Hodel Vs Irving Summary

Trusts & Wills
Professor Gingis
Spring 2011
University of South Dakota School of Law
Dukenminier & Johanson, 6th Ed.

Chapter 1. Introduction to Estate Planning

Section A. The Power to Transmit Property at Death, Justification & Limitation

1. Jefferson’s Works - 2. Blackstone, Commentaries - 3. Hodel v. Irving - (1987) Indian land was being divided under an allotment policy and fractional ownership developed. People were owning 1/100th of a parcel of land and rental income bookkeeping was expensive. So congress said anyone who’d inherit less than 2% or income and less than $100 a year lost his inheritance and it escheated to the tribe. Irving sued because it was taking his property right to give it to his
descendants. HELD: While congress could theoretically abolish inheritance, there is policy in favor of allowing inheritance, and a general right to transmit property or not with what is your own.
Here rights to property disposal at death would be totally eliminated even if you could make a complex trust do the same thing. 4. Notes: a. Investment backed expectation affected? Did the Indians expect anything? b. Benefits & burdens analasys? Is it worthwhile to take these rights? c. Gingiss - Trusts need not be complicated for only a few pieces of property. d. Court here holds the right to bequeath as a separate and distinct right, taxable. 5. Halbach - Inheritance is the least objectionable means to deal with property at death. Tax levels are going up to over 3 million by 2010, infinite by 2011…back to 1 million by 2012 (because congress didn’t have the votes for permanence) Marital Deduction - (Not on the exam) you can leave your spouse unlimited amounts tax free, until that spouse dies. Folks like to create 2 trusts, one for the maximum tax free amount, and one for the Marital Deduction that will only be taxed later. 5. Bentham
- 6. Oliver - 7. Ascher - We no longer expect inheritances during our productive lives. 8. Note: Inheritance in the Soviet Union 9. Blum & Kalven, Progressive Taxation - 10. Langbien - 11. Shapria v. Union National Bank - Will said son only got money if they married good jewish girls, otherwise the money goes to Israel. Sons argued that this was contrary to p. policy and unconstitutional under the 14th amendment (Shelly v. Kramer racial covenant, states cannot limit marital freedom), so neither should private action. Son lost. Held: The provision is constitutional, does not overly limit property, and since the decedent’s intent was to benefit judaism, not force his son to act in a certain way, and thus not contrary to p.p. (This is a lot like those federal funding blackmail things.) There is no constitutional right to receive property.

Section B. Transfer of the Decedent’s Estate 1. Probate & Non Probate Property Probate - Property that passes by will or intestate succession, Performs 3 functions a. Provides evidence of transfer of title b. Protects creditors by requiring payment of debt c. Distributes the decedent’s property to those intended after debts paid.

Non Probate - Other stuff, like Joint tenancy, life insurance, contracts payable at death, interests in trust…

1. Administration of Probate Estates a. History & Terms - When probate is required, a personal representative is appointed to inventory & collect assets, manage them during administration, see to debts & creditors of the estate, and distribute the remaining assets to those entitled. If a will is written, the representative may be chosen. Representative must give bond unless the will waives it. Devise - leaving real property to devisees Bequeath - leaving personal property to legatees For intestate succession - Real property descends to heirs, while personal property is distributed to next of kin. Statute of Distribution - governing law of intestacy, a single law usually. b. Summary of Probate Procedure: 1. Opening Probate - First the will should be probated, or “Letters of administration” sought. States have procedures for the issuance of these. Barring objection, this can all be done outside a formal forum, Ex Parte. Most states require notice to interested parties before probate. At the hearing the will must be proved by affidavit of the witnesses, or testimony.

Time for Contest - Time alloted to contest the results of probate, depends upon statute for the jurisdiction.

Barring Creditors of the decedent - Creditor claims not filed within a statutory period after probate are barred. (often 2-6 months) or sometimes whether or not probate is commenced, claims not filed within a longer period (1-5 years) are barred.

2. Supervising the Representative’s Actions In many states the actions of the Rep are supervised by the courts. This can get expensive. The Uniform Probate Code permits unsupervised administration if nobody demands supervision.

3. Closing the Estate Rep must complete the estate’s business ASAP. Creditors must be paid, assets distributed, and the process completed. Rep may be liable if this is not done. Judicial approval is required to relieve Rep of liability unless statute or time limits protect him.

C. Is Probate Necessary? Death can be expensive. In most states the Rep’s fee is set as a % of the estate, in statute. A lawyer who serves can charge both as attorney and as executor, double fees, if the estate acknowleges him, otherwise he gets ½ the usual Rep fee. In a few jurisdictions, the lawyer cannot get his attorney fees in addition to the Rep fees.

Probate can be avoided - Owner / Soon to be dead guy transfers all of his property into joint tenancy or irrevocable trust. It can be hard to do this if you have a lot of stuff all over the world, so a back up will is still a good plan in case anything was overlooked.

Avoiding Probate with a Will or Intestate - States permit transfer of small property without probate, but the value limit varies. Bank accounts, car titles, etc can be transfered with a simple form.

d. Universal Succession Europe & Louisiana - No administration, heirs or devisees simply step into the decedent’s shoes at the time of death. No lawyer is required, nor need the court get involved.

D. Estate Planning Problems

1. Professional Responsibility (Privity & Malpractice)

Simpson v. Calivas - Attorney who drafted dad’s will (Calivas) was sued for failing to make sure his client’s intentions were met. There was a life estate to be reserved in the house & homestead, but these were not properly defined. Probate gave the land & house all to the stepmother. (Atty notes indicated it was to be only the house, they knew this.) So the son who thought he should inherit the land of the homestead, just not the house sued after buying out his stepmother. Lower court held that D owed no duty to the intended beneficiaries. NHSC overturned. Attorney held liable.

Most states allow will drafters to be held liable under a tort or contract theory, or both (as in NH.) A few still hold that when the one party is dead, nobody else can sue, due to lack of privity.

Most courts reject the notion that “inferior” probate court rulings are determinative of the testator’s intent when a subsequent malpractice suit arises against the drafter.

Attorney’s have a duty (California) to refer a client to a specialist, or consult a specialist, should the drafting be beyond their skill.

A lawyer is not to draft a document for a person who is not his client without consulting that person.

Hotz v. Minyard - Minyard had 2 kids, Tommy & Judy. He wrote a will giving one of his car lots to each, and splitting the rest of his property between them. Everybody was present at the law office for this will signing & got a copy. Later that day he snuck a new will to the lawyer, giving the real estate under Tommy’s lot to tommy. Judy came to the Dobson office to discuss the will later still, and they showed her the old one (at Minyard’s insistence that she not know of the newer.) Then Minyard had a stroke, and while Judy cared for him, Tommy ran things at both lots, and into the ground. Life went sour, he fired Judy, she threatened to sue. Tommy offered her a nice job again, and fired her again, and she sued. At issue is the suit against Dobson, the lawyer for breach of fiduciary duty. The court held that There was a factual issue as to Dobson’s duty to Judy (for treating the old will as valid) and Dobson’s firm (for being Dobson’s firm)… The lower court’s dismissal was overturned and the case sent to a jury.

All these problems with liability have pushed forward reforms in property law, excusing small will errors, producing the wait-and-see doctrine…

Chapter 2: An Estate Plan By Default (Intestacy & Spousal Share)

A. The Basic Scheme

1. Introduction The goal here is to guess what the person wanted when they didn’t tell us. Most people die without a will. The state isn’t trying to impose its own will. (Though you cannot disinherit your spouse, condition bequests on divorce…)

UPC 2-101 - Any part of an estate not disposed of by will passes by intestacy statute. You can have intestacy even when you have a will, where stuff isn’t covered correctly.

UPC 2-102 - Share of Spouse: entire estate if no descendant or parent survives, or all of the decedent’s descendants are of the surviving spouse and that spouse has no descendants of a prior relationship. In SD - Parents are irrelevant if there is any spouse or kids. As are any of the spouse’s kids from a prior relationship. Only the decedent’s children from other relations matter. Barring these, the spouse takes the entire estate, otherwise the spouse gets the first $100,000 and ½ the balance. The other ½ goes to ALL of the DECEDENT’S descendants. 29A-2-102

2-103 - Heirs other than the spouse:

2-105 - No taker

The state will take if you have no living heirs beyond your grandparents or descendants in SD (and descendants of grandparents…) Some states go to great grandparents, California will go as far as the records will allow.

2. Share of Surviving Spouse (And how long does she have to survive?) Elective Share - Amount you are required by law to leave for your spouse. Under these, what you leave in the will is subordinate.

In many states, the spouse takes ½ or 1/3 in non UPC States. Outside SD, in UPC states the spouse takes it all if there are no descendants or parents, or if there are descendants but all from this relationship, (spouse also takes all).

In SD, if there are no descendants, spouse takes all, if there are descendants and all are from this relationship, spouse also takes all. Otherwise spouse gets first $100,000 plus ½ excess (because the surviving spouse might not care for the stepkid).

Avoid “If we die in a common disaster” - this can be ambiguous all the time…prefer “If we die under circumstances where the order of our death cannot be established by proof…” Then you name the person to be deemed the survivor.

Janus v. Taraseqicz - Decedent & wife died within 2 days of each other after eating cyanide laced Tylenol capsules. He wanted his property, and life insurance, to go to his wife, or otherwise to his mother if they died at the same time. Decedent collapsed first, then the wife. (UPC requires survival by 120 hours or one is deemed predeceased.) Insurance says to wife if she survives me, default to do this is the UPC limit of 120 hours. So Decedent’s mom got screwed out of the insurance policy.

Gingis Hypo - H & W both have wills that say “All to my spouse, but if spouse dies first, $100 to my nephew and the rest to my kids.” If the both die at once, and are deemed to predecease each other, the nephew would get $100 twice, one under each will. Careful language can avoid this.

What if they’re in an accident and die at ALMOST the same time.. Its generally best to draft wills that make no distinction re who died first.

3. Share of Descendants In every state, descendants take to the exclusion of others. There are 3 systems: 1. Classical, English Per Stirpes (Divide at the first generation) 2. American, Modern (Divide at the first generation where someone is alive) 3.
Per Capita at each Generation (Any one at any generation who’s entitled to take anything, always gets the same as anyone else at that generation. SO at each generation, the remaining estate to be divided goes back into the pile and is redivided at the next generation.) UPC Uses this.

See P. 86 Diagram

C’s kids take 1/6 while B & D take 1/3. If C had no kids, B & D take ½ each.

The whole idea is that where a decedent’s heir is not living, that heir’s descendants take in his stead. In per stirpital distribution, spouses of heirs are not relevant. When an heir is living, their children are irrelevant. (DUH)

P 87 Diagram (2 kids dead, 3 grandkids)

English System (and SD) - Divide at the kids generation, even if they’re all dead. Then grandkids divide parent’s share. SO D gets ½, E & F get ¼.

American System (and Cal) - If all children are dead, divide that the first generation where SOMEONE is alive. So D,E,F each get 1/3.

Per Capita System - Same as American system.

P 88 Diagram

English & SD System - D gets ½, F gets ¼, H & G get 1/8.

American / Modern System - D & F take 1/3, G & H take
1/6

Per Capita (Same as American)

4. Shares of Ancestors & Collaterals

If A dies w/o spouse or descendants, it goes to the descendants of A’s parents. Things go from the parents the same as A. In some states only the parents take, in other siblings also take. If there are no parents, go to descendants of parents same as the whole, descendants of only one parent are treated as full bloods. If no descendants of parents, go grandparents, ½ to each side. This can vary, in California they take as individuals (3 left, 1/3 each…)

P 91 Daigram

English System - B gets ¼, F gets ¼, G gets 1/12, O gets 1/12, L-N get 1/36, J gets 1/8, P takes 1/8. American - Same result as English (because someone in gen 1 is alive.)

Per Capita - B gets ¼; F, G, J get 1/8; L-P get 3/40ths

Negative Inheritance - Where a will is written giving all to A, and explicitly disinheriting B, where A & B are heirs, and A dies without heirs. The will is meaningless, so common law activates intestacy statute and gives everything to B, even though the decedent hated him. UPC changes this, ordering B treated as predeceased. (So you go to other, more distant heirs of the decedent, even heirs of the negated person, or 3rd cousins…)

Half Bloods - People who share one parent. (there are no ½ daughters) In SD and most states, these folks take as whole bloods, treat them like normal siblings. In Virginia, they are ½ a person for inheritance purposes. In Mississippi, ½ bloods count for nothing unless there are no other heirs.

B. Transfers to Children

1. The meaning of Children (p97) a. Posthumus children - A child was at common law presumed an heir if born to the decedent’s wife within 280 days of his death.

As a PP matter, children born a decade after dad is dead due to artificial means, the states should probably forbid inheritance.

b. Adopted Children - generally given all the rights of blood children upon adoption, this tends to also remove rights of inheritance from blood parents.

Hall v. Vallandingham - Blood nephews of the wealthy, intestate, otherwise heirless William Vallandingham were adopted by the new spouse of their mother, Jim Killgore. They desired to receive what would have been their inheritance from the deceased blood uncle, but the court held that since they were adopted, such was no longer an option by statute. The legislature giveth, & the legislature taketh away; State law removed rights to previous parents’ estates.

UPC 2-113 - Someone related to decedent by more than one way (married his cousin) is only entitled to the stronger single claim.

UPC 2-114 - A person is a child of his parent, regardless of the parent’s marital status, adopted children are children of their new parents but may still inherit from biological relatives, and only when the natural parent in question openly accepted the child as such. (Not all states accept this, or the Hall decision)

See SD Statute on TWEN… Distinguish between new family adoptions and family realignment adoptions. There is complete severance where the child is given up at birth to unknown parents… It does not always work both directions, such that a natural ancestor may not inherit from a descendant who was adopted by others, but they might from him.

Technology - Surrogate parent rules are unsettled in the US, In the UK parentage is that of the surrogate, regardless of who’s egg & sperm were used.

For lesbians partners, parental rights seem to go to the egg donor, for switched at birth babies, legal inheritance descends from the biological parents only.

Adult adoption - Generally as easy as child adoption, except in one case where a homo adopted his lover, the court held the two relationships were incompatible. You can’t use adult adoption to bind someone else’s estate.

O’Neal v. Wilkes - (p 108) O’Neal was a girl who bounced from home to home for years, before winding up in the care of her natural father’s sister’s friends from Georgia. She stayed with them as daughter and was recognized as such. When her would be father died, the estate denied her inheritance. The court held that as there was not valid adoption contract, she would unfortunately be denied inheritance. Equitable adoption ain’t good enough. 1. Adoption K must be made between competent parties, parents 2. K theory is applied to protect the child (who got screwed in this case.) 3. Legal custodianship is granted by the court 4. Ratification of an adoption K by folks w/o legal authority is void.

c. Non Marital Children Under the common law, bastards were the child of nobody and could not inherit. The property if intestates would go to the local lord. In the US, inheritance through the mother was possible early on, through the father only if he acknowledged the child and adopted it. This has changed in recent years.

This was justified to discourage illicit sex & the difficulty of proving paternity.

Sometimes its easier to inherit from a father who disputes paternity than one who openly admits it (but doesn’t get a court order).

If you have children out of wedlock, get a will.

Uniform Parentage Act not accepted in SD - Parent & Child relation extends to all parents & children regardless of marital status.

In Most states, SD included, if the parents get married after birth, the child is considered legitimate. (In SD, the baby born to a married woman is presumed to be legitimate even if the father is not the husband.)

2. Advancements (p128) - This is where someone gave you part of yer inheritance while you’re alive.

“Dad, can I have $10,000 (part of my inheritance) now?” Sure…. Then dad dies…how is this to be treated? 1. Advancement - Child’s inheritance is cut as if he got it already. For purposes of calculating the size of the estate, this chunk is included in the total estate before division between heirs. Then subtract it again from the share of the person who got advanced. 2. Not Advancement - Its a gift, Child gets his share of all that remains. 3. Loan - You got more than your share or otherwise owe it back…

Advancements don’t generally include interest, as a matter of administrative convenience.

If the advanced person goes over his share, if its a loan one can sue him to recover it, if it was not… he keeps the extra. (A loan would be an asset of the estate.)

If the advanced person predeceases the testator, and has heirs, you don’t treat it as an advancement. His kids inherit as if the advancement was a gift. (Unless the advancement provides such.) If it was a loan, sue the estate of the deceased advanced person.

UPC 2-109: Advancements must be noted in contemporaneous writing by the decedent or the recipient & heir (at any time) who got stuff early. This reverses the common law. Watch out for states that don’t have the UPC.

3. Managing a Minor’s Property

Guardian - Person who has the responsibility to see to a minor’s custody & care. Courts will appoint a guardian if none is listed in the parents’ will. Further, such a will is handy to determine what is done with the child’s newly inherited property.

Guardian of the Person - Person who cares for the child itself. Natural parents always win over wills (my ex wife…) unless they are unfit. If one is not named, the court will appoint one from among the relatives. Guardian of the Estate (Conservator) - 3 options: 1. Do nothing, probate court appoints a person, person must file annual reports. Often distrusted historically. 2. Transfer to a minor under the Uniform Transfers to Minors Act. This operates like a trust. Court supervision is not required (No reports) and gives a person investment & spending powers. Its a good system for small estates. Minor MUST receive the property at a stated age. 18 to 21 maximum depending on state. SD the max is 21, 18 if UTMA is not mentioned. The minor is the taxpayer under this system & must file accordingly. 3. A trust - the superior means if you have doubts at all. Its good for large amounts of money, but must be created specifically with a will. The trust can last beyond 21 (In SD it can go forever.) It can be for more than one child, allowing the trustee to support minor children until everyone is grown up & has college paid for. Then it can devolve to the kids.

Article 5 of UPC, in SD its different, they kept the old SD system when UPC was adopted.

Will Problem, P 136 What if your single trust for your kids would get unbalancing since they’re 30 years apart? Set up two trusts? It’s probably a good idea to keep as a single trust to maintain the size of the estate until division (funding the needs of the kids under 18 on interest.) Other kids can be allowed advances out of the trust.

Section C. Bars to Succession

1. Homicide

In Re. Estate of Mahoney - Widow killed her husband, it was voluntary manslaughter, not murder as was the usual case, and she wanted her share of the estate. The probate court gave it to his parents. The court stated that of the 3 takes on this situation, the constructive trust solution was best as Vermont had no law prohibiting inheritance after murder. They ordered the probate court to stay action for 60 days and allow the administrator time to visit the court of chancery seeking a declaration of a constructive trust under the widow. If he didn’t, she would inherit as normal. 1. Slayer retains his title to inheritance, statutes alone control. 2. Legal title does not pass to the slayer, because nobody should profit from his own crimes. 3. Title passes in constructive trust to the slayer, only to be passed on to other heirs. The court notes that involuntary manslaughter would not be subject to these rules. The probate court here did not have the jurisdiction, a chancery court would need to be enlisted to create the trust. In SD, all the courts are part of the same system.

