidgifttax,to the extent of the value of the property received by the donee.

b. Payment of estate tax. The executor is p marily responsible forpayment ofthe estate tax. The executor is personally liable for pay-ment ofthe tax until she has been discharged from liability, but sheis senerallv entitled to reimbunement out ofthe decedent's estate.

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B. THE FEDERAL GIFT TAX

1. Nature ofa Taxable Gift. Section 2501(a) of the Intemal Revenue Codeof 1986 levies a gift tax upon the hansfer of property by gift The courtshave held that a "gift" occurc when the donor relinquishes complete do-minion and control. In a revocable trust, a taxable transfer does not occuruntil the power ofrevocation ceases.

a. Discretionary power in trustee-Holtz's Bstate v. Commissioner'38"t.C.31 (1962).

1) Facts. A trust instrument of the decedent, I-€on Holtz, pro-vided that the ffustee should distribute the net income to thesettlor as the ffustee thinks desirable, and upon the setdor'sdeath, if his wife survived him, the income of the trust shouldbe paid to her for life, and upon the death of both the setdorand his wife, the trust would teminate and the rcmaining prin-cipal would be paid to the estate of the survivor. The settlortransfened property having a value of $384,000 into the trustand thereafter he transfered an additional $50,000 to the trustThe Commissioner (D) determined that as a result of thesetransfers, Holtz made taxable gifts in the amount of $263,000'which were subject to the gift tax. The settlor's estate (P) peti-tions the coult and contends that the tansfers were not com-pleted gifts and that no part thereof was subject to the gift tax.

2) lssue. Does the placing of discretionary power in the trustee toinvade corpus make the gift of corpus incomplete and hencenot subject to the gift tax?

3) Held. Yes. Decision for P.

a) The placing of discretionary power in the ftustee to in-vade the corpus makes the gift of the corpus incompleteunder certain circurnstances. The rule of thumb is gener-ally that if the tustee is frce to exercise his unfettercddiscretion and there is nothing to compel him to invadethe cotpus. then lhe settlorretains a mere expectancy thatdoes not make the gift incomplete. However, if the exer-cise of the trustee's discretion is govemed by some exter-nal standard that a court may apply in compellingcompliance with the conditions of the tust agreement'and the tustee's power to invade is unlimited, then thegift of corpus is incomPlete

b) Here, the trustee had unfettered power to use all of thecorpus for the benefit of the settlor if it thought that it was

Holtz's Estatev. Commissioner

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desirable for the welfarc, comiort, and needs of the settlor It isreasonable to assume that the trustee would. and could be re-quired to, invade the corpus if this was desirable for the wel-fare, comfort, andneeds of the settlor It was thus possiblethatthe entire corpus might be distdbuted during the settlor's life-time. Hence, the settlor had not abandoned sufficient domin-ion and contol over the propedy transfered to make the giftconsummate.

b. Income tax basis, Under the federal income tan, a tax is imposed uponcapital gain from the sale of property. The amount of the tax varies ac-cording to the amount ofgain, which is the difference between the "ba-sis" and the selling price.

The Annual Exclusion. Under section 2503(b) of the Code, a taxpayer mayexclude from taxable gifts the first $10,000 given to any person during theyear.In Congress's 1997 Amendment to the Code, the exclusion was indexedfor inflation. The exclusion now increases in $1.000 increments as the cost ofliving rises. The Code also provides an unlimited exclusion for tuition feesand medical expenses paid on behalfof another. The annual exclusion is notapplicable to gifts of futue intercsts.

a. Tfansfer for the benefit of minor, Section 2503(c) of the Code pro-vides a way to avoid having a gift to a minor classified as a futurc inter-est. An annual exclusion for property transfened to a tust for a minor isauthorized if all the property and the income therefrcm may be expendedfor the benefit of the minor before he attains age 2 I , as long as the prop-erty and any accumulated income will be distributed to the minor at age21 or, if the child dies before attaining age 21, to his estate or appointee.

b, Gifts of a present interest in pmperty--Estrte of Cristofani v, Commis-sioner, 97 T.C. 74 (1991).