Bird v. Plunkett - Guy kills his wife, shot her in the side. He is convicted of manslaughter, but seeks to inherit under his wife’s will leaving everything to him. The court examines statute 7062 which states that no person be denied inheritance unless guilty of murder in the 1st or 2nd. P argues that this law does not eliminate the common law power to further limit anyone who killed a person from inheriting that way. D argues that the law is what it says, and only murder precludes inheritance. The court goes with the D.

UPC allows proof that murder took place in probate, even if a criminal conviction was not obtained, and thus inheritance would not pass.

2. Disclaimer - When an heir refuses to accept title to all or a part of inherited property. (Because the land is full of cyanide and cleanup costs more than it’s worth. You don’t want it.) In feudal times this was not an option, because someone had to maintain feudal obligations. Common law treats title as having passed (when intestate) to that heir, and then to the next successor. (A gift usually goes back to the donor.)

2-801 Authorizes disclaimer, you cannot make it so that someone cannot disclaim a part of their inheritance.

Requirements under state law & federal gift tax for valid disclaimer are different, particularly for future interests:

I leave property to A for life & A’s heirs per stirpes. State Law: For 9 months from A’s death, his heirs can disclaim, else they get it. Federal Law: Estate Tax / Gift Tax - 9 months from creation of the interest, that is the time I die & leave property to A, even for A’s descendants. (Disclaimer after 9 months is treated as a gift to the next heir and is taxed.)

Why is this federal law silly? To A for life, then to A’s widow, then to A’s descendants who reach 21. What if A is single until more than 9 months after the interest is created. Then his new wife wants to disclaim, she can’t… its too late.

You can draft a will to adjust automatically to changes in the tax code. “I leave the largest tax free amount in a trust for my kids…”

2 reasons for disclaimer when the land isn’t laced with cyanide: 1. Tax reasons, disclaim $1 million to your kids, so they don’t get taxed on it twice. 2. Creditors, you a zillion in debt, dad dies leaving you 1 million, you’d rather have your kids get it than creditors. USSC said that in the case of back taxes, you cannot disclaim inheritance to avoid government liens against your collective assets. Standard creditors are foiled.

If you accept the benefits of the inheritance can bar you from disclaiming. (Moving into the house you disclaimed.) Or an agreement not to disclaim, like getting a loan based on coming inheritance.

When decedent dies testate, and the devisee refuses to accept, the law usually acts as if the devisee had predeceased the decedent. This saves on taxes and makes things run fairly.

Also, you can’t disclaim under strange inheritance systems to get your kids an unfair share of an inheritance.

Troy v. Hart - Old man with 2 sisters is in the Stella Maris old folks home. He’s on medicade, and has given power of attorney to Troy. Later, his sister Alta Mae died leaving $300,000 intestate. This would go between Old man & his two sisters. One of his sister’s lawyers got Letich, the old man, to disclaim his inheritance by sneaking into the home one afternoon. Troy argued that this was invalid, and that such money couldn’t be disclaime1d due to medicare obligations requiring payment if one’s status changes. The court held that while such payment was required, the disclaimer was valid because Letich was not incompetent. Medicade would have a lien against the sister’s who inherited after the disclaimer (under a constructive trust.)

If Letich had died before the disclaimer, can his estate disclaim and avoid his debts? If the personal rep in the will is expressly given the power, or in some states with leave of court.

Medicare - government insurance program for folks over 65, it does not cover nursing homes. Medicade - welfare for poor folks needing medical care. It does cover nursing homes. It is a crime for lawyers to advise illegal action to get under this. Assets given away within the last 36 months, 60 if in trust, are added to wealth level calculation. If you inherit property, you are obligated to take it (as was Mr. Letich.)

Chapter 3. Wills: Capacity & Contests “Testamentary Capacity”

1. Why Require Capacity? In almost all states, any person must be 18 and competent in order to make a valid will.

In Re Strittmater - (1947)Woman in her 40’s went uber feminist, often in her writings insulting her loving parents. She especially developed a hatred for men. She joined the National Women’s Party, and left everything to them. The court held that she was probably insane and not capable of making a valid will. Her other relations will take.

2. Test of Mental Capacity: Does the Testator know… 1. The nature & extent of his property? 1. the persons who are natural objects of the testator’s bounty (often mistakenly assumed as a synonym for heirs by the court.) 2. the disposition he is making 3. how these elements relate so as to form an orderly plan for the disposition of his property .

The testator need not have average mental capacity, may be eccentric, and even if declared incompetent may at times still draft a will. The test for competency to will is less than that to make a contract or gift, but greater than that for marriage.

To draft a will for an incompetent is a breach of ethics. The lawyer may however rely on his own judgment of the matter.

Estate of Hastings - SC of SD… Delusional (developmentaly disabled) guy dies in 1982. He had executed 3 wills naming his sister as main beneficiary in each. She petitioned to have the 81 will admitted to probate, other relatives argued that he was of unsound mind. He could operate farm machinery, simple stuff…he could not demonstrate understanding of his own will. Court held the will invalid.

You do not need to be insane to lack testamentary capacity.

Estate of Hastings - SC of SD… Delusional guy dies in 1982. He had executed 3 wills naming his sister as main beneficiary in each. She petitioned to have the 81 will admitted to probate, other relatives argued that he was of unsound mind.

Doctor A.H. Marshall - Uber christian fellow who’s politics were quite nuts. He knew the nature & extent of his property. He knew who the natural objects of his bounty were. He knew the disposition of the will, and how they all fit together. (Was he incapable of logical thinking?)

An insane person may have the capacity to draft a will.

Other things that can affect the will: Alcohol, Old age, dimentia, organic condition/ brain tumor…

Terms of the will are theoretically irrelevant unless there is something inherently insane in them.

3. Insane Delusion (p165)

In re Honigman - Guy was obsessed with suspicion that his wife was cheating on him. A few months before he died, he changed his will to give her only a life estate in the statutory minimum, the rest to his grand-nieces & brothers & sisters. His wife had a lot of money on her own. The jury found that he was suffering from insane delusion. The court held that it was not totally unreasonable, she had money, and thus he may have had another reason for leaving her out of the will. The will was upheld.

Where there was some basis, though not necessarily a good one, a will may be upheld.

Bonjean - Gal disinherits her brothers & sisters, leaving things to her dead relatives husband & wife. She goes into treatment for depression etc…after attempting suicide several times. Alleged insane delusion is that the siblings were out to get her… Court holds that no, it is not insane to resent someone who has you institutionalized.

Mere misapprehension of fact is not enough to invalidate a will by delusion.

Ante-Mortem Probate: Probate an estate before the testator dies…. 3 states allow it. Do you want to stare down mom and say, “You’re not of sound mind…” Most lawyers think this is a silly idea and nobody does it.

Virtual Representation - Someone who stands in the same interest of another (for minors etc…)

B. Undue Influence - In the eyes of the law: coercion. (Of course you pre-suppose mental capacity if you argue this.

Gingiss’s Elements: 1. Susceptible to undue influence or domination by another? 2. Person allegedly influencing had opportunity to exercise it. 3. Disposition for personal benefit? 4. Provisions of will are unnatural and the result of such influence?

Never draft a will where you get anything, except maybe for family, and then never take more than you’d get by intestate succession.

Swenson Elements 1. Participation by the beneficiary in procurement of the will 2. Independent advice (not the usual lawyer) 3. Secrecy & haste 4. Change in attitude 5. Change in disposition of property 6. Unnatural or unjust gift 7. Susceptibility

Lipper v. Weslow - Grandma had 3 kids. One died with 2 kids, grandchildren. Grandma left everything to the 2 surviving kids. The grandchildren claim undue influence. The will declared that her 2 grandkids and their mother, the daughter in law, were total pains in the backside, unfriendly most of the time, and not to get a dime. Court held that there was evidence that this was the testatrix’s will, any claims to cards & letters be damned.

Is justification of a will, within the will, a good idea?

Undue influence generally requires 3 prerequisites: 1. The person exerting influence had a confidential relationship 2. That person received the bulk of the testator’s property 3. If the testator was of weakened intellect, the BOP shifts to the accused to disprove influence.

No Contest Clauses / Interrorem Clause - “Should anyone contest my will, if they loose they get NOTHING.” Most courts will enforce these clauses, but if there is nothing left to a person, they can challenge all they want with nothing to loose.

Bequests to an attorney not related to the testator, who drafts the will, are presumed to be undue influence, requiring clear & convincing evidence to the contrary.

Fred Borche a SD case - Made a will and his friends said it wouldn’t stand in court, so his friend helped him get a good will ready. They’d been friends for years. He didn’t sit in on the meeting with the attorney. Borche gave the attorney some lists of what to do, drafted by his friend. The court covers the 4 Gingiss issues, and finds undue influence.

What if the attorney who didn’t draft the will?…

In Re: Will of Moses - Gal had 3 husbands, after that she became lover to an attorney named Holland. In a will about which Holland was not informed, she left almost everything to him. So of course her sister attacked the will on grounds of undue influence, even though it was drafted by another lawyer. The lower court found against Holland, The Court reversed. It reasoned that the evidence clearly demonstrated a relationship, that Ms. Moses had the advice of counsel, and that sexual morality of their relations was not an issue, the will was invalid for basic undue influence.

Gingiss finds this decision WEAK. Attorney who drafted the will didn’t ask about Moses’s family.

When probate is opened, those in a will must be notified, and also those who would take if the will was invalid.

In Re; Kaufmann’s Will - Gay dude with a large inheritance and stock in the family jewelry store chain moves from Washington to NY. He falls in with Walter, a non-practicing attorney and turns over most of his worldly affairs to him so that he may paint. They travel together, have wild gay sex according to the jury, and when Kaufmann leaves a big chunk of his family change to his partner the family is aghast. The court holds that undue influence was applied in the wills Kaufmann made.

Haynes v. FNSB of NJ - Old woman moves in with her daughter(1 0f 2), and using her living younger daughter’s attorney to redraft her will leaving more to the living side. The court found a presumption of undue influence because of the close relationship between them. The children of the deceased daughter were upset because they were mostly disinherited.

BOP on the P, must demonstrate a confidential relationship by a beneficiary to raise a presumption of undue influence, rebuttable with clear & convincing evidence.

In most states, a no-contest clause is not enforceable if the challenge is brought in good faith & with probable cause… mostly.

If representing a married couple, let them know up front you will keep no secrets from the two by either party.

Seward Johnson’s Estate Story- Poor polish girl becomes 5th wife to the Johnson & Johnson Heir, winning $340 million over his kids.

Document mental capacity & intentions if a will contest is possible.

Gingiss on How to avoid gettin’ screwed like Ninia: Ninia had a conflict of interest in that as trustee & counsel she stood to get a lot out of the will execution. During her Cross Examination:

When drafting a trust, ask the property owner first.

C. Fraud Most of the time its about forgery…

Blind man is given the wrong will to sign - Fraud

Testator is told that their favorite heir apparent has died, so they leave everything to the messenger. - Fraud

Estate of Carson - Husband & wife are supposedly happily married, except that he never got a divorce from the last wife. She dies, leaving all to her “husband” which she doesn’t actually have. Court says it’s not a slam dunk fraud… she may have wanted to have him have the money anyway after 20 years of happy cohabitation.

Latham v. Father Divine - Father is a charismatic minister, with a considerable following of blacks and whites. He was left something in the will of a white follower. Will has never been executed, the battle is between prospective heirs.

Concept of constructive trust extended here…

Chapter 4 Wills: Formalities & Forms

A. Execution of Wills

Gingiss On This: Over time there have developed a lot of formalities for wills, the slightest deviation from which can void the document, even if it’s clear that the will bears the testator’s intent.

In SD: Will must be in writing, signed by the testator or in his name by another in the testator’s presence & direction, and signed in the conscious presence of the testator by 2 or more witnesses who witnessed either the signing of the will or the acknowledgment of the testator that this is his will. (Testator already signed.)

Holographic Will: About ½ the states honor these. No witnesses required. Traditionally they had to be entirely in the testator’s writing (voiding will forms) but now need only be the substantive parts in handwriting, (so will forms are ok).

Why So Strict Our Requirements? A. Ritual function to preclude casual utterances or drafts. B. Evidentiary function, testator is dead, witnesses memories fade… C. Protective function, it is supposed to avoid undue influence. D. Safe Harbor function, gives the testator confidence.

1. Attested Wills

In Re Groffman - Groffman was friends with both Mr. Block and Mr. Leigh, and frequented the Leigh house on Tuesdays. He had a will drafted by a fellow who was recommended to him, and one evening in early september 1964 asked the two men to witness it. There was no space on the table in the living room so each in turn, but not at the same time, went into another room with him and presumably signed off on what Groffman said was his signature. The will’s execution was contested by his widow. The court held that though the will was probably quite accurate, statute required both witnesses to be present at the same time. Thus the will could not be executed. (UPC would have no problem with this, its a fairly minor point.)

Some states require actual SIGHT of the testator, hard for blind folks and generally excused. Most states require only conscious presence & direction by the testator. Telephonic presence ain’t good enough. Nor is giving it to the bank teller behind the glass at the drive up.

If only part of the act of signing is witnessed, the will can be invalid (in re Cooling)

Folks unable to do a decent signature can generally make an X or partial name or initial if they intend it to be the total signature. Witness cannot complete the signature without direction from the testator. No rubber stamps…

An attorney will be liable for supervising a defective signing in his office.

Additions to a will in many states require an additional signature at the bottom

A videotape does not qualify, even if the tape is signed & sealed.

Witnesses must sign within a reasonable period after the death of the testator if they don’t sign before he dies. (In some states, it’s automatically unreasonable if the testator dies before you sign.)

Estate of Parsons - (Don’t follow this case.) Parson’s will gave $100 to one of the witnesses to her signing, and existing law mandated that signatures of disinterested parties alone count as witnesses. She disclaimed the small bequest after Parsons died. The court held that sadly the will was still invalid. Probate code section 51 looks solely at the time of execution and attestation of the will.

Purging Statute: One that effectively prohibits folks who get something in a will from acting as valid attesting signators.

This is the traditional method, now UPC allows this, but a presumption of undue influence is raised.

Recommendations for Executing a Will: (Gingiss gives a super detailed list of steps when he cannot supervise the signing himself.)

This should be valid in all states: (p 242) 1. For multi-page wills, bind securely, and specify in the will the page count. 2. Make sure the testator has read & understands it. 3. Get the Lawyer, Testator, Notary & 2-3 disinterested parties together in a room with nobody else. (Lawyer can be the notary too.) Nobody enters or leaves till the ceremony is done. (Notary not required, but handy if you can’t find a witness later & the will is contested.) 4. Ask the testator the following: a. Is this your will? b. Have you read it and do you understand it? c. Does it dispose of your property in accordance with your wishes? Make sure everyone can hear “yes” to each answer. Consider additional precautions at pp.209-210 5. “Do you request X and Y to witness the signing? 5. Make sure the witnesses can and do see everything & each other as the testator signs the will. 6. One witness reads aloud the attestation clause. (Gingiss thinks this is silly.) 7. Each witness signs & print & addresses by his signature. 8. Self-proving affidavit sealed by the notary attached at the end.

Gingiss keeps a “conformed” copy, thats a text copy indicating who signed and where. Also on this document is the location of the real one.

In SD, a living person can file his will with the county clerk. The other option is to have the client keep it.

Safeguarding a Will - Best to let the testator keep it, don’t save it in your office.

In Re Pavlinko’s Estate - Hellen & Vasil, Husband & wife signed each other’s wills by mistake, each leaving property to the other. The lawyer / drafter and his secretary who didn’t speak the language signed as witnesses. Court refused to honor the will, as it would not rewrite every instance of a the testator’s name, or “my wife” and “my husband” as it appeared. It would be a slippery slope.

This wasn’t the document Vasil intended to be his will, law stated that the signature must be on the document intended as the testator’s will.

Musmano’s Dissent suggested just striking words “my brother” and make the residuary clause valid.

Most states follow this case. (In re Snide - mirror image wills of husband & wife may be given effect.)

UPC 2-503 - Harmless Error: (Dispensing Power) Documents not in compliance with 2-502 may be given credit provided clear & convincing evidence establishes that the decedent intended it to be: his will, partial or complete revocation, addition or alteration, or partial or complete revival of an earlier will. (This one is not in all UPC States, it IS in SD.)

In re Will of Ranney - In 1982 Russel Raney drafted a will several pages long, un-numbered, with the last page being a self-proving affidavit & signature page. The pages were not attached together prior to execution and there was no attestation clause. After review at the lawyers’ office, a firm partner & 2 secretaries were drafted to witness the signing. Everyone understood that page 5 was supposed to be attestation of the will, even though the testator signed on page 4 and the attestation clause was absent.

The court held that the method does not literally satisfy the state code for executing wills, but that a will may be admitted if it substantially complies.

Substantial Compliance - The cure for harsh formalism, but careful practitioners should still observe the formalities for the security they provide. Its not really common, but hasn’t been asked for a lot.

Self Proving Affidavit - We really did see and sign off on the will, notarized. (The we really mean it section.) Even though the page they signed was not attached. Sometimes now we do a single signature for both the will and the notary.

Dispensing Power - Can cure lots of errors but not the lack of a signature. (Well there was one case in Australia…)

*** Wills need to be in writing, signed & signed by witnesses.***

2. Holographic Wills

See p 262 for a nice poem.

Holographic Will - One written in the testator’s own hand… or at least the important parts in some states, these are legal in mostly southern & western states, like SD. Also it must be signed by the testator, often a date is required.

In Re Estate of Johnson - Old Johnson got a stationary will form from an office supply shop. In it he left equal divisions of his estate to his kids & the church. The will could not, without the printed parts, make sense as a testamentary document, and thus even though statute permitted the “material portions” only in the testator’s writing, the court held that the will was invalid.

Here the court shot down holographic wills that could not be a will without the typed portions. The typed words made it despositive.

UPC 2-502 allows testamentary intent to be drawn from typed portions of a will.

Some other things you could do: typed portions may be used to interpret the meaning of the handwritten portions. You might also call a notary a witness.

Some states have statutory “form wills” that will always be considered valid.

Kimmel’s Estate - Old Kimmel wrote his son a letter in very poor english that indicated where his accounts should go if he died. The letter rambled about family news also, but was signed by the testator. The court held that the will bore testamentary intent, and was validly signed, It was admitted.

Wills based on a specific cause of death (plane crash) are often still valid if it appears the testator’s intent was testamentary, and the cause of death presumably irrelevant.

B. Revocation of Wills

1. Revocation by Writing or Physical Act (p276)

All states permit revocation in one of two ways: a. By a subsequent writing executed with testamentary formalities b. by physical act such as destruction of the will.

A will not properly revoked is still valid. A later will without words revoking an earlier one is treated as a codicil. At common law, revoking a codicil does not revoke a will. At common law, revoking a will revokes codicils to it.

Example: Will 1 :Everything to A Will 2 :Diamond ring to B, Car to C Result: A still applies except to the ring & the car.

UPC 2-507 - A will is revoked by subsequent will that revokes it, or by an act on the original will, such as burning it.