l) Facts. The decedent, Mada Cristofani (T), had two children (Cs)and five grandchildren (Gs). T executed an irevocable trust; Cs werctustees. Both Cs and Gs had the right under the tust terms, duringa 15-day pedod following a contribution, to withdraw an amountnot to exceed the,lmount specifiedforthe federal gift tax exclusionunder section 2503(b). Cs could apply as much of the principal asnecessary for thef proper support, health, maintenance, and educa-tion, taking into account seveml factors including T's desirc to con-sider Cs the primary beneficiaries and Gs the secondary beneficiaries.T intended to fund the trust with a one-third individual intercst incertain real prcpefiy for 1984, 1985, and 1986. T did this for twoyears, tansfering an intercst valued at $70,000 each year. T diedprior to making the 1986 transfer T did not report the tlansfels onfederal gift tax retums. T claimed seven annual exclusions under

Estate ofCristofani vCommissioner

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section 2503(b) for 1984 and 1985 with respect to Cs and Gs' Gsdid not exercise their rights to withdnw under the trust during thoseyears. The IRS (D) allowed T's estate (P) to claim the exclusionswith rcspect to Cs but disallowed it for Gs for 1984 and 1985, deter-mining that Gs' claimed exclusions were not transfers of present

interests. P apPeals.

2) Issue. Do transfeN of property to a tust' where the beneficiariespossess the right to withdraw an amount not in excess of the section1503(b) exclusion within 15 days of such transfers, constitute gifts

of a present interest in property within the meaning of section2503(b)?

3) Held. Yes. Decision entered for P

a) For purposes ofthe exclusion, a fiustbeneficiary is considereda donee of a gift in tlust

b) The exclusion applies to present interests in property' an unre-stricted right to the immediate use' possession, or enjoymentof property or income from property.

c) ln Cnonmev v. Contnksioner 397 F.2d82 (9th Cir 1968), thecourt focused on the minor beneficiaries' legal right to demandpayment ftom the trustee, not on the likelihood that they wouldactually rcceive prcsent enjoyment of the property lf the ben-eficiaries had a legal right to make a demand upon the trusteethat could not be resisted, the coult determined the beneficia-ries re-ceived a present interest.

d) Revenue rulings arc not authority for this court but this rulingshows the IRS'S recognition of what constitutes a prcsent ln-terest.

e) Here, the exclusions werc allowed for Cs, who possessed thesame right of with&awal as Gs. Gs'legal right to withdra\'specified amounts constitutes a gift of a present interest.

0 It is not requircd that trust beneficiaries have a vested prcsentinterest or a vested remainder intercst in the trust corpus orincome in order to qualify for the exclusion.

3. Gifts Between Spouses and from One Spouse to a Third Person' Under

the Economic Recovery Tax Act of 1981, a husband and wife may transfer

their property to each other without the payment of any transfer taxes How-

ever, when the assets pass to a third person, a transfer tax is imposed'

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C, TIIE FEDERAL ESTATE TAX

Introduction. The federal estate ta,r taxes the value of property ownedor passing at death and the value of property given away during life.

The Gross Estrte: Property Passing by Will or Intestacy.

Section 2033: Property owned at death. Under this section, thevalue ofthe gross estate includes the value of propefiy to the extentof the decedent's interest at the time oi death; it includes all prop-erty owned at death that passes by will or intestacy. It does not reacha decedent's life estate created by another person.

Section 2034: Dower or curt€sy. Section 2034 of the Code in-cludes in a decedent's gross estate "the value ofall property to theextent of any interest therein of the surviving spouse, existing atthe time of the decedent's death as dower or cufiesy, or by virtueof a statute creating an estate in lieu of dower or curtesy." Thisdoes not apply to community property. In community propertystates, on the death of either spouse only that spouse's half is in-cludable in the gross estate; the other halfbelongs to the suryivingspouse and is not includable. Note that the importance of section2034 is grcatly offset by the marital deduction, which operates totake out ofthe taxable estate most ofthe property included thereinunder section 2034.

,,

l .

a.

b.

3. The Gross Estste: Nonprobate Property.

a. Section 2040: Joint tenancy,

l) Joint tenancy betw€en persons other than husband andwife, Under section 2040(a), the entire value of the propenyheld in j oint tenancy, except that part attdbutable to the amountof consideration fumished by the other ioint tenant must beincluded.