Harrison v. Bird - Gal had a will naming Harrison. Her lawyer kept the original, and Harrison had a copy. Gal asked her lawyer to revoke it, and the Lawyer tore it into 4 pieces and sent them to her. When she died, the envelope was found, but the pieces were not. The court held that while the lawyer’s acts did not lawfully revoke the will, the fact that it could not be found produced the assumption that the old Gal did in fact “revoke” it by destruction.

If a will cannot be found & was last in possession of the testator, there is a rebuttable presumption that it was revoked. If someone else had it, there is a presumption that it was not revoked and can be proved with a copy.

Do not do duplicate originals!!! Have folks sign in blue ink… its less likely to get mixed up with copies.

If the testator presumably revoked a will by destruction, (it can’t be found,) the other copy someone has cannot be admitted to probate. (You can’t say “Gee, if we can’t find one, we’ll just probate the other.”)

Just because a disappointed heir may have destroyed the will does not rebut the presumption of revocation (assuming you can’t prove he did.)

Absent a statute, and absent evidence that the testator destroyed the will, a missing will may be admitted if its contents can be proved. A will may legally exist and not physically exist

Gingiss recommends keeping the will in your office if you aren’t going to file it, except in Wisconsin where you’re not supposed to.

Thompson v. Royall - Old Mrs. Kroll had a will and a small codicil, properly executed, each kept in possession of other folks. Then a week before she died she called everyone together with the plan of destroying the wills and making new ones. She was talked out of destroying them, preferring instead to keep the documents as memoranda for drafting the next will. Instead, she signed a note, written by her lawyer, on the back of each instrument indicating that these were not to be her wills, but that others would be made. The court held that since there was no physical attack on the wills, and no duly witnessed signature of a revocation, the will was still valid. (Under Va. law, the “other revocatory act” must touch the words of the will and these notes didn’t.)

Destruction method requirements should not be taken lightly, just typing void on a will and signing the note may not be enough. Though a holographic revocation might be.

UPC includes “canceling” as an act of revocation. Such words must be written on the will, not another document. Act need not touch the words of the will.

Some states do not recognize partial revocation by an act… all or nothing.

Partial Revocation - Client crosses out part of his will because someone forgot his birthday.

UPC will allow partial revocation by act. Some states do not permit this. Of course, if you can’t read what it said beforehand… the state often gives up. (some states invalidate the whole will.)

2. Dependent Relative Revocation & Revival (Gingiss Likes this stuff)

Relative Revocation: This is a doctrine that says - If a testator purports to revoke his will upon a mistaken assumption of law or fact, the revocation is ineffective. So if he tears up his will thinking his son died, and the son didn’t, the will is valid.

Carter v. First United Methodist of Albany - (286) Old Mildred Tipton had a will from 1963. In 1978 she crossed out a few sections, and left with it a note, unsigned or witnessed indicating that she intended to draft a new will like this. The court held that the crossing out bits was a revocation, but this was rebutted by the presence of the letter indicating that she revoked it with the understanding that a later will would be in effect.

The presumption of revocation on a ‘damaged’ will can be rebutted, such as where the revocation was due to a mistake of fact.

Courts have limited this doctrine to situations when there was an alternative plan for a will that failed, or when a mistake is recited in the instrument of revocation.

Just telling your lawyer the plan for your new will is not enough to invoke the Dependent Relative Revocation & Revival doctrine, better evidence of the new plan is required.

Gingiss disagrees with this case. She knew her will was invalid, even if she planned to get a new one she had to know she was intestate after crossing out the bits on the 1963 will. Dependent Relative Revocation (DRR) is designed to cure a mistake not present in this case.

Estate of Alburn - (292) Alburn had a will drawn in Milwaukee, and a later will done in Kankekee Illinois. Then she destroyed the Kankekee will intending to revive the Milwaukee one by the act. This was not a valid revival of the Milwaukee will. The P argued that there was not enough evidence that this was the only reason Alburn would have destroyed the Kanekee will. Court found that from the evidence Alburn had no preference to die intestate, and that the Kanekee will was valid.

3 Takes Jurisdictions have on revocation: 1. The 2nd will does not revoke the 1st, because neither is effective until the testator dies. 2. The 2nd will revokes the 1st at the time 2nd is executed. Then either if #2 is destroyed, 1 is revived… or 3. A revoked will cannot be revived unless properly re-executed with witnesses and other formalities.

UPC 2-509: Revival of a Revoked Will - If will #2 properly revoke will #1, then will #1 is still revoked even if #2 is revoked later. #1 will be revived only if later evidence shows the testator’s intent to revive it (or by formal means.)

A will #2 that partially revokes sections of #1, that is itself revoked, will revive the sections of #1 that were revoked… absent intent to the contrary.

The revocation of prior wills & codicils in a new will is effective immediately upon execution, while the rest of the will does nothing ‘till you die.

In the UK and a couple states, the revocation of a prior will is also invalid when the later will is revoked (so an earlier will can be revived this way.)

ALWAYS INCLUDE A RESIDUE CLAUSE IN A WILL.

3. Revocation by Operation of Law: Change in Family Circumstances

UPC 2-804 & In most states, after a divorce sections of a will giving things to the former spouse are revoked outright. In the rest, they are revoked if there was a property settlement in the divorce. (A will done after the divorce is the safest way to bypass this if you still want the ex to get something… or you can define it in the will.)

C. Components of a Will

Integration, Incorporation by Reference, Act of Independent Significance, Repub. by Codicil.

It is possible to leave a will such that the testator can reference outside documents, and change them later without the formalities of a will, and have them incorporated into the will.

It is possible to have documents control who gets what without the formalities of a will under 2 doctrines:

1. The doctrine of Incorporation by Reference 2. The doctrine of Acts of independent significance.

But First, 2 other doctrines:

1. Integration of Wills - Generally, wills have multiple pages. A good lawyer will see that they are all firmly attached before the testator signs them, but internal continuity and such can demonstrate that the pages all belong together. (All documents in existence & present at the signing of the will that are intended to be part of the will ARE.)

2. Republication by Codicil - Where a testator has a first will, then revokes it under a second, then makes a codicil to the first, the first is considered republished if such was the testator’s intent. This can be a great way around interested parties that signed your will who would be purged otherwise. (republishing effectively changes the date on the will.)

And now the real stuff…

3. Incorporation By Reference (Much like 2, except the prior document is not a valid will.)

UPC 2-510 Any writing in existence when the will is drafted may be incorporated by reference to it in the will.

Clark v. Greenhalge - Hellen Nesmith executed a will naming her cousin Executor, and main beneficiary of her personal property except for items designated in a memorandum known to that cousin Greenhalge. One of the personal items was a Hinckley painting (among 49 listed). She kept also a notebook of bequests she wanted to make, it dictated that the painting should go to Ginny Clark, her nurse. She later stated often that it would give the piece one Virginia Clark. When she died, Greenhalge distributed property as per her amended wills, codicils, the memorandum, and some of the notebook. She refused to present Clark with the painting. The court held that the notebook qualified as a memorandum known to Greenhalge and was valid.

Gingiss on this: Memo in 1972 & 1976, Notebook in 1979. Notebook was not in existence when she made the first will. She made codicils in 1980, republishing the will, and now the notebook WAS in existence and WAS a “memo” known to the executor. (court stretches memo definition to mean the device she was using to name this stuff.) The court was playing fairly loose.

Here: With tangible property other than money, you can have an outside document modified after the will that changes the disposal of such items. Just make sure each change is signed. UPC Only so far.

Court states that where there is doubt, the will of the testator must prevail.

Simon v. Grayson - Testator said in his will that the executor would be paid as per a note dated March 25, 1932, to be found in his effects. A letter indicating executor & payment was found but dated November 25, 1933. The court held that the letter was valid despite the discrepancy of dates.

A document that becomes part of the probate files is open to the public, so don’t let secret gifts get confused with will documents.

Where a will says “I don’t give A an item, because I’ve already done so” and the earlier conveyance does not work out, the court may “incorporate” the earlier conveyance into the will and give it effect. (like a deed.)

UPC 2-513: Separate writing identifying bequest of tangible property: To be admissible the document may not bestow money, but may be altered by the testator later, and have no other purpose than to affect the will.

Johnson v. Johnson - DG Johnson typed a will, then hand wrote at the bottom “I give my brother $10. This shall be my complete will unless altered.” The court DG was a lawyer who had done a lot of proper wills. The question for the court was, is the typed portion a document incorporated by reference (since it was attatched to what might be a valid holographic codicil?) Court held that the codicil was valid & republished the former will, even if it was written on a typed document that would have been the invalid former will.

A bad will can be fixed by a good codicil, even a holographic one.

Gingiss Argues this: Here the court confuses incorporation by reference and republication. The dissent argues that at issue is the fact that these are on the same sheet of paper, and that we allow holographic wills to incorporate by reference non-holographic documents. It seems this is ok on the few cases we have. Gingiss says this is one document, you can’t save it by incorporation by reference. In SD, you might try for clear & convincing evidence that this is his intent for a will.

4. Acts of Independent Significance

If the beneficiary or property designations are identified by acts or events that have a lifetime motive and significance on the apart from their effect on the will, the gift will be upheld under this doctrine.

Where T devises his “car” to B, and shortly before death buys a new car, the gift is still valid, even though the original “car” was a junker.

Pour-Over Will - Will that lists a few bequests and leaves the rest to whatever revocable trust that you operate. The remainder pours over to the trust. “I have a trust, I leave my assets to that trust, to be administered in accordance with that trust as last amended before my death.” This allows changes to the trust without getting witnesses. Its a great will substitute. This is the UNIFORM TESTAMENTARY ADDITIONS TO TRUST ACT stuff.

D. Contracts Relating to Wills

A person may enter into a contract to make or not revoke a will. Here contract law applies over the law of wills. If the party to a contract can prove its existence, the will is probated subject to a constructive trust upon the estate or devisees of the defaulting testator.

1. Contracts to Make a Will (RARE)

States vary on the requirements for a contract relating to a will, most required clear & convincing evidence, some require writings. Joint wills do not create a presumption of a contract not to revoke or modify.

Where the will is not made per the contract, the P may generally sue for quantum meruit. The value the decedent put on the consideration rendered by the other party is generally good evidence of its value.

Note the nice cartoon from PLAYBOY Magazine on p. 321.

Someone did this in real life, the Duke & Dutchess of Windsor. Notorious leeches, nazis, mafia, etc… The told their servants they’d make up for low pay with their wills. Debts like this all over… When they died the servants were neglected. (Here they may have sued in quantum meruit.)

2. Contracts Not to Revoke a Will

These commonly arise where husband & wife make a joint (Reciprocal) will & one dies. Most courts require clear & convincing evidence that the contract existed. If the will is well drafted in these situations it will include reference to the existence of such a K. (But the smart lawyer avoids joint wills at all.)

Reciprocal Wills - I leave everything to my spouse, then to our kids, adopted by both spouses as their will. There is no presumption of a K not to revoke or modify in these. It should be specifically referred to. By and large these kinds of wills are a headache, avoid them.

UPC 2-514 - Contracts to make a will, not revoke, devise, etc… may be proved only by provisions in the will stating the material provisions of the K, express reference in the will to a K & extrinsic evidence of the terms, or a signed writing from the decedent evidencing the K. Joint & Mutual wills to not bear the presumption of such a K not to revoke.

Old Casebook Case: Schimpf v. Hoff. (Old, Minority Rule.)

Spousal Protection law v. K not to revoke…..

Via v. Putnam - Husband & wife had wills that stated there was a K to not revoke or revise the distributions. Husband re-maried after his wife died. State law had a prescribed a share to go to the surviving spouse when he died, which contradicted the will. The court held that the statute protecting surviving spouses was controlling.

The majority rule is that 3rd party beneficiaries (The kids of the first marriage) prevail over the 2nd wife. (See Rubenstein v. Muller, NY Case)

Minority Rule: Here the court held that the kids did not have any power over the surviving spouse to take statutory spouse’s share, on public policy grounds. (A pre marital agreement could defeat the spousal share.)

To Avoid this, specify that the survivor will not do anything to defeat the distribution agreement like make a trust of all your wealth & a new beneficiary. Some courts don’t allow this anyway.

Where you had a premarital will, and can disinherit your wife, it will not be followed save if you specify in it that you intend it to continue after a marriage. We assume you forgot to change it otherwise.

Breach of K would ordinarily result in a constructive trust for the former beneficiaries, making them creditors against the estate so they get their whole share anyway.

SD: Elective share is 3% of joint assets for the first 10 years, then 4% for 10-15.

Chapter 5: WILL SUBSTITUTES: NONPROBATE TRANSFERS

A. Contracts with Payable-on-death Provisions

Wilhoit v. Peoples Life Insurance - Grandma & Grandpa Wilhoit had a life insurance plan, and when Grampa died Gramma got about $5000 which she intended to keep in trust for a brother of hers. She set up the trust with the insurance company, and the son predeceased her. So she set up the money to go to her grandson. When she died, the insurance company refused to give the money to the heir of her brother, who would have taken if his benefactor had not predeceased Gramma. The court held that the trust was never delivered, and as such was not an effective gift. The life insurance policy ended when Granpa died, and a new K (an invalid testamentary disposition) was made leaving the $$ with Grandson.

Her will also left it to the grandson, and this carried the day. Had her will been silent, the money would have gone elsewhere as per intestate succession.

The court in Wilhoit strikes down a payable on death designation in a K because it lacks the formalities of a will. This is the traditional rule, still followed in some states, that aside from life insurance, a payable on death K is not valid.

A better theory would be to imply a condition of survivorship for the insurance beneficiary. If a beneficiary under a will predeceases the testator, the clause of the will leaving him stuff evaporates. (Lapse) Some argue that since folks use will substitutes to avoid probate, the substitutes should be subject to the same law of wills, not contracts.

Life insurance has been exempt from the statute of wills since the beginning.

Estate of Hillowitz - Old Hillowitz was a partner in an investment club, and the club contract had a provision that when a member died, his share would be paid to the widow. The club argued on his death that this was an invalid testamentary disposition and won till the State SC (NY court of appeals) got hold of it. The court held that this was a valid clause in the K, not to be dismissed by labeling it testamentary disposition.

UPC 6-101 - Provisions for transfer on death as non-testamentary, defined as any insurance, bond, mortgage, trust, promissory note, or other written instrument, where money or benefits controlled by the decedent are paid after death to a person designated by the decedent. (Translation, K payable at death need not be executed in accord with the statute of wills.)

When courts talk about “immediate interest” they are using conclusions, not fact, to decide who they want to win.

Cook v. Equitable Life - Cook had a cash value life insurance plan. It named his wife the beneficiary. This was never changed. They got a divorce, he remaried, and in his holographic will left the proceeds of the plan to his 2nd wife and son. The original K with the insurance folks was never changed. While sympathetic, the court held that the K was still valid. 2nd wife & Son lost out.

Where the K permits the owner to change beneficiary by will he can do so under 6-101.

This case is followed in the majority of states. Divorce revocation statutes may apply… UPC would revoke the policy to the first wife.

Divorce Revocation Statute does not apply to ERISA plans, it preempts any law relating to pensions. USSC said so. Divorce and Murder revocation are not accounted for in ERISA, so the courts have a tough time getting to a just result.

Federal law supports POD options on savings bonds & has provided fuel for a change from the old “Wills only” rules for K with 3rd party beneficiaries.

Superwill - a will permitted to overrule nonprobate instruments. (Popular in Fla.) This is a creature of state law that allows wills to overrule other trusts & insurance K etc.

2 Types of Life insurance: Term Policy - You are paying purely for insurance coverage, making a bet that you don’t die. If you live, you loose. Cash Value - A portion of your payment is invested, and if you stop paying on the insurance, you still have the invested portion. Under these systems you pay a level amount for your whole life, eventually perhaps even being paid up if you live long enough. Paid Up Term - has the cash value attributes, but if you stop paying the premiums, the money is taken from your investment to keep up the insurance.

B. Multiple Party Bank Accounts

Multi Party Bank Accounts include joint & survivor accounts, POD accounts, Agency accounts.

Franklin v. Anna National Bank of Anna - Frank Whitehead had a joint account with Cora Goddard at Anna. When frank died, a joint account would normally pass to Cora. This was done because Frank was loosing his sight & needed someone who could operate his accounts. Cora however never did anything with the account. (Cora Goddard was the sister of Muriel Franklin, who was supposed to get the money?) Franklin argued that Goddard’s account was not intended as a gift, but as a convenience. Goddard argued that they had agreed to settle debts owed her out of the joint account. The court agreed and did not ascribe the account to Cora, but to his estate.

Court demanded clear & convincing evidence of the deceased’s intent, and go it. Intent at the time the account was created matters, later intent does not.

This does not apply to land, because in land a joint tenant can sever. In a bank account, no interest is created in the donee.

This whole banking arrangement, folks on the account to make life easier for a disabled testator, is generally called a “Tenancy of Convenience.”

The bank didn’t offer Frank a choice of account types, like a POD account. In recent years, to avoid litigation courts have decreed that joint accounts conclusively establish rights of survivorship.

POD trust savings accounts “Totten Trusts” may be modified by will.

Joint tenancy other than between spouses are taxed at death according to contribution. They may still defeat creditors. You can’t avoid taxes with joint tenancy.

C. Joint Tenancies

1. Creation of a Joint Tenancy gives equal interests to all tenants, one party cannot transfer or revoke the interest of another tenant. 2. A joint tenant cannot devise his share by will. 3. A creditor of a joint tenant must seize the interest during life, it evaporates at death.

D. Revocable Trusts (BREAD & BUTTER WILL SUBSTITUTE)

I Bob declare myself trustee for my own assets. During my life pay me so much of the income or principle as I dictate. I can direct this to others in life or by will at death, and if I don’t, distribute as follows. Then your will says “Give everything to my trust.”

The trustee is one of the beneficiaries during his life…

The pour over will must go to probate, but it doesn’t do anything really apart from giving everything to the trust. You still need the will in case you gain something at death, or have unresolved assets (Like pending wrongful death claims.)

Some places have problems with un-funded trusts, throw $10 in the trust at enactment if you need to make sure.

1. Introduction

This is a trust where owner gives legal title to another, subject to a document that owner has the power to modify. Owner retains benefit for his lifetime. On death, trust assets are distributed to or held in trust for other beneficiaries. Generally these need not be executed with testamentary formalities.

Farkas v. Williams - Old Farkas bought stock and had it issued in the name of himself as trustee for life with Williams as beneficiary. He further documented a trust for these same stocks that left him full use of them during life, and at death gave them to Williams. His heirs of course protested that this was a failed will. The lower courts agreed that this was a testamentary setup without proper formalities, but the Illinois state SC overruled, saying that the trust was valid because it was to be held in the interest of the beneficiary, even though he had considerable freedom to use the trust.

This is validated mainly because the trust instrument satisfies the desires of the statute of wills, fraud prevention & demonstration of serious intent on the part of the testator.

A trustee owes fiduciary duties to the beneficiaries, even though he may be able to sell, trade or spend the trust property on things thought more desirable. (The court said this, but don’t kid yourself.)

A trustee cannot be the sole beneficiary of a trust, but he can be one of them.

Where a person creates a trust to property he does not yet own, and then goes and buys it, his intent to create the trust is confirmed and so is the trust.

Reserving extensive control and the use of all benefits of property in trust during the lifetime of the trustee, to the trustee, does not invalidate a trust. Even a revocable trust.

RULE: YOU CAN HAVE A TRUST LIKE THIS.

In re Estate and Trust of Pilafas - (p. 361, 1992 AD) - Old Pilafas had a will and a trust. In his trust, with himself as trustee for life, he placed a house, a trailer park interest & other property. He retained all produce from the trust during life, and at death the property would go to 8 nonprofit organizations. When he died his will and the trust document could not be found. The lower court declared them both revoked, under the reasoning that if not found it was probably destroyed / revoked. The high court ruled that while the will was revoked by its presumable destruction, the trust was not. Simple destruction of the document does not revoke a trust under common law but only as described in the trust. This trust said a writing is required.

P argued that since revocable trusts are replacing wills, the same rules of revocation should apply to both. P Lost.

A trust can only be revoked by the means recited in the trust, a writing by default. Generally a trust is revoked or amended by a writing delivered to the trustee.

Under the UPC a trust can be revoked by will or almost any other writing presenting clear & convincing evidence of the settlor’s intent, unless the trust itself expresses the only terms of revocation.

COMMON LAW: A Trust that you don’t reserve the right to revoke, is irrevocable. If you DO reserve the right, then it is revocable in accordance with the terms provided.

California has the reverse, all trusts not declared irrevocable are.

A trust is a legal entity, not like a will. It can buy, sell, and make Ks.

State Street Bank & Trust v. Reiser - Willfred Dunnebier made an inter vivos (revocable) trust with a lot of stock, and willed the residue of his estate to the same trust. Then he borrowed $75,000 from the bank. The bank issued the loan unsecured based on his statements that he owned the stock interests in the trust. Then Dunnebier died, and the bank discovered his trust owned the stock, not the decedent. The bank argued that it should be able to reach the trust. The court held that since the decedent had the power to revoke & direct the trust during life, the assets of that trust up to his death could be reached in payment of the debt.

This is not fraud, even if you make a revocable trust and have total control over the assets. You still pay the same taxes and such since it was yours either way. This is also why the bank wins. You cannot put your assets beyond your creditors reach in a revocable trust.

Revocable trusts do not avoid debts while you’re alive, or while you’re dead in this case.

R2d of Trusts - After the death of the settlor, the assets are not available to satisfy the settlor’s debts. The court did not follow this.

Uniform Trust Code would agree with the court. A revocable trust is open to creditors.

UPC is vague on this.

ASSETS FUNCTIONALLY THOSE OF THE DECEDENT CAN GO TO SATISFY HIS DEBTS.

Tricky Issues: Will & Probate go in different directions, will to the wife, and trust money to girlfriend… where does the creditor grab first? No answer yet in the law. This is a new doctrine.

2. Pour Over Wills

Uniform Law - Pour over provisions sending residue of a will to a trust are valid even if the trust is executed after the will. Formerly the trust needed to be executed prior or contemporaneous to the will.

While a trust may be made later, incorporation by reference doctrine still requires outside documents to be in existence at the execution of a will.

If you make a will pouring all your assets into a trust at your death, and the trust is amendable by oral instructions, do you have effectively an oral will?

Gingiss: Trust A & Trust B: You can leave a certain ammt. tax free under the federal estate tax. Everything above that ammt. can be left to the spouse tax free, but this must be taxable when the survivor dies.

Trust A Trust B pre ‘82 50% Balance, less debts and taxes. post ‘81 Balance Tax Free Amount ($1 million in 02)

Clymer v. Mayo - (p 375) Clara Mayo had 2 trusts, and a will designating her husband as main beneficiary. Under this will her personal property went to the husband, the rest poured over into a trust naming him beneficiary. It named Clara and Jon Hill trustees, and Clara retained the right to revoke or amend the trust. If Husband survived Clara, the trust was split into 2 parts to avoid taxes. The first half to her husband, the 2nd to her husband as trustee and then to nieces, nephews, and charites for around $45,000. Then she got divorced under a decree that the husband drop claims to anything of hers. SO what happens to her will & trusts? The court held that the decedent established a valid trust, that the first ½ trust was terminated as result of the divorce, since it existed to work around spousal taxes, an impossible objective after divorce, and that the second trust beneficiaries would take to the exclusion of the former husband. The interests of the former husband were revoked on policy grounds, since although the statute did not specifically dictate it, the intent was that divorce generally drops all obligations between the couple. If he couldn’t take under trust A, then he shouldn’t be taking under trust B either. (Trust existed to get around marital tax and he wasn’t married.)

If you are no longer married when you die, you can’t get a marital deduction.

A revocable trust funded only by a life insurance policy is called an “Unfunded life insurance trust” and is valid just as if it had property in it. (Gingiss thinks this is out of date. Now life insurance is generally given to an irrevocable trust.)

Recent statutes in some states provide for total revocation of trust provisions for the former spouse in case of a divorce.

It is possible to create a life insurance trust to a beneficiary named in a will, and thus prevent the life insurance money to go to the will’s executor (avoiding probate.)

UPC will revoke provisions for a former spouse in ANY governing instrument.

Trusts must be specifically included in no-contest clauses.

3. Use of Revocable Trusts in Estate Planning

a. Introduction

A revocable trust is the great way to avoid the publicity, limits, and rules of probate court. Terms may call for redistribution of assets at the settlor’s death, or be the main vehicle for his estate. It can later be amended, revoked, etc.

b. Consequences During Life of Settlor

1. Management by a fiduciary - Settlor may wish to designate a 3rd party trustee and live without the burdens of financial management. The only real disadvantages come up with sale or mortgage of property, where banks may wish to see the trust instruments. (Gingiss thinks this sucks, corporate fiduciaries tend to have poor records of investment performance.) 2. Keeping Title Clear - Where, as in a marriage, parties may wish to keep title to property outside the union from getting tangled up, separate trusts can be made for these assets. This is nice when dealing with community property issues. (Gingiss has never done this.) 3. Income & Gift Taxes - Under tax law, assets in a revocable trust are still owned by the settlor. Trust income is taxable to the settlor, not the beneficiary regardless of who actually gets it. There is no benefit for using a trust here, taxes are the same. 4. Dealing with Incompetency - Revocable trusts can be used to plan ahead in case the settlor becomes incompetent. Providing for successor co-trustees. (Gingiss likes these, you don’t need a court appointed conservator because the settlor chooses his successor trustee.)

c. Consequences at Death of Settlor: Avoidance of Probate (389)

1. Costs - While costs of probate can be avoided by a trust because the assets are passed to it during life, other costs appear. Lawyers tend to charge more to draft a trust than a will, esp. if there are pour-over documents. The whole process is more complicated. 2. Delays - Trusts are faster to settle than estates. A typical estate can take 2 years to settle. 3. Creditors - While creditors must file against an estate very quickly after the death of the testator, claims against a trust may be filed within the normal Statute of Limitations. (Here the will is better) 4. Publicity - A will is public record. Inventory & benefits are open for the world to see. Not so with a trust, these are private. 5. Ancillary Probate - Where a will passes real property outside the domiciliary state, that will must also be probated in the other state. Land transferred in a revocable trust need not, as the title passes during life. 6. Avoiding restrictions protecting family members - A trust is also a good way around elective / spousal share laws or to avoid funding illegitimate kids. 7. Avoiding restrictions on testamentary trusts - (Testamentary trust is one created by a will.) Courts tend to supervise these trusts after administration of the will, while revocable trusts come into being without the order of probate courts and are not supervised. 8. Choosing the law of another jurisdiction to govern - The settlor of an inter vivos trust may chose the law of either his domicile or that of the beneficiaries, or that where the trust was administered. So you can create a trust in a state that has the most permissive Rule Against Perpetuities. 9. Lack of certainty in the law - The law may be more uncertain in solving problems of trusts than in wills. The law of wills has developed over a longer period of time and is more predictable. (Here the will is better) 10. Avoiding Will Contests - A revocable trusts can be contested for lack of mental capacity just like a will. In practice it is harder to set aside funded trusts than a will… Heirs are not entitled to see the trust instrument, and if they sue they commit to legal fees before they get a look at it. Also, a trust that has been running smoothly for years is one the courts will be reluctant to set aside (destroy.) 11. Estate taxation - There are no federal taxes to a revocable trust… see p1027. 12. Controlling surviving spouse’s disposition - where both spouses want assurance that the other won’t go and change the plan when one dies, they can create revocable trusts that become irrevocable at the death of one spouse. This is preferable to controlling spousal disposition by K (p. 322-329) 13. Custodial Trusts - Some states have laws for uniform custodial trusts. Here the trust terms are spelled out in statute. They work to avoid concerns of incapacity of the beneficiary by directing the trustee to operate the trust on orders from the beneficiary (the settlor) until he becomes incapacitated, at which time it is used to support the settlor or his beneficiary.

There have been some fights about marketing pre-printed trusts forms and the like, since they are so very popular. Generally the court has held that nonlawyers may not do so, but lawyers can. (p 395)

E. Planning for Incapacity

Not covered in class.

Durable Power of Attorney - Power of attorney that last into incapacity of the principal while normal power of attorney evaporates at that point.

CHAPTER 6 - CONSTRUCTION OF WILLS

A. Admission of Extrinsic Evidence

1. Interpretation of Wills

Most jurisdictions at least claim to follow the plain meaning rule… The plain meaning of a will cannot be disturbed by extrinsic evidence that another meaning was intended. This is not so for revocable trusts. (Those are as K, and can be reformed as such.)

Mahoney v. Grainger - Old Helen Sulivan died, leaving the residue clause of her will to all her heirs at law, “to be divided equally, share & share alike…” And she had only one heir at law, an aunt, but around 25 first cousins to whom she was close. She consulted an attorney just before death, and indicated she desired “heirs” to be the 25. Court refused to use this evidence. Plain meaning would give everything to the single aunt. In this case the court grudgingly held that there was no ambiguity in the text, one heir takes all.

This is the classical application of the rule. Where the plain meaning is not what the testator intended, the plain meaning of the text wins. We don’t want to start guessing what intent was.

The court observed that only where the testamentary language is not clear may evidence be introduced as to the circumstances of the testator. This rule is often criticized, but it sticks.

Personal Usage Exception - where a term in the will can be shown to be an idiosyncratic phrase used by the testator to refer to someone other than the one with the legal name used, such evidence may be admitted. (Mary Marten or Peter Pan? Which Mr. Jones?)

Flemming v. Morrison - (414) Francis Butterfield called up his lawyer Goodridge to draw a will leaving everything to Mary Flemming, signed it, and then told his the lawyer that this will was a fake made for a “purpose”. He then had the laywer, and 2 other folks sign the will intending to make it actually valid but local law required 3. The probate court found that the will’s appointment of Mary Flemming as administratrix was added after execution, and that the original purpose of the will was to get Mary to do the horizontal tango with the decedent. (Before he died.) The probate court allowed the will, as duly executed. The appeal’s court overturned, declaring that parol evidence showed this not to be a testamentary document.

Extrinsic evidence was used here where there was NO ambiguity…

So generally one can introduce parol evidence that the document in question is not intended as a will. (At least the drafting attorney can.)

Would Mary Flemming be able to claim a reliance interest after sleeping with Butterfield? Its illegal consideration. Perhaps battery (sex) by fraud? Yes, consent is ineffective by fraud.

Estate of Russell - Russell left her estate, in a holographic index card will to “H. Quinn & Roxy Russell” a friend and her dog respectively. She also left gold & jewelry to Georgia Nan Russell. The dog was alive when the will was executed, but predeceased Russell. Russell’s niece & only heir, the P, argues that since the dog died and is not permitted to pass property, that she should receive the dog’s ½ as the only surviving heir at law. Quinn argued that the will intended everything to go to him, and that he should care for the dog. Quinn introduced evidence of the relationship with Russell over P’s objections, as well as evidence that Russell did not wish to die intestate. The trial court found it to be Russell’s intention to leave everything to Quinn, and that he should care for the dog. The appeals court reversed, declaring that the will was unambiguous in giving ½ to each, and since the dog was dead it’s share went by intestate succession to the niece.

A Dog cannot be a beneficiary under a will, at least in California in 1968.

Here the court seems to battle the parol evidence rule. Quinn wanted to show that Russell intended him to take all and care for the dog… but this was not permitted. Once you admit that the legatee is a dog, you produce a latent ambiguity.

Latent Ambiguity - A term that becomes ambiguous due to circumstances after the document is made, generally when executed. (Like leaving stuff to Mr. & Mrs. Jones, and then they divorce & remarry, creating a NEW Mrs. Jones.)

Patent Ambiguity - One that appears on the face of a document when written. In some states outside evidence is not admissible, and the will fails all together (at least on the vague point.) Courts can work around this by construing the language without the extrinsic evidence when possible.

See p. 421 for good reasons to use Parol evidence in interpreting wills.

Under Cal. & UPC law, the residuary folks would take all, rather than letting it fall through the will to heirs. If all residuary takers don’t survive, then and only then will it fall through to intestacy.

2. Correcting Mistakes

Erickson v. Erickson - Old Erickson wrote a will 2 days before getting married. He had 3 daughters at the time. The will provided that his estate should pass to his future wife, and that if she predeceased him in thirds to his daughters. Prior to probate, a motion in limine was filed by the P to prevent extrinsic evidence of the testator’s intent to keep the will in effect after marriage from being allowed. This succeeded over D’s argument that this was a scrivener’s error. Local statute revoke a will when someone gets married absent express intent that it survive. On appeal the court held that while common law would prohibit extrinsic evidence of the testator’s intent to have the will survive marriage, and allow only the text of the will…we overrule that, esp. that such extrinsic evidence may be allowed to demonstrate a mistake in drafting.

Scrivener’s Errors may be demonstrated by extrinsic evidence not otherwise allowed.

Courts have not gone so far with wills as to reform them to match the intent of the party involved as they do with K and trusts.

The old law that courts may not correct mistakes in wills is under attack, and even under the old rule there are exceptions. Courts may nuke mistaken descriptions, beliefs, and revocations based on errors of fact….

NJ has a “doctrine of probable intent” where when a will has stuff left over, gaps in disposition of ALL property, the court tries to guess who would have received it.

Court here is looking for a way to overrule the old case - Prior to 1969, a testator’s will giving a private individual a life estate, and upon death to 7 charities, would give a charitable deduction at death for the value going to charity (accounting for the value of the life estate.) Later the charities are changed, removing 6 and adding 10 charities. Then congress changes the tax law requiring detailed giving in wills, lawyer screws up the charities (remember this case?) SO you have an unambiguous document leaving stuff to the wrong charities. Conn says NO extrinsic evidence of the mistake… the former 7 charities take.

B. Death of the Beneficiary Before the Testator (What if the legatee does not survive?)

If a devisee does not survive the testator, the gift fails unless the will indicates a contrary intent. Most states have antilapse statutes which substitute another beneficiary for the deceased.

Where a devise fails, the property falls into residue. Thus the residuary clause will hopefully catch it and give to the right folks. If the residuary clause fails, generally intestate succession applies. The “No residue of a residue rule” is falling into disfavor, overturned in most states by statute.

Where a class of persons gets stuff (Children) and members of the class predecease, the survivors get larger shares.

Where a devisee is dead at the time the will is executed (testator must have skipped the funeral?) the devise is void.

Antilapse statutes try to fill these gaps by substituting probable second choices for the testator where lapse occurs. They tend to be narrowly drawn, limiting new donees to close blood relations. These are of course also default rules, if you don’t like them get a will that says differently.

Gingiss - 1) certain relationship of legatee to testator 2) legatee fails to survive but is survived by descendants THEN the descendants per stirpes of the legatee take. States differ on how close relatives need to be to be covered by antilapse.

UPC 2-605, (p 441) is a typical antilapse statute. These give the descendants of a predeceased legatee what their ancestor would have received. SO if my brother dies, his kids take from my will.

Gingiss - As a practical matter, where you give your watch to A, your remaining jewelry to B, and residue to C… and A predeceases, the watch falls into “remaining jewelry” and not residue.

DRAFTING SEGUE

Provide for NON SURVIVORSHIP, don’t rely on the statutes.

General or Specific Devise - “My watch to A if he survives me” to avoid dividing my watch between A’s three kids if A dies, this goes to the personal property clause.. “10,000 to A if he survives me” this sends the money to the residue clause if A dies.

Personal property clauses are a good place to put the “who survive me language.”

Avoid intestacy by coding the same mechanics into the will, “All the residue to my children who survive me, and if any predecease me and leave descendants, to those descendants in equal portions of that child’s share.” Of course you could also direct folks to play poker for your possessions.

For silly UPC states, add a definitional statement where “If he survives me” is defined to mean one intends survivorship.

Allen v. Taley - Mary Shoults left a will saying that all her property would be equally divided between her “living brothers & sisters, John, Claud, Lewis, Lera, and Juanita.” All but one predeceased her, but the state has an antilapse statute. The court considers whether the language was intended to give only to living siblings, or to the list (“living” being an adjective meaning “Living at that time”.) Is the term “living “ language of survivorship? The court found them to be. So the antilapse statute was not applied.

Antilapse statutes are a default rule, if you don’t like them, FIX YER WILL.

In Common Law: Generally, words of survivorship are taken to mean that the testator does not wish the antilapse statute to apply.

Under the NEW UPC, mere words of survivorship do not expel desire for antilapse statutes to be applied, more evidence is required. Gingiss hates this (UPC 2-603) because it’s incomprehensibly written. How the HELL else do you say you want survivorship?

When drafting, make the chain of takings clear. Add a clause for what happens if A does not survive O.

Antilapse statutes do not apply to descendants of the testator’s spouse, but only to blood relatives of the testator. (So the bequest to the wife’s niece does not benefit from antilapse statute.)

UPC - Antilapse includes grandparents and descendants of grandparents.

SD - Antilapse statute applied to a grandparent, descendant of grandparent, stepchild, or descendant of stepchild.

Dawson v. Yucus - (CLASS GIFTS) Nelle Stewart died leaving land she inherited from her husband to her husband’s descendants, naming Gene and Stewart. Gene predeceased Nelle, creating an ambiguity. Did the land need to go to husband’s descendants or only to those two? (Was this a class gift?) The court agreed that this was not a class gift because the recipients were named specifically, not an entire class, and that the death of Gene created a lapse. (So her husband’s side didn’t get what it should have.)

Here the language “My husbands side of the family” is treated not as creating a class gift because individuals are subsequently named.

Gingiss thinks this is the wrong result, better drafting would fix it.

Application of Antilapse Statutes to Class Gifts - Almost all states apply antilapse statutes to class gifts, but some will not apply them where the beneficiary predeceased the testator. In these cases it is assumed the testator did not have them in mind and did not want them to take.