2) Joint tenancy and tenancy by the entirety between hu.sbandand wife. Under section 2040(b), half rhe value of propertyheldby the decedent and the decedent's spouse as joint tenantswith right of survivorship or as tenants by the entirety is in-cludableinthe decedent's g.oss estate.It does not matte. whichspouse fumished the consideration for the property's acquisi-tion. Since each spouse is deemed to own half of the amountof the joint tenancy with right of survivonhip or tenancy bythe entirety, the decedent's spouse's half interest in the prop-erty included in the gross estate will receive a stepped-up basisat death.

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b. Section 2039: Employee death benefits. Under section 2039, the valueof amounts receivable by a beneficiary under an agrcement whefe thedecedent, during life, was receiving or had a right to rcceive payments lsincluded in the decedent's estate. Death benefits are not includable irr thedecedent's estate if he is prevented from selecting the beneficiary be-cause, for example, a statute requircs the benefits to be payable to hisspouse or children. If benefits are payable to a beneficiary at a scheduledtime or upon the happening of an event, irresp€ctive of whether the de{e-dent is living or dead, they are not taxable under section 2039, eventhough the decedent may be dead at the time scheduled for payment'

c. Section 2042: Life insurance. Under section 2042, a decedent's grcssestate includes the value of any life inswance proceeds if the decedentpossessed at death any of the incidents of ownelship under the policies

or if the policy proceeds were payable to the insured's executor ol estate.

4. The Gross Estate: Lifetime Transfers with Rights Retein€d.

a. S€ction 2036: Transfers with life estate or power of control retained'section 2036(a)(l) applies to property transfened during the decedent'slifetime if the decedent retained a life estate in the tansferred propertyThe transfer is subject to estate taxation because the decedent retainedthe right to possess and enjoy the property or the right to income ftom ituntil his death. Section 2036(a)(2) exposes to estate tax any propertytransferred by the decedent wherein there was rctained the right, eitheralone or in conjunction with another person, to confol the beneficialenjoyment of the property or income thereftom The tax will attach de-spite the fact that the transferor could not have exercised the power so asto secufe a personal economic benefit.

1) No bona fide sale--Estate of Maxwell v. Commissioner' 3 F.3d591 (2d Cir 1993).

a) Facts. The decedent, Lydia Maxwell (T), conveyed her hometo her son and his wife in 1984 for $270,000. T leased thepremises for five years at $ 1 ,800 per month. T forgave $20,000of the puchase pdce as part of the annual gift tax exclusionand held a mortgage for the remaining $250,000. The buyerspaid expenses. The rent essentially canceled out the mortgagepayments, and the buyefi were never called upon to pay mort-gage principal. Upon T's death, the buyers sold the home for$550.000. On T's estate tax retum, the estate (P) reported$210,000 remaining on the mortgage debt. The Commissioner(D) found that the 1984 transaction constituted a transfer witha retained life estate and assessed a deficiency to adjust for thediffercnce between the fair market value and the reportedamount. P appealed to the tax court, which affirmed D. P ap-peals.

Estate ofMaxwell v.Commissioner

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Old ColonyTrust Co. vUnited States

b) Issues.

(l) Did T retain possession or enjoyment ofthe Foperty following theaansfer?

(2) If she did, was the transfer a bona fide sale for an adequate and fullconsideration in money or money,s worth?

c) Held. (l) Yes. (2) No. Judgment affirmed.

(l) Section 2036(a) rcquires inclusion in the value ofthe sross estate ofall propefly ransferred under which the decedenl ritained a lifeestate, r'.e., possession, enjoyment, or right to income from the prop_erty.

(2) Possession or enjoyment is retained when there is an express orimplied understanding to that effect among the parties to the trans_ICI.

(3) The mortgage notg had no value if there was, as the tax court deter-mined from the conduct of the parties, no intention that it wouldever be paid.

(4) The forgiveness of the initial $20,000 stongly suggests the exist_ence of an undentanding between T and the buyers that T wouldforgive 920,000 each year until her death and the balance would beforyiven by T's will.

Requir€ment of an ascertainable standard-Old Colony Tfust Co. y. UnitedStates,423 F.2d 601 (lst Cir l9t0).

a) Facts. The decedent had established a trust for the benefit of his son andnamed himself as a ftustee. The fust pe.mitted the ftustees to incrcasethe percentage of income payable to the son beyond the prescribed goqowhen in their opinion such increase was needed in case of sickness orwas desirable in view ofchanged circumstances. In addition, the trusteeswerc given the discrction to cease paying income to the son. Anotherarticle gave broad administrative and management powe$ to the trust_e€s. A deficiency was assessed against the estate. The executor (p) paidthe tax and sued for its recovery in district court. The court ruled foi thegovemment (D). Old Colony Trust Company appeals.

b) Issue. If there is no ascertainable standard with which a settlor_tusteemust comply in his distribution of tlust income, will the settlor's estatebe taxed according to the value of the principal that the settlor contrib_uted?

c) Held. Yes. Judgment affirmed.

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5.

6.

(l) If there is an ascertainable standard, the trustee can becompelledto follow it. If therc is not, even though he is ahduciary, it is not unreasonable to say that his retentionof an unmeaswable frcedom of choice is equivalent toretaining some of the incidents of ownership. Hence, ifthere is an ascertainable standard, the settlor-tustee's es-tate is not taxed, but if there is not, it is taxed

(2) Here, the settlor retained the unrestricted power to dis-tribut€ the trust income Accordingly, the tax was prop-edy assessed.

b. S€ction 2038: Revocable transfers. Under section 2038, the value ofthe gross estate includes the value of all property "of which the decedenthas at any time made a ransfer . . . by trust or otherwise, where theenjoyment thereof was subject . . . to any change through the [decedent's]exercise ofa power. . . to alter, amend, revoke or terminate. . " Unlessthe decedent has the right to exercise the power, a transfer subject to suchpower is nottaxable in herestate. This is true even ifthe poweris vestedin one who lacks a substantial adverse interest to the decedent, such as akustee or even a subordinate party (e.9., transferor's spouse)

c. Section 2037: Iiansfers with reversionary interest retained' Undersection 2037, the decedent's grcss estate includes the value of Fopertytransfened during his life if (i) possession can only be obtained by sur-viving the decedent, (ii) the decedent reserved a reversionary interest inthe prop€rty, and (iii) that rcvercionary interest was worth more than 57,of the value of the property irnmediately before the decedent died.

The Gross Estater Tfansfers Within Thr€e Years of Death. Under section2035, certain int€r vivos transfers made within three years prior to death arebfought within the decedent's gross estate.

The Grcss Estate: Powers of Appointment Given Dec€dent by Anoth€r.Under section 2041, the gross estate includes the value of property over whichthe decedent held a general power of appointment at the time of her death.The owner of a general power of appointment is considered the owner of theproperty subject to the power When the general power of appointment is ex-ercised or released, the donee has made a taxable gift lf the decedent merelypossessed a genelal power of appointment at the time of her death, the prop-erty is taxable whether or not the power was exercised. Property subject solelyto a special power is not taxable in the donee's estate under section 2(Xl.

a. Comfort limited by ascertainable standard"Estlte of Viss€ring v.Commissioner, 990 F.2d 578 (l0th Cir 1993).

1) Facts. The decedent's, Norman Vissering's (T's), mother created atust controlled by Florida law. T and a bank served as co-tustees.

Estate ofVissering v.Commissioner

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Estate ofKurz v.Commi ssioner

b.

T received all the income from the trust after his mother's death and onT's death the assets were to be divided in equal parts for T's two chil-dren. T developed Alzheimer's disease and entered a nulsins home in1984 but never resigned as rustee. Ar T s death. he possessed ; po\aer ofappointment that permitted him to benefit himself, his estate. his credi-tols or the estate's creditorc for his 'tontinued comfort." The tax couftheld that T held at his death a general power defined by I.R.C. section2041, requiring the trust assets to be included in T,s gloss estate. T'sestate appeals.

2) Issue. Did T hold powers permitting him to invade the principal of thetrust for his ow n benefil. unrestrained by an ascenarnable srandard relat-ing to health, education, suppofi, or maintenance?