One of the ugly parts of UPC 2-604 is where it when 99% goes to the wife, & 1% to charity, and the wife predeceases, the charity gets 100%. (Unless you argue a charity is not a person.)

C. Changes in Property After Execution of a Will: Specific and General Devises Compared (p. 459) (What if the property does not survive?)

Ademption by Extinction - Where mom devises blackacre to her son and the residue to her daughter, then sells blackacre to buy whiteacre, the son is out because the specific property no is no longer present to be inherited. This applies only to specific bequests. If $10 000 was left to the son, assets from the estate would be sold to satisfy the bequest. The money is not a particular asset like mom’s diamond ring.

Specific Legacy - A specific gift, my mother’s ring, the Van Gogh… They abate last, are not liable to pay the estate’s debts, and the legatee is entitled to interest or benefits (insurance because the house got flooded.) gained from them. If the gift is no longer owned at death, the bequest fails.

General Legacy - Abates ahead of specific legacies, but if the gift is not specifically owned, it can be bought out of the estate assets (like $10,000 in cash.) These pass to the residue generally if the beneficiary predeceases.

Demonstrative Legacy - Like a general bequest, except that it abates last and may be provided out of the other estate assets. ($10,000 from GM stock) These are a dollar value from a specific fund. If that fund exists it is abated last. (specific bequests still take precedence over these.)

Residuary - Leftovers that fall through all of the above. Catchall… anything not specifically covered already. (even here, if the beneficiary predeceases the gift goes by intenstacy absent antilapse law. If there are 2 or more takers under this, and ONE survives (or one is a dog and can’t take.) there is partial intestacy. ½ goes by intestacy, no residue of a residue. Under UPC, the whole residue goes to the remaining beneficiary.)

Class Gift - Gift to all members of a group. “$10,000 to A’s children.” These can be specific, general, demonstrative, or residuary. Only surviving members take, by default. Where the class members are all named, it is NOT considered a class gift. UPC and SD differ:

Wasserman v. Cohen - Frieda Drapkin created a trust that included an appt. building. Her trust left that building to Wasserman when she died. Then Frieda sold the building for ½ a million dollars. Though Wasserman argued that the ademption rule disregards the testator’s intent, and that determining gifts to be general or specific are overly formalistic, the court stands on the doctrine and Wasserman gets squat. The money remained outside the trust and Wasserman got squat.

Absolute Identity Theory - Items no longer by the testator owned are adeemed., Items that are still owned are Not.

Generally, property sold by a conservator (testator is incompetent) there is not a presumption that specific bequests of that property are adeemed.

Avoiding Ademption: 1. classify the gift as demonstrative or general rather than specific, 100 shares of stock is more money than a specific bequest…. 2. classify the inter vivos disposition as a change in form, not substance, if the company with 100 shares merges, equivalent shares of the new company will suffice. The property changed form, but not substance. 3. construe the meaning of the will as of the time of death rather than at the time of execution, T sold the old watch & bought a new one… 4. create exceptions, where the specific item was transfered by an insane person, courts may hold that the transfer was not voluntary as must be for ademption.

UPC 2-606 Ways the recipient of a specific bequest can get more, or avoid getting screwed out of everything when the property is no longer present. SD does not have number 6, which says there is a mild presumption against ademption.

Chalkwater v. Dolly - (Demonstrative Bequest) Henrietta Stegmaier left stock in her will beyond what she owned, (she had options to buy 2070 more at a low price,) but after her death and before the stock was awarded it split creating a surplus. The question for the court is whether the stock was a specific bequest or a general one. A specific bequest entitles the beneficiary to the interest (and split) gained on the bequest, while a general one does not.

Should this bequest be classified as: 1. A general bequest - The Stock recipients would get the listed amount in the will. The option need not be exercised to buy more stock. 2. Demonstrative - Estate should provide for (buy them) the equivalent value of the stock, accounting for the split so beneficiaries get the benefits of the split as per a specific bequest.

The court observed that Stegmaier was aware she bequeathed more than she owned, she knew what she was doing. The court here held that the legatees were due the full benefit of the will, plus the split, the bequest was specific, and that the estate should purchase additional shares of stock to make up the shortfall?

A stock split or dividend is not a meaningful change.

Abatement - Where disbursments from the estate are spent first from residue, then general bequests, then demonstrative, then specific. (Paying creditors.)

Drafting - where you want to leave $1 million to 5 charities and the rest of your $10 million to your wife, it is better to limit the specific bequests by a percentage of your estate. This way if you loose money at some point the wife is still protected. (If your estate is down to 6 million, the charities could divide up %50 of the estate in stead of the $1 million each.)

McGee v. McGee - Clair McGee left a will giving $20,000 to a friend, and the rest of her stocks & accounts to her children (3). Then Richard, with power of attorney purchased a bunch of federal bonds with Clair’s money. At issue is whether this change produced ademption by extinction of the bequest to her friend, since there is no longer $20,000 cash in the estate. The court observed the rule that where a substantial change has taken place, a bequest may be adeemed, while a formal or nominal change will not do so. Thus the friend got her $20,000 from the bonds. The bank account specifically bequested to the kids no longer existed.

Form & Substance Rule - a substantial change in the nature or character of the subject matter of a bequest will operate as an ademption; but a merely nominal or formal change will not.

Here, bonds are as good as cash in the bank.

UPC would come to the opposite result.

UPC 2-607 will construe a “pay my debts” clause in a will does not pay off mortgages in the case of a specific bequest of the house. All states do not follow this. (See “Exoneration of Liens”)

Chapter 7 Restrictions on the Power of Disposition: Protection of the Spouse & Children

Gingiss covers section B first, as follows.

Section B. Rights of Issue Omitted from the Will

A Child has no protection against disinheritance by a parent (except Louisiana) but the law does not favor cutting them out. It invites a will contest. At the very least, make it clear in the will that you didn’t forget the kids in drafting.

Pretrermission Statutes - Laws designed to prevent unintentional disinheritance of descendants. Absent other children, the child generally gets intestate share, if other kids were present and DID get stuff in the will, the omitted child gets a similar share. (Or his share of the % given to kids.)

“½ to my wife, ½ to my two kids…” the 3rd child takes his 1/3 of the ½ to the kids. This holds even for trusts to kids.

Pretermitted Child - A child who has been omitted from a will, as when a testator makes a will naming his two children and then, sometime later, has two more children not mentioned in the will.

Azcunce v. Estate of Azcunce - (p537) Rene A. had a will in which he named three children. He executed a codicil, had another child, and executed a 2nd codicil, in that order. The 4th child, being not mentioned in either the will or the 2nd codicil which republished it (and the former codicil,) protested that she was in fact a pretermitted child, and due a statutory share of her father’s estate. The court observed that a codicil has the effect of republishing a will, and that effectively the will had been executed after her birth. She was not therefore due a statutory share.

Republication by codicil of a will destroys a would be pretermitted heir’s status.

The court also considers arguments of drafting error, but lacking any ambiguity can do nothing for the daughter by way of parol evidence.

R3d of Property … A will is treated as if executed when the most recent codicil is executed, whether or not it expressly does so, unless the effect would be inconsistent with the testator’s intent.

Espinosa v. Sparber, Shevin, Shapo, Rosen & Heilbronner - (p540) The Azcunce family is not done yet, they want to know if the drafter of the 2nd codicil (who supposedly forgot the daugther) can be sued for malpractice. As mentioned above, neither codicil nor will mentioned after born children. Since they could not prove intent to benefit a 3rd party (the daughter) the court held that there was a lack of privity with the drafting attorney and that the suit could not proceed. The court refused extrinsic evidence of the testator’s intent due to risk of misinterpretation, etc…

A Lawsuit may not be brought by a would-be heir against the drafting attorney because that heir lacked privity with the drafter and cannot demonstrate that she was in fact a 3rd party beneficiary. (Had the will included text to the contrary, or even referenced documents that suggest something, perhaps she could.)

Patricia might sue the estate, settle, and then have the estate sue the attorney as privity exists between the two. Or she might seek a constructive trust to prevent unjust enrichment of her siblings.

Section A. Rights of the Surviving Spouse

1. Introduction to Marital Property Systems (p471)

2 Basic Systems: a. Separate property - the common law from England. Here the husband & wife own separately all property they acquire, except for those items put into joint ownership by agreement.) SD is one of these. b. Community property - of French & Spanish origin. Here husband & wife own all acquisitions from earnings after marriage in equal undivided shares. In some of these states, income from separate property is communal even while the property is separate.

When you move to a separate property state from a community property state, the community property stays communal.

Under either system, the law seeks to protect rights of a surviving spouse.

Elective shares apply to all property, while community property applies only to that obtained during the marriage.

Quasi-Community Property (California) - If you were married outside of California and move there, for purposes of determining rights at divorce or death, we pretend that the property which would have been community property in California IS community property. However, if you move back, the property is still separate. (Again Below)

2. Rights if a Surviving Spouse to SUPPORT

a. Social Security - the social security system incorporates community property ideas, that benefits are to be shared between husband & wife. One cannot shift survivor benefits to anyone but the spouse. (Though they may go at times to dependents.) b. Private Pension Plans - ERISA requires that an employee’s spouse must have rights of survivorship to a pension plan. If the employee dies before retirement age, the surviving spouse is entitled to a preretirement survivor annuity. ERISA preempts state law for surviving spouses. ERISA rights can be waived, but this is discouraged, prenups do not overrule ERISA. Even divorce revocation (by state law) does not apply. (ERISA does not apply if your pension plan is not under the tax exemptions that go along with it.) c. Homestead - most states have laws designed to secure the family home to the surviving spouse. In some states, the homestead must be formally declared by filling out a form. Under these systems, the decedent has no power to deprive the surviving spouse of his statutory rights to the house. d. Personal Property Set-Aside - surviving spouse may set aside certain tangible property up to a statutory value (around $10,000) that will be exempt from creditor’s claims, probate, etc. Again the decedent has no power to overturn this. e. Family Allowance - Every state has a statute authorizing probate court to award a family allowance for maintenance & support of the surviving spouse & dependents. This is typically limited to one year, often fixed by statute, and unavailable after the estate is closed. f. Dower - (Not covered in class.) this is the wife’s 1/3 share in the value of her late husband’s property to secure her support for life under the old English system.

3. Rights of Surviving Spouse to a Share of Decedent’s Property (p480)

a. The Elective Share and Its Rationale

Almost all separate property states give the surviving spouse the option for an elective share in addition to any rights he or she may have above. The statutory variation on this is all over the place from state to state. In a few, its even limited to a life estate in 1/3 to ½ the estate. It is most often a flat % good from the day of the wedding.

UPC accepts the partnership theory of marriage, where each partner enjoys a ½ interest in the fruits of that marriage, noting that separate property states still seek to give the wife a share of the estate at death. Here the elective share grows with the marriage.

In most states, the elective share is personal to the surviving spouse, and cannot be exercised after her death by the estate.

b. Property Subject to the Elective Share

Original elective share statutes gave the spouse a percent of the probate estate, with the rise of nonprobate transfers, we must consider how elective shares now apply.

In most states the wife can select either trust benefits under the husband’s will, or the elective share to own outright. If you make the life estate worth more than the elective share, and the wife is more likely to take it and leave your plans intact.

All of this can be waived by a prenup.

1. Judicial Decisions

Sullivan v. Burkin - The widow Sullivan’s husband executed a trust leaving a bunch of real estate to himself as trustee and beneficiary till he died, then to the Defendants. She wanted this to be included in the decedent’s estate for purposes of determining her elective share. They had been separated for years, though she had a court order granting her support. While the court held that under current law the widow was without remedy, for the future, the court would consider such trusts as part of the estate.

RULE: Revocable Trusts, created during marriage, assets can be included in elective share calculations (after this case.)

Here the court rejects several tests: a. Illusory Transfer Test b. Intent to defraud test

Some states declare trusts etc. not subject to elective share

UPC provides that the law of the decedent’s domicile governs, but not all states agree.

b. 1990 UPC

1990 UPC lumps all marital property together in an augmented estate, and then provides an elective share based on the length of the marriage. (So if you’re wealthy or not married long enough, you just keep whats yours.) This should result in keeping separate and common law spouses treated pretty much the same.

Further, the augmented estate includes only transfers (to trusts) made during the marriage…

The total augmented estate is calculated as the some of: Memorize the UPC clauses pp. 509-510 for this… 2-204 to 207… and accrual method of 2-203

UPC Augmented Estate: 2-204 - Value of the decedent’s net probate estate; 2-205(1) - Value of the decedent’s nonprobate transfers to folks other than the surviving spouse including: i) Property over which he had general power of appointment or revocation, whether created by the decedent or another; ii) the decedent’s fractional share of joint tenancy; iii) the decedent’s ownership in property with POD designation; and iv) proceeds of insurance on the decedent’s life owned by the decedent payable to any person other than the surviving spouse. 2-205(2) - the value of property transferred by the following forms during marriage: i) any irrevocable transfer in which the decedent retained the right to possession or income from the property for life ii) any transfer in which the decedent created a power over income or property for the benefit of the decedent or his estate. 2-205(3) - the value of the property that passed during marriage and during the two years before the decedent’s death including: i) any property that would have been included in the augmented estate under paragraphs 1 or 2 had the transfer not been made ii) any transfer of property to any person other than the surviving spouse to the extent it exceeds $10,000 to any one donee in either of the two years preceding death. 2-206 – the value of the decedent’s nonprobate transfers to the surviving spouse 2-207 – the value of the surviving spouse’s property and the value of the surviving spouse’s nonprobate transfers to others that would have been included in her augmented estate had she been the decedent.

2-202 p. 483 has the elective share table.

SEE THE PROBLEM ON P. 510!!!

In SD, we count disclaimed life estates against the wife’s elective share. Other UPC states do not hold that against you. You may insist that the elective share be outright. Values of life estates are calculated by a complicated table based on age & interest rates.

Or Generally: value of the decedent’s probate estate, including life estates he’s retained for himself in stuff. (less expenses) 1. nonprobate transfers to other persons during the marriage* 2. nonprobate transfers to the surviving spouse ** 3. transfers from the surviving spouse to others that would have been included had she been the decedent (and Spouse’s assets) **

* life insurance owned by the decedent, trusts including general power, fractional interests in joint tenancy, Pay On Death and Transfer On Death (stock) accounts, property given in which you retain life estate or income or enjoyment, gifts within 2 years of death (and after marriage)

** Much like the stuff from #2, except for 2 year gifts and life insurance, where the spouse is the beneficiary. Also the spouse’s assets.

Multiply the augmented estate by the elective share %, and thats how much the surviving spouse should have. If she already has that much, she’s too rich for elective share.

How do we tell what she’s got? (Whats her shortfall?) How much did the decedent provide for the spouse? How much of the nonprobate transfers go to the spouse? How much of the estate did she already own…

Outside of SD, widows can disclaim life estates and get outright ownership under elective share. SD always accounts for life estates.

ELECTIVE SHARE SEGWAY :

1. We got a % elective share 2. We calculate augmented estate 3. We multiply and get a value she should have 4. We credit 100% of what you got in the will to this 1. Her own assets (contributed to the augmented estate, counted against her) are figured at double the elective share value. (If she had $50,000 and a share of 30%, the $50,000 would be considered only $30,000 so she gets a bit more. Since in this case the wife isn’t getting ½ the pie, we don’t count all her assets into it.)

P 510 Exercise: Remember the wife gets everything from joint tenancy eventually.

Premarital Agreements 2-213: SD & UPC are about the same. The provision exists to make prenups “cast iron”

The rights of surviving spouse may be waived by a written agreement signed by the surviving spouse. It is not enforceable if entered involuntarily, unconscionable when executed, or if before execution surviving spouse: 1. did not get disclosure of the property and 2. did not voluntarily waive the disclosure and 3. did not have adequate knowledge of the finances of the decedent.

Gingiss Provision for Prenup - make it consider possible kids.

Simeone v. Simeon - Gal wanted alimony even though she had signed a prenup (the night before the wedding,) waiving that right. She did not consult a lawyer regarding the prenup and wanted it thrown out. The court held the prenup valid and stated that she could not claim alimony. (Remember this case from Contracts?)

The reasonableness of a prenup is not subject to Judicial Review. You signed the prenup, you live with it.

In re. Estate of Garbade - The young widow Garbade had a prenup that waived her rights to community property & elective share. When the old man died she got $340,000 but still wanted the share, claiming undue influence. She argued that the prenup was sprung on her by the husband shortly before the wedding. Decedent had mentioned it before, had had an attorney draft it, suggested she consult counsel, and had time to read it. She didn’t do anything. The court found no undue influence and she didn’t get her elective share.

4. Rights of Surviving Spouse in Community Property

a. Basic Information

8 large & populated states have community property. So does Wisconsin, and Alaska makes it optional. Community property is generally any property obtained during the marriage, while separate property is that obtained before the marriage, or by gift & inheritance. This can get confusing where an insurance policy from before the wedding is maintained.

To avoid tracing problems, couples can make agreements regarding property, or declare it all communal for a tax benefit.

Don’t try to undo community property, tax benefits are better and things get messy if you screw with the titles.

b. Putting the Survivor to an Election

Widow’s Election - Involves wills where all the community property (managed by the husband under the old system) is put into a trust for the benefit of the wife for life, then to others at her death. Here the wife must choose between surrenduring her ½ of the community property and taking under the will. (Her ½ would presumably be probated under separate rules/ intestate succession.)

5. Migrating Couples and Multistate Property Holdings

Rules to govern which state law governs marital property; a. The law of the situs controls problems related to land b. The law of the marital domicile at the time personal property is acquired controls the characterization of the property (communal or separate.) c. The law of the marital domicile at death controls the survivor’s marital rights.

a. Moving from Separate Property State to Community Property State

For resolving situations in which a couple moves from state to state, and obtains marital property in each. Enter Quasi-community property.

Quasi-Community Property - property owned by the husband or wife acquired while domiciled elsewhere which would have been characterized as community property if the couple had been domiciled in the community property state when the property was acquired. (It starts separate, is considered community while you’re here, and goes separate again if you leave. It only matters if you die where & while it was community / in a community property state.)

b. Moving from Community Property State to Separate Property State

In this situation, the status of community property does not generally change, new property acquired is considered separate, and stays that way if you move back.

Don’t go suggesting that couples retitle their communal property as jointly owned, it will cost them the tax advantages (such as remain) and get you sued for malpractice.

Several states have adopted community property with right of survivorship. This prevents the decedent from dumping her share by will; it passes to the survivor just like a joint tenancy.

6. Spouse Omitted from Premarital Will

Estate of Shannon - (p. 530) Russell wrote a will leaving everything to his kids and expressly disinheriting anyone else. He even included a clause that stated, should the court find a person a lawful heir, they got $1 and no more. Then 12 years later he got married, didn’t change the will, and died. The lower court held that the wife got nothing, the higher court overruled. The wife, Lila, was declared a pretermitted heir because he didn’t specifically mention a spouse.

UPC puts the pretermitted spouse’s share as the first $100,000 plus ½ the rest.

Presumption of revocation of the will as to the omitted spouse is well established. The rest of the will is still valid, though bequests would abate ratably to satisfy the elective share.

Case law holds that exclusionary clauses in wills which fail to indicate consideration of future marriage are insufficient to avoid the statutory presumption.

A spouse omitted from a premarital will cannot include nonprobate assets in calculating her elective share.

Advise the client to execute a new will if he wants to disinherit the spouse, to avoid malpractice.

Chapter 8. Trusts: Creation, Types, and Characteristics

A. Introduction

1. Background

Trusts are a split of title, where one holds legal and the other beneficial title. They go way back into English law and the statute of uses under Henry VIII.

Gingiss :

Revocable Trusts - will substitutes exempt from statute of wills, avoid probate, are private, easy to amend, hard to challenge etc. When the settlor dies, it becomes irrevocable (generally) and operates like a will.

TRUST A & B FOR SPOUSE

Will or Revocable Trusts Creates a Pair of trusts at death. “I Bob put everything I own in my trust with me as trustee & beneficiary, then on death create two trusts…” This splits the property to avoid taxes.

Trust A Trust B Balance of property $1,000,000 (max tax-free amount at death.) \ Can be given to spouse (Marital Trust) tax free till she dies.

TRUST FOR MINOR

“I give everything to my wife, then in trust for my minor children.” For tax reasons you want to remember the $1,000,000 limit plus $10,000 per donee exemptions. To qualify for this annual exclusion, it must be a present interest (they get it now, not in trust at the discretion of the trustee.) Congress created an exception for trusts for minors if done by their rules. The kid must get access to it at 21… (even briefly and at the cost of the rest of their inheritance, a dirty trick of Prof. Gingiss’s.)

DYNASTY TRUSTS

An Industry in SD. You can make a trust giving someone all the benefits of ownership but its exempt from creditors & probate. The recipient can even leave it by will. (They are taxable on the income.) Congress said, every trust that goes from one generation to the next, there’s a heavy tax, but we’ll give you a $1 million exemption (always the same as the tax free amount.)

Since SD has no RAP, you can make trusts that start at $1,000,000 that never expire. This is why Citibank is here. Further, that $1 million can grow forever and not be subject to tax as it passes on.

DISCRETIONARY TRUSTS

This is a trust where the trustee has discretion as to the timing of distributions or to who gets it.

2. Parties to a Trust

To create a trust, the owner transfers assets to the trustee with an instrument setting fourth terms of the trust. The trust document should include dispositive provisions of the beneficiaries interests and provisions for administration specifying the powers and duties of the trustee. One person can be both settlor (owner), trustee, and even beneficiary. The same person alone cannot be all three or there is no trust.

a. The Settlor

This is the person who creates the trust. For trusts that include real property, the statute of frauds requires a written instrument. If the settlor is not trustee of an inter vivos trust, a deed of trust is needed. Either the deed or the property must be delivered to the trustee.

b. The Trustee

There may be one or several people, they may be the settlor or a 3rd party, or the beneficiary. Trustee holds legal title to the trust property, and is held to a high standard of conduct in managing it for the beneficiaries (who hold equitable title.) Nobody can be made trustee without accepting the job, but once he accepts only consent of the beneficiaries or court order will release him.

c. The Beneficiaries.

These folks get the benefits, and hold equitable title to the property of the trust. Generally all modern life estates and future interests are created as equitable interests by trust rather than legal ones.

3. A Trust Compared with a Legal Life Estate

A legal life estate does not provide the power of sale, reinvestment, mortgage, waste (drilling for oil), and creditors can get at the life estate. With a trust, the trustee can generally do all of these things, and the beneficiary is protected from creditors.

B. Creation of a Trust

1. Intent to create a trust

While no magic language is required to create a trust, intent of the grantor to create a trust must be demonstrated. Some sort of statement, “To hold for the use / benefit of another,” is sufficient.

Jimenez v. Lee - P sued her father over a $1000 savings bond from grandma in both of their names for education, and $500 in a savings account with both of their names from one of dad’s clients. P argues these were given to dad in trust for her benefit, and that he blew them. D responds that there was no trust, and if there was its assets were used up for legitimate purposes, medical bills, clothes, etc. Trial court found no trust. The appeals court reversed, holding that the donors did intend that the money be held for the benefit of the daughter in trust.

Intent of the donor is all that really matters, though had land been involved a writing would be required.

“Precatory Language” - where the testator gives property with instructions as to its disposition without being clear if it’s to be a trust. Absent a trust, these instructions are not enforceable by law.

“Equitable Charge” - where property is given to another person until a sum of money is paid them. This is not a trust, there is no fiduciary relationship, just a security interest.

The Hebrew University Assn. v. Nye - (p.575) Mr. & Mrs. Yahuda wanted to give a book collection to the university. After Mr. Y died, his wife visited the place, had dinners, did planning and a press release about the donation. She catalogued the books and packed them for shipping, but never shipped them on account of her death. At issue was the question of whether the gift, never actually or constructively given, could be considered effective because Mrs. Y was holding he books in trust. The court held that it was not, as this would destroy the whole delivery requirement of a gift.

Declaring oneself a donor does not make you a trustee of the property to be donated. Acting like a trustee may suffice. (HU2 below)

You can’t make a trust from an ineffective gift.

Hebrew U part 2 (p 578) - University claims constructive or symbolic delivery based on a list of most of the collection’s contents given by the Mrs. The court accepted this theory and declared H.U. the owner of the books.

Not all courts are this strict, some will declare a trust were it looks like the intent of the donor.

2. Necessity of Trust Property

A trust generally needs three things: A trustee, a beneficiary, and trust property. That property can actually be any interest in almost anything, so long as a court will call it property. (A “res” )

Unthank v. Rippstein (p. 581) - C P Craft wrote a letter to Rippstein promising $200 a month for 5 years, even if he died. He died. Rippstein first argued that the letter was a codicil to the will, and when this failed sued the estate for the debt. The court held that the document expressing intent to pay the money created neither a debt nor a trust by the mere language of the letter.

A written promise to pay obligations as they mature does not create a trust, will, gift, or contract supported by consideration.

A trust may be distinguished from a debt because it has a specific res (property) from which it draws.

Gingiss thinks this case had plenty of evidentiary & ritual function to create a trust. Where there consideration for the payments, this might have been a debt.

“Resulting Trust” - a trust that arises by operation of law where: a. an express trust fails or makes an incomplete disposition b. one person pays the purchase price for property and causes the title to be taken in the name of another who is not the natural object of the bounty of the purchasor. “Purchase money resulting trust”

“Constructive Trust” - a trust that arises by operation of law as a remedy for unjust enrichment, usually where there is : a. there is a confidential or fiduciary relationship b. a promise by the transferee c. a transfer of property in reliance on that promise d. unjust enrichment of the transferee (I’ll give you $100 if you give it to bob after collecting interest for 5 years.)

Death of the Donor - Where the donor thinks he made an effective gift to one of the natural objects of his bounty, and dies so believing, a constructive trust is made in equity upon the property. This is an exception to the no-gift, no trust, rule.

Brainard v. Commissioner - (p. 586) Brainard told his wife & Mother that he’d invest money in the market for their benefit as a trust for wife, mom, and 2 kids. He invested the money, collected $10,000 as his compensation, and didn’t give the remaining profits to the beneficiaries. The tax board said this income should be taxable to him, not the family, since they saw almost none of it. The court observed that the trust had no property at the time he declared it, and was therefore invalid, esp since there was no consideration for the declaration.

RULE: Future profits cannot be the res of a trust. (He could have put the stocks themselves in the trust for the year but he’d have had to pay the higher taxes.)

Speelman v. Pascal - (p. 589) Pascal had the rights to produce a movie & play based on Shaw’s PYGMALION. He wrote a letter to Ms. Kingman saying he would pay her a percentage for the take from these productions that had not yet been performed. The question was, could this be property for a trust. The court held that it could, even though no money had yet been made, because courts regularly recognize shares of a production as property, and he both had the rights to produce the play and was conducting negotiations for its release.

HOW DO WE DISTINGUISH THIS FROM BRAINARD? Brainard was oral? Was there no actual property? These two cases are close.

RULE: A person can assign future earnings from an existing contract. (In this case, the K included his rights to produce the play.)

Taxation of Trusts - Where a taxpayer creates a trust, and benefits another with the interest for a period of say 5 years, but retains the property and reversion after that, he may still be treated as owner for tax purposes (Grantor Trust). A settlor is treated as holding such power if it is given to a spouse, if they live together at the time the trust is funded. -or- Grantor Trust - a trust where the grantor is treated as the owner for tax purposes. You can abuse this to avoid income taxes on the beneficiary of a gift.

3. Necessity of Trust Beneficiaries

Generally a trust must have a beneficiary, there are two exceptions: The beneficiaries may be unborn or unascertained when the trust is created. On the other hand, if when the trust is created the beneficiaries are too indefinite to be ascertained, the trust may fail.

Clark v. Campbell - Decedent’s will left all personal property to trustees for the benefit of her friends as they saw fit. The court observed that the term “friends” was too indefinite, it had no statutory meaning, and substituting the will of the testator for the will of the trustees was irresponsible.

Rule: Giving a trustee power to decide distribution of benefits in place of the settlor is not acceptable. To have a valid trust there must be a beneficiary who can enforce rights.

Gingiss Skipped this: Today, trustees are often given power to appoint persons of a class to receive benefits. The Restatement concurs. But an instruction to distribute in accordance with verbal guidelines given before death failed (450 Ne2d 928) Power of appointment is covered later I think, but this case unavoidably involved a trust.

In re Searight’s Estate - This guy leaves $1000 for the care of his dog, at 75 cents a day and Ohio wanted to slap inheritance tax on it. The court observed that state law did not permit taxation of bequests to animals (only persons, institutions or corporations) and that it was not taxable till the dog died, then the remaindermen could be taxed on what was left.

The bequest did not violate the RAP as it went to the dog for life, and that the rate of disbursal would devour the bequest in under 5 years, less than the maximum for the RAP.

2-907? A pet can be the beneficiary of a trust just as a life in being for RAP purposes. (Not enacted in SD) (408 Uniform Trust Code) Enforcement of the trust rights may be named or appointed by the court.

For trusts that name a general charitable interest, like “stray animals” the state attorney general enforces the interest.

For Non charitable trusts, like Shaw’s alphabet trust to promote a new defined phonetic character set; these can now be sustained for up to 21 years w/o any beneficiary. (Lawful non-charitable purpose.)

The court held that this bequest was not a trust, but whatever it is is not unlawful. (Honorary Trust)

The caretaker of Trixie the dog was taxed on the dog’s value.

An honorary trust for the care of an animal is void if that animal or the trust can last beyond the relevant lives in being plus 21 years, under the RAP.

4. Necessity of a Written Instrument

While an oral declaration is acceptable for a trust of personal property, the Statute of Frauds requires an inter vivos trust of land to be in writing. The Statute of Wills also requires testamentary trusts to be in writing. But there are exceptions …

a. Oral Inter Vivos Trust in Land (p.608)

While a conveyance from O to X for the benefit of A, remainder to B after A dies would be void if verbally executed, the courts may impose a constructive trust to prevent unjust enrichment of X where there was a confidential relationship between X and O, O was about to die, or fraud or duress was applied to O.

Hieble v. Hieble - Ma Hieble was facing death from cancer, transferred land to her son, to be returned should she recover, and that she would remain in control of the property, pay taxes, etc. 5 years later she asked for reconveyance of the land, the son delayed and eventually refused. The court noted that while oral agreements regarding land are not enforceable, the parties stood in a confidential relationship and ma was expected to die. The land was returned to Ma Hieble.

RULE: Where a special, confidential/fiduciary, relationship exists an oral agreement regarding land, a constructive trust may be enforced over the statute of frauds. (Unjust enrichment + unconscionable retention of the property.)

In a similar case, a man transfered land to his son before a divorce to keep the wife from it. In the divorce he stated that the land transfer to his son was to satisfy financial obligations. When he later wanted the land back, the son refused and the court sided with the son, noting unclean hands on Dad’s part.

It is not fraud to try and avoid probate, but if you’re consulted do not approve an arrangement like this.

b. Oral Trusts for Disposition at Death

Secret Trusts - trusts created orally before death for distribution after death, that are not mentioned in the will. The courts will admit evidence of these, and may establish a constructive trust on the orally agreed trustee for the benefit of the orally agreed beneficiary to avoid unjust enrichment.

Semisecret Trust - Same as a secret trust, except that the trust is mentioned in the will, though beneficiaries are not named in it.

C. DISCRETIONARY TRUSTS (p.617)

Trusts are either discretionary or mandatory. In a mandatory trust the trustee must distribute all the income. In a discretionary trust the trustee may distribute the income, the principal or both, subject to the trust terms in almost limitless variety.

Gingiss - This is where you can run your kid’s life from the grave. Its also good for minor children beneficiaries, where more needs to be spend on the 5 year old than the 17 year old.

Marsman v. Nasca - Sara Marsman married Cappy, her 2nd husband, and left a trust for his comfortable support and maintenance. The trustees were to be exculpated from any liability incurred in the execution of their duties absent willful neglect. When Sara died, Cappy’s income went through the floor, he was scraping by. He asked the trustee to give him some of the principal from the trust, but the response from the trustee was terse, “Tell me what you want it for.” This put Cappy off and he never asked again, eventually having to renegotiate ownership of his house with his step daughter and retaining only a life estate. When Cappy died, his new wife was put out on the street, and sued the trustee for not inquiring as to Cappy’s financial state when he refused to distribute funds. The court held that the trustee should in fact have done so, and that Cappy’s estate might seek such funds as would have properly been paid. Farr was himself excused from liability given the exculpatory clause of the trust.

RULE: A Trustee holding discretionary power to pay principal for the comfort, support, and maintenance of a beneficiary has a fiduciary duty to inquire as to the beneficiary’s finances.

~ If you want the exculpatory clause in a document where you’re trustee, get a separate document in the client’s own handwriting to make sure he knows what the hell is going on.

A trustee’s power to act “In absolute, sole discretion” is not absolute, this would be no trust at all.

The standards of discretion “must be ascertainable” in a trust to avoid creditors where you want to give all the benefits of ownership and avoid taxes. You can’t give the trustee uncontrolled discretion (what kinda trust would THAT be?)

D. CREDITORS’ RIGHTS: SPENDTHRIFT TRUSTS

“The law in all its majesty prevents rich and poor alike from sleeping under bridges or stealing loaves of bread.”

The spendthrift trust is one where the beneficiaries cannot alienate their interests nor can creditors reach them thus:

T Devises property to X in trust to pay the income to A for life and upon A’s death to distribute the property to A’s children. A clause in the trust provides that A may not transfer her life estate, and that it may not be reached by A’s creditors. By this trust, A is given a stream of income that A cannot alienate and her creditors cannot reach.

Consider Nichols v. Eaton, 91 US 716 and Adams, 133 Mass 170.

In different states, the laws enabling these trusts show up all over the place.

Shelly v. Shelly - (p633) Old man Shelly left a trust that paid his wife & son money every 3 months, giving the trustee option to give the son all or some of the res after reaching the age of 30. Well, his son grant, recipient of the benefits, got married and then ran off. His former wife would like to access the trust funds to support the kids, so she sued the bank. The lower court granted access noting his responsibility to support wife & child, and the appeals court affirmed save for unusual or emergency expenses of his children, for which the trust already provided at the discretion of the trustee..

Rule: A spendthrift trust may be accessible by immediate family against the normal rule.

There are several Exceptions to the protection of Spendthrift Trusts: a. Self-settled trusts - a spendthrift trust cannot be set up by the settlor for his own benefit, creditors can still reach income or principal in such a mandatory trust. b. Child support and Alimony - these judgments can be enforced against interest in a spendthrift trust in most states. c. Furnishing necessary support - A person who has furnished necessary support or services can reach the interest in a spendthrift trust. (Hospitals) d. Federal Tax Lien - Federal tax law trumps state trust rules. States too may permit taxation. e. Excess over amount needed for support - In several states, income beyond that needed for support & education of the beneficiary can be accessed by creditors. f. Percentage Levy - a few states may reach a certain percentage of the income of a trust, like wage garnishment. g. Tort Creditors - This one is not settled

Restraints on Remainders - in most jurisdictions, creditors of the remaindermen cannot reach principal on a trust until the remainderman is entitled to receive it.

Pension Trusts - ERISA provisions trump all of this, and provide for child support, alimony, marital rights, etc..

United States v. O’Shaughnessy - (p.643) Trust was established giving the trustee the sole discretion to distribute some, all or none of the trust assets to O, though O got to devise the assets by his will. O owed a lot in taxes, and the government wanted access to this trust in the theory that the remainder would eventually pass to him. The court held that they could not access the trust, as until he actually received the funds O had no “property” right to them.

Rule: A beneficiary of a discretionary trust like this has no rights or property in nondistributed trust principal or income before the trustees have executed their power of distribution under that agreement.

The right to sue for distribution of assets (becaues of bad faith of the trustee) is not a property right that creditors or the IRS can reach.

Some states permit the creditor to stand in the shoes of the beneficiary and receive any payments that would come his way before he does. This does not mean they will actually get paid, but they DO prevent the beneficiary from getting money.

To get around this, use the language “Pay to X or for his benefit” so that the trustee can buy him stuff without giving him money, they can pay his bills.

For Medicaid asset valuation purposes, a trust established by the would be recipient of Medicaid for his own benefit, or one established by a spouse is considered part of his assets, except where one is created by will from the spouse or where the trust was created from a disabled individual’s property by a parent, spouse, grandparent, court etc.. to support him. Care centers can reach the payments of these trusts in funding the care of the person. There are a lot of unsettled questions in this area of law. (Remember, stuff given away 3 years prior to seeking Medicaid, and 5 years if in trust, is counted as assets.)

To work around this, do not say “give funds for support” but rather only to supplement what Medicaid provides. Gingiss has good language for these.

E. MODIFICATION AND TERMINATION OF TRUST

If the settlor and all beneficiaries consent, a trust may be modified or terminated. No one else has an interest in the trust. In the US, if the settlor is dead, no change is permitted that changes the material purpose. In the UK it may be if all beneficiaries survive and are adults and consent.

In re Trust of Stuchell - (p.652) Old Stuchell made a trust for the benefit of his grandkids, the remainder to be given to their heirs per stirpes after the last beneficiary died. Pettitioner has a retarded son who’s receiving social security & Medicaid for his continuing care, and if he inherited the money it would be devoured before he could continue to receive benefits. She wanted to modify the trust to prevent this, but the court refused under the established rule that a trust not be modified merely because such deviation would be to the advantage of the beneficiaries.

RULE: A court might modify a trust to meet unforseen circumstances for the settlor, but will not reform the duties of the trustee merely because it would be to the advantage of the beneficiaries.

Sometimes courts permit trust modification to match changes in the tax code, or to correct lawyer’s error in drafting, as well as changed circumstances.

Where the estate is in danger of evaporating outside the settlors intent but adhering to his directions (Keep this stock) the courts may permit sale.