3) Held. No. Judgment reversed and remanded.

a) State law determines legal intercsts and rights created by the trustinstrument, but federal law determines tax consequences.

b) Florida law would hold that a trust document permitting invasion ofprincipal for "comfort," without qualifying language, crcates a gen_eral power of appointrnent.

c) However, there is modifying language in the tust here_.,to theextent required for continued comfort,'-that we believe would leadFlorida to hold does not pemit an unlimited power ofinvasion.

d) Examples in the Treasury Regulation, such as,,support in reason_able comfort," "maintenance in health and reasonable comfort," and"support in his accustomed manner of living,,' deemed to be limitedby an ascertainable standard arc no differcnt from the language inT's trust provision.

e) IfT sought to use the tlust assets to significantly increase his stan_dard ofliving, his co-trustee would have been obligated to withholdconsent and the remainder beneficiaries could have Detitioned thecoun to disallow such expendilures as inconsistent with the serrlor.sintent.

Sequential trusts-Estate of Kurz v. Commissioner, 6g R3d lO27 (7th Cir1995).

1) Facts. Between 1971 (the year ofher husband's dearh) and 19g6. ErhelKuIz was the income beneficiary of two trusts. From the marital trust,she was entitledto as much principal as she wanted by wdtten request tothe ruslees. From the family trusl. she was enlilled to 5ao of the princi_pal in any yearonly ifthe marilal lrust was exhausted. Upon Kurz.i deaLhin 1986. the marital trust was worth $3.5 mi ion and the familv rrusr

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,|

$3.4 million. The estate tax rcturn included the full value of themarital trust but none of the value of the family trust The IRS as-sessed additional estate taxes. The estate (P) challenged the assess-ment. The tax court held that Kurz held a general power ofappointment over 5 70 of the family trust and another $ 170,000 shouldbe included in her estate under 26 U S.C. section 2041(aX2). P ap-peals.

2) Issue. Does a sequence of withdrawal rights prcvent a power ofappointment frombeing exercisable?

3) Held. No. Judgment affirmed.

a) Section 2041 is designed to include in the taxable estate allassets possessed or controlled by the decedent.

b) If only a condition the decedent could have controlled had tobe satisfied to receive the money from the family trust, thenthe decedent's power is exercisable.

c) P eroneously relies on the rcgulations accomPanying section2041, and in particular, one statement: "[A] power which byits terms is exercisable only upon the occurence during thedecedent's lifetime of an event or a contingency which did notin fact take place or occur dudng such time is not a power inexistence on the date of the decedent's death " P's claim thatthe rcquired "contingency" did not occur here fails. The ex-amples of contingencies following this sentence (if a decedentreached a certain age, if a decedent survived another peNon, orif she died without descendants) are outside of the decedent'scontrol. Expediently arranging trusts in a sequence and alrang-ing a sequence of withdrawal does not create a contingencyand does not remove the beneficiary's dominion and controlover all funds that can be withdnwn at any given moment.

The Marital Deduction.

a, Intmduction. Undersection 2056, spouses may transfer between them-selves unlimited amounts of propefiy (except terminable interests) with-out incurdng any gift or estate taxes

b. Interests that qualify for th€ d€duction. For an interest to qualify as amarital deduction, the following requirements must be met:

(i) The decedent was a citizen of the United States;

(ii) The decedent was survived by his spouse;

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Estate ofRapp v.Commissioner

(iii) The value of the interest deducted is includable in the decedent's gross estate;

(iv) The intercst passes to the surviving spouse; and

(v) The intercst is a deductible interest (i.e., the interest passing to the survivingspouse is subject to taxation in her estate to the extent not consumed or dis-posed of during her lifetime).

1) Failure to qualify for the deduction--Estate of Rapp v. Commissioner,t40 F.3d t2tt (9th cir 1998).