In the US, generally a trust cannot be terminated prior to the time fixed for termination even though all the beneficiaries consent, if termination be contrary to the material purpose of the settlor.

In re Estate of Brown - (p.657) Old Brown left a trust for the education of his grand nephews and nieces, then after that education to be used for the support of their parents till death, remainder to the grand nieces & nephews. After educating the kids, the trustee did begin supporting the parents. The parents claimed that since the material purpose of the trust was education of their children, and this was complete, the trust could be reformed to simply give them the principal. The court held that this could not be done, as the express intention of the settlor to provide lifelong income to the parents would be countered. (And of course the trustee got to collect his fee for many more years.)

RULE: All of the settlor’s material purposes must be completed before a trust can be reformed.

A few states permit early termination in cases like these, where all beneficiaries are adults able to make a choice.

Courts in some states will permit termination of a trust by agreement between all heirs and beneficiaries of the settlor after his death.

The US tends to permit more “dead hand” control than do the English who’ve been at this for centuries longer.

Changing Trustees - You can draft a trust that allows the beneficiary to change the trustees. This is a great thing if you are worried that the corporate trustee will not act in the way you want in the future. Most modern trust instruments include a removal clause, and if you have a bank running things make sure a friend or relative has a copy to ensure the bank follows the rules.

CHAPTER 9 - BUILDING FLEXIBILITY INTO TRUSTS: POWERS OF APPOINTMENT

Section A. Introduction (p.665)

Power of Appointment: Authority to designate recipients of beneficial interests in property. Owners of course have this, and in a trust effectively make someone an agent.

Appointive Property - property over which the power can be exercised. It need not be over an entire interest. It can be only over the remainder, “I leave in trust for A for life, and upon his death distribute as A appoints in his will.” It can be over a portion, like an annual percentage.

1. Types of Powers

To account for the future, powers of appointment can be given to trust beneficiaries. With regards to Powers, Know these terms:

Donor - Person who gives the power of appointment to the beneficiary

Donee - Person who holds that power (and gets to give away the property later.)

Objects of the Power - folks to whom the donee can appoint the property.

Appointee - person appointed by this power (he got the property.)

Taker in Default of Appointment - who gets the office if the donee fails to appoint

General Power - A power exercisable in favor of the decedent, his estate, creditors of the donee, creditors of the donee’s estate, this is most of the power of a fee simple (These are taxable to the donee under the gift & estate tax.)

Special Power - one NOT exercisable in favor of the decedent etc. as a general power. (Special or Limited as a word does not appear in the IRS code but General is, use the term NON-GENERAL when worried about this.)

Gingiss - A neat trick is to give power to appoint to anyone BUT the donee, his estate, his creditors or the creditors of his estate. This is sometimes called a quasi-general power of appointment.

The one holding a power need not be a beneficiary of a trust.

Types: Power may be presently exercisable, testamentary, or both.

EXAMPLE: A’s General Power - T devises in trust to X for the benefit of A for life or until A appoints, and to distribute the principal to such persons as A shall appoint either by deed during life or by will. If A does not exercise this power, at A’s death distribute to B.

EXAMPLE: A’s Special Power - T devises to X for the benefit of A for life, and on A’s death to such persons as A shall appoint by will. If A does not exercise this power, then to A’s descendants per stirpes then living.

2. Does the Appointive Property Belong to the Donor or the Donee?

While common law placed ownership with the Donor, Federal tax law considers it property of the donee when under general power of appointment.

Irwin Union Bank & Trust v. Long (p.668) - Phil Long had a trust for his benefit that gave him the power to withdraw 4% of the principle every year if he notified the trustee that he wanted it. After his divorce, his wife Victoria wanted to use that 4% to help satisfy a $15,000 judgment in her favor. The court refused her, noting that Phil had no power over the corpus of the trust until he exercised his [special] power of appointment.

Rule: A power of appointment is not property of the donee, just a power.

Gingiss - Restraint on alienation is good only if it applies both to voluntary and involuntary in most jurisdictions and federal tax law.

Under Bankruptcy law, trusts with a general power of appointment pass to creditors, while special powers and general testamentary powers do not.

The spousal elective share cannot in most states reach assets held in trust subject to either general or special powers, as these are not part of the probate estate.

Tax Reasons For Creating Powers - As noted, trusts subject to general power of appointment are taxable while those subject to special powers are not. If your client wants to transfer property and avoid estate tax at death, create a special power of appointment.

Remember: A lawyer who drafts a trust is liable for the consequences of not knowing the tax consequences of general powers of appointment.

Gingiss - You can create a trust using powers that is the equivalent of outright ownership without the tax liabilities. The power to give it to yourself is taxable unless it is limited by an ascertainable standard, such as “support”. Happiness does not qualify as ascertainable. The only folks who might challenge it are future beneficiaries. Add to that a quasi power of appointment, to disinherit them anyway, they won’t complain and you have all you need.

Here you can even have the trust buy the house for you, and protect it from creditors too. Don’t do this with the car, because the trust as owner would be liable if you have an accident.

Section B. Creation of a Power of Appointment

1. Intent to Create a Power

To create a power of appointment a donor must manifest intent to do so. No special words or form is necessary, not even the words “power of appointment” or “appoint.”

2. Powers to Consume

Lots of litigation stems from the creation & exercise of power to consume the principal. You can’t give power of appointment to a dead guy. You might leave a trust to be distributed according to someone’s will.

Sterner v. Nelson - (p.677) Old Oscar Wurtele left his possessions to his wife, along with the power to do whatever she wanted with them, and stated that if after she died anything was left it should go to his foster daughter, Sterner. The court held that this did not create a life estate with general power to do whatever she wanted (power to consume) in Mrs. Wurtele, but rather a fee simple absolute. The limit that property remaining after the Mrs. died was declared void.

Rule: Where there is a devise in general terms only, expressing neither fee simple nor life estate, and there are subsequent limitations over what remains following the devisee’s death, and the devisee gets unlimited power over the devise, this is construed as a fee simple and the subsequent instructions are void.

A good attorney will almost NEVER create a legal life estate. A trust with a life beneficiary is almost always better.

If the life beneficiary is to have powers to consume the principal, clear and exact terms for the circumstances of that withdrawal should be drafted.

Section C. Release of a Power of Appointment (p.682)

Testamentary power of appointment cannot be contracted, as this would effectively give the donee power of appointment during life. On the other hand if the donee DOES so contract (sells off the testamentary portion of his trust) and performs, (Writes his will according to the K and dies,) the K can be enforced against the other party.

Section D. Exercise of a Power of Appointment

1. Exercise by Residuary Clause in Donee’s Will

Beals v. State Street Bank & Trust - (p.688) Isabel was one of 4 sisters who were beneficiaries of a trust from their father. Isable got most of her share of the principal transferred to her at the discretion of the trustees. She then filed a limit on her power of appointment such that it could only be appointed to descendants of Dad. At issue was whether that statement and her will’s residuary clause leaving her property to one sister’s kids was exercise of the power of appointment. The court held that is was. If she had not, the goods would have been divided among all Dad’s surviving heirs.

Most states take the position that a residuary clause does not exercise a power of appointment held by the testator. In a minority, the residuary clause does exercise a general power of appointment absent express intent otherwise.

Mass. In this case draws a distinction between general and specific powers, where there is a general power it may go by residuary clause in a will, but not with a special power of appointment. They called it general because Isabel’s disclaimer was issued to avoid the new tax on general powers.

Choice of Law on exercise of a power - Hanson v. Denkla considered this.

Antilapse Statute - If you appoint a person who predeceases you, should the “natural objects of his bounty” get it under the statute? Many courts will apply it.

To prevent accidental exercise, the donor may provide specific means by which a power of appointment is exercised, such as a written instrument. Many courts are strict in requiring a specific reference in a transfer by one with power of appointment, the transfer in question should specify the trust as part of it. If drafting a will or exercising document, make this unmistakable.

2. Limitations on Exercise of a Special Power

In most jurisdictions, one with a general power of appointment can appoint outright or in further trust as he sees fit. Those granted a special power of appointment may do so only if the trust gives them such a power to appoint into further trust.

The book thinks that if you have special power to appoint B to receive the corpus of the trust outright at your death, you SHOULD be able to give something less such as creation of a subsequent trust giving B special power of appointment. Case law is divided on this.

Special Power may be Exclusive or Nonexclusive, that is the Donee may have the power to appoint only one of the objects of his power (Consider a special power to appoint to your surviving children.) or if nonexclusive he must appoint some to each object. These nonexclusive appointments must not be “too small” in some states as to be illusory.

3. Fraud on a Special Power

Appointment in favor of a person who is not an object of the power is invalid. An appointment to a person who IS an object for the purpose of circumventing the limitation is a “fraud on the power” and void to the extent it is motivated by such a purpose.

4. Ineffective Exercise of a Power

Gingiss skips this.

Section E. Failure to Exercise a Power of Appointment (p.702)

If a Donee fails to exercise his general power of appointment, the property passes in default of appointment. If the trust does not specify, it reverts to the Donor’s Estate. If a donee fails to exercise a special power and there is no default gift in the trust, the corpus may, if the objects of the special power are a limited, defined, class, pass to the objects anyway.

Loring v. Marshall - Loring left the residue of his estate in trust for the benefit of 2 nephews, and gave them special power of appointment to their spouses & children. Should there be no object appointed, the trust would go to 3 charities. The last surviving nephew gave his wife a life estate and his son $1. The court ruled that the testator’s intent was to keep the money in the family, and even though the son had received only $1 from his father’s estate, he got the trust over the 3 Charities.

Imperative [Special] Power - The donee must exercise the power, appointing beneficiaries within the class given, or the courts will divide the proceeds of the trust equally among the class members anyway.

Chapter 13 - TRUST ADMINISTRATION: THE FIDUCIARY OBLIGATION

Section A. Duties of the Trustee (903)

1. Duty of Loyalty

The office of trustee comes with onerous burdens, the greatest of which is that he must be loyal only to the beneficiaries, and administer the trust solely in their interest. The trustee gets no personal benefit from the trust apart from his fee.

Hartman v. Hartle - Trustees of Dorothea Gieck’s estate sold the farm to one of the trustee’s wives for a poor price. (Allegations of fraud, bad faith and arranged sale were refuted.) The beneficiaries protested, but by the time the court got a hold on this the farm was resold to an innocent 3rd party. The court noted that a trustee cannot sell trust assets to himself, or his wife, and that they would be liable for the profit they made on resale, 1/5 share to the P as if it were trust assets.

RULE: A trustee cannot buy from or sell property to the trust. The sale can be set aside no matter how reasonable the terms. No further inquiry.

A trustee must go to court or get consent of ALL beneficiaries to buy or sell from the trust. If remaindermen are an issue, don’t go on the basis of consent. A trustee cannot “net” the dealings with a trust to show profit, he is liable for any losses from self dealing even if other deals’ gains outweigh them.

Unjust enrichment of the trustee will be divided in these cases as if the trust took the profit, not the trustee, on resale.

No Further Inquiry Rule - Good faith and fair dealing are irrelevant when examining the conduct of the trustee, he simply cannot self-deal.

Trust Pursuit Rule - If the trustee wrongfully disposes of property in acquiring other property, that beneficiary is entitled to a constructive trust on the property acquired, treating it as part of the trust assets.

Check the nice Cardozo quote on p.905.

In Re Rothko - (p.906) Rothko was an internationally renowned abstract artist who left 798 paintings of great value in trust with 3 friends. 2 of these friends had interests in art galleries, and the three disposed of all of these works through the two galleries in just under 3 weeks. The beneficiaries protested the deal. The court said that the sale to a gallery in which the trustee had an interest was a breach of fiduciary duty to the estate, and for trustee number 3, a breach by letting the other two get away with their dastardly deed. He should have gone to court to stop the sale. The paintings were ordered returned, damages for those sold already to be assessed at the painting’s value at trial. The trustees were removed.

RULE: Trustee’s limits include sale to an entity in which the trustee has an interest, or letting the other trustee(s) do the same. There was no authority to make this sale by any party.

This is not a self dealing case, but the trustees acted not in the best interest of the estate due to their conflict of interest.

Damages: Damages would normally be the difference between the inadequate price and the value at sale, but the court calculated the difference between sale and date of trial value because there was no authority to sell. If there is no authority to sell, you give appreciation damages up to the date of recovery (trial).

If there is more than one trustee in a private noncharitable trust, the trustees must act as a group with unanimity unless the trust instrument provides otherwise. One co-trustee may not delegate discretionary powers to another co-trustee. Such powers include purchase or sale of assets, investment funds, disbursments etc. For a charitable trust, action by the majority is required.

Gingiss’s Supplemental Conflict of Interest Cases:

Jefferson National Bank Case - Litner established a trust funded mostly with promissory notes from Curtis Electro Corp. The trustee (bank) had an interest in that corp, and when they began to have financial difficulties the bank saw to its own needs first. They made sure they got their payments from Curtis before Litner’s trust. When Curtis went broke, the trust did too, and the beneficiaries sought damages from the Trustee, they got them to the tune of over $300,000, the full value of the notes. No punitive damages were awarded.

Trustees should see to their own interest second to that of the trust beneficiaries.

Prueter v. Bork - Erin & Bernice Prueter are beneficiaries of two trusts from their father, (Dad gave up control of the property,) giving Erin (son) right to all the proceeds from his trust, and likewise to his sister Bernice for her trust. Then later dad wanted to set up a new trust, he got Erin to sign off, saying he was revising it to add property, but dad also added other beneficiaries. (Erin didn’t read the documents.) The daughter was made trustee & executor. When Erin found out, dad was dead, he sued for promissory estoppel, breach of fiduciary duty, etc. The trial court found for the daughter, but on appeal the court found for Erin. It held that where the trustee (dad) had benefitted from the trust revision a presumption of fraud, and that the daughter failed to rebut it. Son wins.

Where the trustee benefits from a change in the trust, there is a presumption of fraud.

Don’t draw up a document for A that applies to B, like the lawyer that drew up the trust waiver that Erin signed. Its an ethics violation. Lawyers have a duty to make sure the signator knows what he’s doing.

In re. Heidenriech - Estate was held in trust for a daughter for life, then in 3 trusts for her kids until age 30. Trust company held the stock longer than was wise due to a conflict of interest, the bank from which the stock came went belly-up. The conflict of interest arose because the bank didn’t want to sell bad stock and look bad to its customers. The stock was a major part of the bank’s assets. The bank escapes the conflict of interest because the court found a “considered judgment” regarding the stock in good faith.

This is not self dealing, there was no sale at all. The trustees had the authority to retain the stock.

Rule 10(b)(5) - SEC Rule, prohibits trading on insider information.

2. Duties relating to Care of the Trust Property (919)

a. Duty to Collect and Protect Trust Property

A trustee has a duty to gather the trust assets without unnecessary delay, and once gathered the trustee must act prudently in preserving it.

b. Duty to Earmark Trust Property

The property must be marked and invested separately from the trustees own assets to prevent him from assigning losses to the trust and gains to himself in the investment market. The exception is that he may invest in bonds payable to the bearer rather than to the trustee.

c. Duty Not to Mingle Trust funds with the Trustee’s own.

There is a breach of trust if the trustee commingles the funds of a trust with his own, even though the trustee does not use those funds for his own purposes. We do this because it is hard to trace funds once they get mixed up.

3. Duty not to Delegate (p.922)

Shriners Hospitals for Crippled Kids v. Gardiner - Grandma left a trust for her grandkids and daughter in law for life, the balance to go to the Shriners. As trustee she placed Mary, who was not an investor by trade and placed the trust assets with Dean Whitter, care of Charles. Charles embezzled $300,000 plus, and the Shriners sued Mary for it. The court found that Mary breached her fiduciary duty when she placed authority to invest with Charles, though of course she should seek expert advice. It found that the delegation was not shown to be the cause of the loss, however. The case was remanded to determine the cause of the loss because the record was inadequate.

A trustee is not personally liable for losses not resulting from a breach of trust.

The nondelegation rule - Thou shalt not delegate your authority as trustee.

The nondelegation rule has been abrogated in R3d of Trusts, requiring in stead that the trustee use care, skill, and caution in selecting an agent when delegating. The trustee must not delegate unreasonably. (p.927 for text.)

4. Duties of Impartiality

A trustee has the duty to deal with beneficiaries and remaindermen impartially, produce a reasonable income while protecting the remainder.

Dennis v. Rhode Island Hospital Trust co. - (p.929) Alice Sullivan set up a trust for her kids, to be paid to her living issue, and to terminate in 1991 (21 years after the death of the last surviving child.) The trust contained several rental buildings in an area that began to decline in value. The trustees kept renting the out buildings at a high rate, under a long term lease, as property values declined and little maintenance was performed. The remaindermen, two surviving kids, protested that the bank had burned off the trust assets in favor of the beneficiaries and not left the corpus intact for the remaindermen. The Court agreed.

RULE: A trustee should if need be modify (sell) the trust assets to keep the principal from being consumed by the beneficiaries to the exclusion of the remaindermen. (A trustee should always diversify to protect the principal.)

Gingiss - sometimes you want the interest of the life tenant to supersede the remainderman, you can draft that into the trust’s instructions to the trustee. “Consider only the interests of my surviving spouse in disbursing …”

If a trustee is under a duty to sell property and does not, the effective principal of the trust is calculated as follows, any left over money from that property (because he waited till a better time) or loss (to be made up by the trustee) is considered trust income.

Principal = net proceeds of sale/ 1+(period of years)(base interest rate)

Where there are co-trustees, and it becomes clear to one that a change should be made in the trust, (we need to invest to counter inflation,) and the other trustees don’t consent, they should go to court to force the issue or be liable later.

5. Duty to Inform and Account to the Beneficiaries

Fletcher v. Fletcher - (p.938) Ma Fletcher left a testamentary trust setting aside $50,000 for each of her kids to cover medical care & health insurance. When her son wanted to see records of how the money for all of them was being managed, and the trust instrument, he was refused by the trustee. The court found that though there were 3 separate funds, there was one trust agreement, one instrument. As such the beneficiary was entitled to that information.

The trustee has a duty to inform beneficiaries about the nature and management of the trust and its assets. (Income, assets, expenditures…)

The problem might have been avoided by using separate trust instruments.

A trustee has a duty to inform the beneficiaries of sale of trust property that comprises a significant portion of the assets unless: a. The fair market value is readily ascertainable b. such disclosure is forbidden by law or detrimental to their interests.

National Academy of Sciences v. Cambridge Trust Co. (p.944) - Leonard Troland left a trust to be paid to his widow so long as she was unmarried, and then to establish a trust for the National Research Council, a division of the NAS. The widow remarried but didn’t tell the bank. Checks were diverted at her request to different addresses, a sister in law, etc. When she died word got out. The court held the Trustee bank liable for failing to see if she was remarried or not, awarding damages equal to the 22 years of erroneous payments plus attorney’s fees.

Rule: The trustee has a duty to keep track of its own duties?

Gingiss Dislikes this Case - What’s the trustee to do, check every court file in the nation for a marriage? The court here said the bank must make SOME effort to find out, even if its just asking if the gal is married.