Facts. When the testator Bert Rapp (T), died, survived by a wife andtwo children, he willed all ofhis household and personal property to hiswife and one-half of the community property to a tlust for his wife forher life. T's children, as co-trustees, were given absolute discretion todisribute ftom the principal and income such amounts as they deter-minednecessary for their mother's health, education, andsupport. Uponthe wife's death, the remaining trust assets, if any, were to be distributedamongT's children and theirissue. UponT's death, Mrs. Rapp asked theprobat€ court to modify the will so the above provision would qualify forthe marital deduction. She alleged it was T,s intention that the incomefrom the trust would be paid to l\fts. Rapp at least annually, or during herlifetime. Califomia law allows the court to modify or terminate a trustupon the consent of all parties or due to changed circumstances, After ahearing of which the IRS did not receive notice and during which nowitnesses werc called, the court granted Mrs. Rapp's petition and en-tered an order changing the language of the trust so as to authorize theexecutor to treat the fust as a qualified terminable interest property("QTIP") trust. The order became final and unappealable on April 30,1989. After the order was entercd, but beforc it was final. the executor(P) filed with the IRS @) an application for an extension of time to filethe estate tax rctum. P indicated on the application that he intended tomake a QTIP election and he submitted an estimated Davment of$ 156.204. The retum was filed in May. after rhe order became final, andP claimed the QTIP deduction for $3,683,899, as much of rhe estate aswould bring the taxes to the amount he had previously paid. D sent adeficiency notice, claiming P failed to provide full subsranriation for thededuction and it would be allowed only for the value of the householdand personal goods that had passed directly to Mrs. Rapp, i.e.,$435,262.50. P appealed. The tax court claimed that the Califomia court'sdecision had not been affirmed by the Califomia Supreme Court and wasnot binding, that the probate coufi had erred, and that the trust was not aQTIP trust. P appeals.

Issues.

a)

b)

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(1) Does the trust created by T's will constitute a QTIP trust, whichqualifies for the marital tax deduction?

(2) Is the tax court bound by the Califomia probate court's refomationof T's will?

c) Held. (l) No. (2) No. Judgment affirmed.

(l) Intemal Re'renue v. Estate ofBosch,387 U.S.456 (1967), is con-trolling with regard to the effect of the state cout's determination.In reviewing the legislative history of the marital deduction statute,the Bosct court determined that Congress intended that "proper re-gard" be given a state court's interpretation after a "bona fide adver-sary proceeding," but notfinality. Congress did not intend the statecouds to detemine fedeml law.

(2) While the probate court's order was final and cannot be overuledby the califomia Supreme Cowt, this has no effect on the fact thatthe federal court is not bound by state court prcceedings for deter-mining federal estate taxes. The state cowt refomation is still ineffect for Mrs. Rapp, but she will not receive QTIP benefits.

R€formation allowed--Pond v. Pond.424 Mass. 894. 678 N, E.2d l32l(1997\.

a) Facts, In 1991, The settlor, Sidney Pond (T), executed his will leavingall of his personal property to his wife and the residue to a revocabletrust, naming himself and his wife truste€s, executed on the same day.All of their assets except the family home were transfered to the trust.The trust provided that income and such principal as necessary be paidtoT and his wife during theirlives, but made noprovision for any t)?e ofpayment to his wife ifshe survivedhim. The tust Fovided that it wouldterminate on the death of both tustees and its assets werc to be dividedequallybetween theirchildren. The will provided that the wife had abso-lute discretior whether or not to elect to qualify under section 2056 (b)(7)all or a portion of the trust for the federal and any state marital deduction.However, section 2056(b)(7) requires income to be paid to the survivingspouse for life in order to qualify for the marital deduction. without thisdeduction, the estate would be liable for $70,000 in taxes. Trustee (P),alleges that a scrivener's eror is apparcnt when the estate plan is viewedas a whole and that T intended to provide for his wife. P asks the court toinsert into the hust a provision granting the wife fust income and discre-tionary principal payments for her lifetime. P futher requests that thecout incorporate into the tlust language that would corect the ambigu-ity in the termination provisions. All beneficiaries (Ds) assent to the re-ouested rcformation.

Pond v.Pond

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8.

9.

b) Issue. Should the trust be rcformed to give effect to T's intent?

c) Held. Yes. So ordered.

(1) Clear and decisive prcof of mistake is required to refoma aust instrument to embody a settlor's intent.

(2) Both the will and h.trst were executed on the same day;the trust was clearly intended to prcvide for the maritaldeduction. It was essential to the estate plan. All of T'sassets were fansl-erred to it. The income and orincioalwere available lo T and his wife during lheir liue". Clearly.T intended the same to continue after his death. Only ascrivener's elrorcouldhave causedthe requisite clause tobe omitted. There is no indication that T intended to de-pdve his wife of the aust assets during her lifetime.

c. Tax planning. Each spouse is entitled to one exemption from estate andgift tax, in the fo.m of a unified credir. By taking advantage of borhspouses' exemptions, the combined credit can be passed to the couple,schildren without incur.ing estate taxes. Because ofthe gnduated tax mtes,the total estate tax payable on the death of a husband and wife will belower if the two estates are equal. Equalization is notnecessarily the bestsolution in all cases. Fomula clauses remain useful in producing pre-cisely the right amount to put in a credit shelter tust or a marital deduc-tion tust. A credit shelter trust is a tlust designed to hold an amountequal to the exemption of the first spouse to die (i.e., the amount nottaxable on his death) in such a manner as not to be taxable on the surviv-ing spouse's death.

The Charitable Deduction, Under section 2055 of the Code, unlimited de-ductions may be taken for ftansfels for public, charitable, or religious pur-poses.

Exe€utor's Elections: Post.Death Tax Planning.

a. Valuation of estate assets. For estate tax putposes, assets ar€ valued attheir fair market value as of the date of death, or as of the altemate valu-ation date, which is the date six months after death (exceDt for assetsdistributed. sold. exchanged. or othenaise disposed of during the six.month period, for which it is the date of distribution or sale).

b. Sections 2053 and 2054 deductioDs. Section 2053 allows a deductionfor funeral expenses, administration expenses, claims against the estate,and unpaid mortgages. Section 2054 allows a deducdon for losses in-curred during the settlement of estates arising from fires, storms, ship-wrecks. or other casualties. or from thefl, when such losses are notcompensated for by inswance or otherwise.

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D. THE GENERATION.SKIPPING TAX

The Tax Reform Act of 1986 prcvents wealthy peruons from creating intervivos or testamentary trusts for the purpose of avoiding estate or gift taxes.The underlying principle of the generation-skipping transfef tax is that a transfertax shouldbe imposed once a generation and cannot be avoidedby giving thenext generation only a life estate or nothing at all. If a trust creates a genera-tion-skipping transfer, the tax is due when the transfer occus. The tansfersarc taxed at a flat rate, which is the highest rate applicable. The type of trans-fer determines the amounttaxed and whois liable forpayment. Under section2631(a), an exemption of up to $l million may be taken by each individualmaking gefleration-skipping transfers. A married couple may give away up to$2 million in generation-skipping transfeN without having to pay a tax.

STATE WEALTH TRANSFER TAXFS

All states except Nevada impose death taxes, butless than 12 impose a gift taxon lifetime transfers.

E.

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TABLE OF CASES(Page numbers of briefed cases in bold)

Album, Estate of - 37AIIen v. TalJey - 64American Secudty & Trust Co. v. Clamer -

127Anderson,ln /e Estate of - 132Azcunce v. Estate ofAzcunce - 81

BakervNelson-74Beals v. State Stleet Bank & Trust Co. - 108Blanchette v. Blanchette - 49Brainard v. Commissioner - 89Brown, 1z re Estate of - 102Buck, 1, re Estate of - 137

Carl J. Herzog Foundation,Inc. v.University of Bridgeport - 138

Carter v First United Methodist ChurchofAlbany - 36

Clark v. Campbell - 91Clark v Greenhalge - 40Clobberie's Case - 116Clymer v. Mayo - 54Collins, Estate of - 148Connecticut Junior Republic v. Sharon Hos-

pital - 63Cook v. Equitable Life Assurance Society -

47Coope4 In le -'74Cooper, 1r, re Estate of - 74Crisofani, Estate of v Corrmissioner - 152Cross, 1rl /e Estate of - 73Crummey v Commissioner - 153Cruzan v. Director, Missouri Departinent of

Health - 58

Dawson v. Yucus - 67Dennis v. Rhode Island Hospital Trust Co. -

144DewirevHaveles-117Dickerson v Union National Bank of Little

Rock - 124Duke ofNorfolk's Case - 123

Erickson v. Erickson - 62Espinosa v Sparber, Shevin, Shapo, Rosen &

Heilbronner - 82Estate of _ (Je" name of party)

Farkas v. Williams - 50First National Bank of Bar Harbor v Anthony

- lt4Fleming v. Mordson - 60Fletcher v. Fletcher - 146Franklin v. Anna National Bank ofAnna - 48Fnnzen v. Norwest Bank Colorado - 57

Gerbade, 1n /e Estate of - 78Gilbert, h rc Estate of - 113Cttoffman, In re - 26Gustafson v. Svenson - 60

Hall v. Vallandingham - 12HarrisonvBird-34Hartman v. Hartle - 141Hayrner, In re - llThe Hebrcw University Association v Nye

(Hebrew University Association t1 - 86,87The Hebrew Unive$ity Association v. Nye

(Hebrew Uniyersity Association II1 - 86,87Hecht v. Superior Court - 14Hicks v. Miranda - 74HieblevHieble-93Hillowitz, Estate of - 46Hodelvlrv ing-1Hofing v. Willis - 66Holtz's Estate v. Commissioner - 151Hontgm n, ln rc - 20Hotz v. Minyard - 8

Intemal Revenue v. Estate ofBosch - 16lIrving Trust Co. v. Day - 1Irwin Union Bank & Trust Co. v. Long - 104

Jackson v. Schultz - 65Janus v. Tarasewicz - 10Jimenez v. Lee - 84

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Johnson,ln re Estate of - 32 Second National Bank ofNew Haven v Har-Johnson v. Gifiman - 44 ns Trust & Savings Bank - 130Johnson v. Johnson - 4l Security Trust Co. v Irvine - 115

Seidel v. Wemer - 106Kaufmann's Will, 1r /e - 23 Shannon, Estate of 80Kimmel's Estate - 32 Shapira v. Union National Bank - 3Kurz, Estate of v. Commissioner - 158 Shelley v Shelley - 97, l2l, 128

Shenandoah Valley National Bank v. Taylor -Latham v. Father DiYine - 24 135Laura, 1'' re Estate of - 82 Shrimp v Huff - 44Lipp€r v. Weslow - 21 Shriners Hospitals for Crippled Childrcn v.Ioring v. Marshall - 110 cardiner - 143Lux v Lux - 121 Simpson v. Calivas , T

Sp'eelman v. Pascal - 90Mahoney, /n re Estate of - 16 State Street Bank & Trust Co. v Reiser , 53Mahoney v. Grainger - 59 Sremer v Nelson - 105Marsman v. Nasca - 95 Strittmater, h rc - 19Maxwell, Estate of v. Commissioner - 155 Stuchell,ln re Trust of- 101Minary v. Citizens Fidelity Bank & Trust Co. Sullivan v. Burkin - 75

- 119Moses, Ir /e Will of - 22 Thompson v. Royall - 35Moss,In re - CI Troy v. Hart - 17

National Academy of Sciences v Cambridge United States v. _ (see opposing party)Trust Co. - 1.47 Unthank v. Rippstein - 87

Neher, 1z ze - 136Via v. Putnam - 43

Old Colony Trust Co. v. United States - 156 Vissering, Estate of v. Commissioner - 157Olliffe v. Wells - 94O'Neal v, Wilkes - 13 Ward v Van der Loeff - 126O'Shaughnessy, United States v. - 99 Wasserman v. Cohen - 69

Wells Faryo Bank v Title lnsurance & TrustParsons, Estate of - 27 Co. - l2OPavlinko's Estate, 1n re - 29 Wilhoit v. Peoples Life Insurance Co. - 45Pilafas, 1, re Estate and Trust of - 52 Wold, 1a re Trust of - 132Pond v. Pond - 161 Woodworth. Estate of - 119

Ranney, In re Will of - 30Rapp, Estate of v. Commissioner - 160Reyn'olds, In re - 17Rothko, 1z re - 141Russell, Estate of - 60

Scott v Bank One Trust Co. - 98Searight's Estate, 1r, re - 92

166 - Wills