Section B. POWERS OF THE TRUSTEE

A trustee has no powers inherent in him, outside those granted by the trust instrument. Powers may be inferred, however, as the duty of the trustee is to see to the intent of the settlor. Because of this, many state legislatures have enacted statutes broadening the trustee’s powers, and allowing incorporation by reference in the trust instrument certain statutory powers.

Uniform Trustees’ Powers Act (1964) gives the trustee power to do anything a prudent fellow would do with the property without court authorization from repairs & improvements to paying taxes.

A 3rd party working with a trustee is not bound to make sure the trustee is in fact working within his authority in dealing.

Gingiss - Compensated Risk v. Uncompensated Risk: The whole market may go up or down, whole industries may go up and down, and of course single stocks may go up or down. A compensated risk is one where you will be rewarded for the higher degree of risk (startup companies for example.) Failure to diversify is an uncompensated risk. Trustees must analyze risk tolerance, (Young folks can afford a risk in the market.)

Estate of Janes - Janes left 75% of his estate in trust for charity and his wife worth some 3.5 million dollars. Most of this was in Kodak stock. When he died, the trustees kept the stock for over a year while prices fell from around $150 a share to less than $50. While the wife died before suit was completed, the court held the trustees in breach of their duty to invest prudently the assets of the trust. In this case, they should like any sensible person have diversified the stock. Damages were calculated against them as equal to the loss of capital, plus legal interest rate.

A trustee has a duty to see that trust assets are managed prudently. (Even if they don’t arrive that way.)

If the business owned was not publicly traded, the trustee should monitor the business to see if it can be sold or maintained. If you don’t want the business sold by your corporate trustee, make provision for that in the trust.

Theory of Efficient Markets - The price of a stock reflects all the public information about it, so invest in a market index fund, its easy and as good as anything else.

What is Income? - Dividends, Interest… what about rent less maintenance, Oil wells with unknown life span? (In the later situation you allocate a percent of income as pricipal.) Fees are charged ½ to income, ½ to principal.

Section C. INVESTMENT OF TRUST FUNDS

Trust investment law is preoccupied with preservation of the corpus (ever since the South Sea bubble) back in 1719-1720. There is an emphasis on “safe” investments. In England, there is a statutory list of places where trust money can be invested, though it has been expanded since the 1700’s. To work around this trend, trust drafters often included permissive powers in the instrument, but the standards continue to this day. (And the book does not seem to like this.)

Estate of Collins - Beneficiaries of Collins’s trust sued the trustees in 1973 for improper investment of $50,000. The trust was to provide $4000 a year for undergrad education to his daughter, among general support provisions. The trust also expressed almost unlimited power of discretion for the trustee. The trustees loaned the money to a developer, secured by a second interest in some land that had recently sold for about 100,000. The first interest (a mortgage) was for $90,000 but land values there were skyrocketing, and the developer was worth about 2 million. Then things went to hell, and the first interest party foreclosed. All the investment was lost. The court noted that although California does not limit trust investments to a list, it relies on the “Prudent Investor Rule” and that the Trustees failed to bear that burden.

A prudent investor does not put money into the second interest in land where the first interest exceeds the value of that land, this is no security interest at all.

Even if a trust instrument gives broad discretion to the trustee, the courts will still uphold a prudent investor standard against him. Nor can you divest the beneficiaries of the right to sue, if the beneficiaries have no rights, there is no trust.

Uniform Prudent Investor Act - A Trustee shall diversify absent special circumstances where the trust is better served without diversifying.

R3d of Trusts et al pp.968-973 - Trustee should observe how prudent men manage their affairs and do likewise. Standards of care apply not to specific investments, but to the portfolio as a whole. Things to consider under the Uniform Prudent Investor Act: 1. general economic conditions 2. possible effects of inflation or deflation 3. expected tax consequences of decisions 4. the role of each investment in the overall trust portfolio 5. expected total return 6. other resources of the beneficiaries 7. needs for liquidity of trust assets 8. assets special relationship to the purpose of the trust (the house I live in.)

ERISA has a similar prudent investor standard.

Section D. LIABILITY OF THE TRUSTEE TO THIRD PARTIES (p.975)

The traditional rule is that a trustee is personally liable for contracts he makes with the trust assets with 3rd parties, but where a K is properly entered, he may be indemnified out of trust assets. If the trust is insufficient, the trustee suffers the loss.

Trustee Liability for Tort - this works under a similar rule, a trustee is personally liable to the same extent that an owner would be, (think attractive nuisance,) so the trustee should take out insurance where needed.

K and Tort creditors must sue the trustee personally, and must try to collect from the trustee’s own assets first before attacking his right of indemnification from the trust. Under the common law you cannot sue the trust directly.

Vance v. Estate of Myers - Myers estate included a tavern. The estate was settled on August 31, and suit was filed by a customer on August 31 for injuries in a bar fight. The court held that the estate was improperly closed because of the action pending against it, and permitted Vance to recover damages from the estate before it was settled.

The Bar was part of the estate, but if you can sue the estate rather than the executor the executor is encouraged to burn off the estate (conflict of interest.) Here a special representative can be appointed by the court to protect the estate.

City of Phoenix v. Garbage Services Co. - This guy dies and leaves assets in testamentary trust with a Bank. The bank exercises the trust option to repurchase a landfill. The landfill gets condemned, and the city sues the bank for cleanup costs relating to hazardous waste. These costs exceeded the value of the trust, and the bank sought to limit damages to the trust assets capacity to indemnify them. The court found against the bank.

Rule: Where the liability of the trustee exceeds the value of the trust, the trustee must accept the additional loss out of his own pocket if the trustee has control. If no control was present, then they would be liable only to the amount of the estate.

This is mostly for dumping hazardous substances, now folks are even being held liable for acts that were perfectly lawful when done.

Today, most banks will insist on a separate committee being created to control property before they will administer the trust.

Chapter 10: CONSTRUCTION OF TRUSTS: FUTURE INTERESTS (p.709, backwards)

Section A. Introduction

Future interests are things, just like a fee simple, to be transferred, seized by creditors, whatever.

Section B. Classification of Future Interests

1. Types of Future Interests:

They can contain Present rights, alienable, reachable by creditors, taxed… They cannot be possessory. (Then it wouldn’t be a future interest)

While SD has no RAP, the rules of a RAP apply to restraints on alienation.

A. Interests in the transferor: Reversion Possibility of Reverter (Not found in trusts) Right of Entry (power of termination, not found in trusts) B. Interests in a transferee Vested Remainder Contingent Remainder Executory Interest

2. Future Interests In the Transferor

a. Reversion

This is where you give property to someone for a time period, specified or not, and when thats up you get it back. O-> A for life

b. Possibility of Reverter

This is where you give a fee simple determinable: “To the state so long as it’s used for a school.” You might get it back, it might be a school forever. In either case it’s always vested.

3. Future Interests In Transferees

a. Remainders

This is the interest left after you transfer property to someone with a specified time limit (but watch out for the RAP). They are either vested or contingent. Vested remainders are ones you are absolutely going to get(ascertainable interest, not subject to a condition). They cannot vest in unborn or unascertained person. Contingent remainders are given either to not presently ascertainable people, or subject to conditions precedent.

b. Executory Interests

This differs from a remainder in that it is a divesting interest. O-> A but if A dies without issue to B. A has fee simple subject to divestment by B’s interest.

OR - O ( A a trust fund, then to B, but if B is not still living to C. B’s interest is subject to divestment by C’s executory interest.

Section C. CONSTRUCTION OF TRUST INSTRUMENTS

1. The law likes to construe ambiguous statements as vesting interests rather than making contingent ones. Certainty and resolution are preferred. UPC will go so far as to imply a requirement of survivorship to ensure this (absent explicit contrary intent.)

A vested remainder is “Accelerated” into possession upon termination of the life estate.

A vested remainder was transferable inter vivos, making land more alienable

A vested remainder is not subject to the RAP

a. Acceleration into Possession

Under common law, a vested remainder accelerates into Possession whenever the preceding estate ends. A contingent remainder does not do this.

Disclaimer - you can always disclaim things, if an interest is disclaimed, treat it as if the person disclaiming had predeceased.

In Re Estate of Gilbert - Gilbert left a trust for his kids, to the tune of around $40 million. One of his sons, Lester, who had an interest in this trust once his mother died, sought to renounce his interest. He had joined a strange cult and abandoned the family. The court held that while the trust was validly created naming Lester, and even though Lester had no present interest (because the trustees had absolute discretion to distribute anything) he could renounce the benefits. Nobody is required to be a trust beneficiary. Sadly this means any of Lester’s future kids are out of luck.

Rule: You can renounce even future interests in a trust, nobody is required to be a beneficiary.

In one case, a beneficiary renounced, came back a year later, and with the permission of the other beneficiaries argued that he was nuts and got his interest back.

You can draft a trust around the acceleration, so that Lester’s share could continue to be held for his afterborn kids.

Under federal tax law, the persons who take as result of a disclaimer are treated as getting a gift from that dislamer, unless he disclaims within 9 months of the interest arising, or 9 months after reaching 21 years of age.

b. Transferability and Taxation

Gingiss Skipped this.

c. Requiring the Survival of Time of Possession

Generally there is no requirement that a remainderman live to the time of possession. It will pass to his estate. The testator may require survival, of course, but courts read these and all divestment clauses narrowly.

First National Bank v. Anthony (p.729) - J. Frank Anthony established a revocable trust inter vivos payable to him for life, then to his widow should she survive him. Upon death of both, to be divided in equal shares to his kids. The wife died first, then one of his kids died without issue. The court held that the son John’s interest lapsed as he predeceased his father, but the High court overturned. The kids were named, so the gift was to individuals, not a class. Their interests were vested, subject to divestment (by grandpa revoking the trust.)

Here, the settlor explicitly retained the right to revoke the trust, imposed no restrictions on what the kids could do with their shares, and specifically limited his own benefit to his life. He also made explicit conditions for his wife to take, but not his kids. The court reads this to demonstrate intent to create present rights.

RULE: An interest in the remainder of a trust, even a revocable one, vests at the time of the creation of the trust.

Under the law of wills, survivorship would be required

Transmissible Remainder Theory - the remainderman can transfer his interest in the remainder of a trust to wife, child, whoever by the usual means. This works better than antilapse statutes that give stuff only to his kids.

Security Trust Co. v. Irvine (p.733) - James Wilson left his estate in trust for the benefit of his 2 sisters (unmarried) Mary and Martha, and maybe to Margaret if she were widowed. The remainder to be divided among all his brothers & sisters after the life tenants died. Martha willed everything to her nieces, and Mary to One niece. These two are dead and their estates closed. The court holds that their remainder interests vested at the death of the testator, James, and that the sisters were included in the group for division of the remainder, even though dead. Given this, when they died, does their interest go to the group, or to the folks that take under their wills? The trust dictated that should they be dead, remainders would pass to their “issue.” Mary & Martha had none. The court held that the estates of the two sisters were still vested with the remainder, the issue requirement being a condition subsequent that might have divested them at their own death of the remainder. So the estates of Mary & Martha keep their share of the remainder

Rule: The court reads requirements of the instrument in sequence, classifying each as it goes along. Here this created vested remainders subject to divestment only if issue survive the remaindermen.

Rule: If a remainder is overlooked in probating an estate, and the estate closed, where the remainder turns up later the court may order it distributed as appropriate without re-opening the estate.

Gifts become vested when the testator dies.

Transmissible remainders are subject to taxation like any transferable interest.

2. Gifts to Classes

Gingiss’s drafting defined per-stirpes, heirs (to exclude spouse)…

a. Gifts of Income

DeWire v. Haveles - Granpa’s poorly drafted will included a clause that indicated all grandkids or their descendants were to get equal shares of the trust’s remainder 21 years after the death of the last grandkid, and that all grandkids would take equally from the trust income during it’s life. This first clause violated the RAP, and thus the will would be interpreted as not having included it. This would leave the second clause vauge with regards to the daugther of one of the deceased grandkids. Does SHE take the income as her father as a member of the class or only to those surviving? The court found that she could take as her father from the trust income to the death of the last grandkid, no declaration was made regarding the remainder.

RULE: Common law rule would assume a joint tenancy for a class gift of income. So the more that die, the bigger the cut of the survivors, unless there is a contrary intent.

We assume you don’t want your trust sitting idle for the 21 year gap between the death of the last grandkid and dispersal. So income must go to the heirs of the grandkids.

RULE: The intent of the testator can be inferred from areas of the will that might otherwise be void for RAP violations.

When drafting, provide for each life tenants share individually, not as a class.

UCC 2-707 - You must survive to the distribution date to get your interest. This basically repeals preference for early vesting. It then substitutes an antilapse statute…

Hypo: To W for life and then to Ralph: Common law gives Ralph a vested interest he can sell. South Dakota & UPC says no interest unless he survives to take (unless the trust states otherwise.) If one does not survive, and his a cousin or stepchild, we substitute his descendants who survive him.

Hypo: To W for life and then to my Children: Common Law: Vested interest subject to open. SD & UPC - Unless the instrument specifies otherwise, Children must survive or have children to substitute. It is not vested…

SD assumes that “if then living” means survivorship is required. UPC assumes that “if then living” is not enough.

b. Gifts to Children or Issue

Per stirpes distributions:

The law presumes children to be only immediate offspring of the parent, not grandchildren.

Per Stirpes is generally defined under a will the same as under intestacy statutes. (English, Modern, Per Capita) See pp.755-759

Adopted Children

Adoption, unlike marriage, cannot be undone.

Today, most adoptive children are considered children for purposes of distributing a will from someone else. In earlier times the testator was often a “stranger to the adoption” and his will was not constructed as including an adoptive child.

UPC 2-705(c ) for construction of wills regarding adoption of adults and the wills of folks other than the parent, children are different than adults, as are their treatment as children absent adoption. (p.760)

Minary v. Citizens Fidelity Bank & Trust - (p.760) Grandma left a trust of her residuary estate to pay income to her husband & 3 surviving children. It would terminate then and be distributed to her heirs per stirpes, if none, then to the church. One of her sons had 2 kids, another married & adopted his own wife. The question then is can the wife take a share of the distribution when her husband / adoptive father dies? The court found that an adult adoption to bring the spouse under the umbrella of another’s will violated the intent of the testator. The wife was not made an heir.

RULE: You cannot adopt an adult to make them heirs to the estate of another, though perhaps you can for your own estate (make a will?)

“From” v. “through” estates that pass through an adoptive parent differ from those from the adoptive parent himself.

Nonmarital Children

At common law, the word children meant legitimate children only, recent changes have made this definition unreliable. In fact, “Lawful issue” may now be extended to include nonmarital children.

c. Gifts to Heirs

Estate of Woodworth - (p.768) Old Woodworth left a trust for is wife, the remainder after her death to be given to his Eliziabeth Plass, the Testator’s sister if she survives and if not to her heirs at law. Elizabeth predeceased the wife. When the testator died her heirs would have been her husband, niece, and nephew. When the life tenant died it would have been the niece & nephew. SO do we calulate the heirs at her death, or the death of the life tenant for the trust? The court concluded that the common law preference for early vesting was preferred, and her husband would be included as an heir. (The husband willed stuff to the University of California.)

RULE: The common law prefers to vest interests sooner rather than later. (UPC requires survivorship.)

d. The Class-Closing Rule

Introduction - A normal gift to a class is “to the children of B” where B might have more kids. Once B dies the class is closed. Whats harder is when you have to “A for life and then to the children of B, where B might have more kids after A dies.” In the second case several possible solutions can be imposed. Distribution may be postponed, a portion withheld for future kids, or full distribution to children then living subject to a requirement that they rebate a portion if B has more kids…NO!! Under the CLASS CLOSING RULE, a class will close at the earliest point.

Class Closing Rule - A class will close whenever any member of the class is entitled to possession and enjoyment of his or her share.

Immediate Gifts - Where there is am immediate gift to a class, the class closes as soon as any member can demand possession, either at the testator’s death or later. The exception is if no members have been born at the testator’s death, here it is assumed that he intended it for ALL potential class members.

Postponed Gifts - If the gift is postponed in possession until a life tenant dies, the class will not close under the rule until the time of taking possession.

Lux v. Lux - (p.781) Grandma left a will giving the residue of her estate to her husband, or if he was dead (he was) to her grandkids, save that all real estate be held and not sold, paying the interest to the grandkids till the youngest reached 21 years of age. It did not express a trust but the court inferred one. It held that the class closed when the youngest of the THEN LIVING grandkids reached 21, and did not violate any RAP. Until then, the class could continue to increase in size. Executor was appointed trustee.

This is an example of the class closing, though in reverse of how one would ordinarily expect. Here the class closes when the last YET BORN member is eligible.

Rule of convenience - its silly to wait till mom & dad are dead when there’s little chance they’ll have more, close the class when all living members of the class are eligible and assume no more will come. (Under the restatement.)

What do we do with the income while waiting for Jr. to reach age 21? Presumption is that we give it to all members of the class. We don’t assume that it will accumulate.

Chapter 11 - Duration of Trusts: The Rule Against Perpetuities

A. Introduction (p.787)

1. Development of the Rule

RAP - No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest.

The rule developed over long years from a desire to control the dead hand.

2. Summary of the Rule

a. Introduction

The Rule and its Policies - Contingent interests suck, so we limit them as best we can. Vested interests are just fine. Originally this was created to keep land from being tied up for a long time.

Why lives in being are used to measure the Period - At the time of its creation, Fathers were often worried about the security of the family lands. So it was made that a man of property could provide for members of his family whom he personally knew, and the first generation thereafter.

The Rule is a Rule of Proof - If one cannot prove that an interest will vest according to this rule, that interest is void from the outset. That life in being required can be anyone, if you can prove that the interest must vest or fail within 21 years of their death. These lives need not have any connection to the family involved. (Even if you make the trust to last 21 years past the lives of the survivor of the most recent 12 babies born at a local hospital at the testator’s death.)

Gingiss: Remember the Precocious Toddler, the War that never ends, the Unborn Widow, the Slothful Executor(takes 12 years to settle the estate), the Magic Gravel Pit (that never is used up.)

E. Saving Clauses (Gingiss jumps to p.829)

Because its so hard to make sure you draft around every possibility to avoid a RAP violation, good drafters include saving clauses that make the trust terminate at the latest 21 years after the last beneficiary living at the date of execution, and distribute accordingly.

Attorneys can be liable for screwing this up in an increasing number of states.

G. The Rule Against Suspension of the Power of Alienation (p.856)

There was no common law restraint against suspending the power of alienation. NY enacted such a law in 1830 and others followed suit. The Rule as it has come to be is different from the RAP (which limits remote vesting of interests) in that it limits suspension of power to alienate land to lives in being plus 21 years. The power is only considered suspended for purposes of this rule when there are not persons who can convey the land in absolute fee.

All vested & contingent future interests are alienable if : 1. The holders are ascertainable and 2. There is no express restraint upon alienation.

So simply: The RASPA applies to vested interests, and those contingent only because the taker is as yet unborn or unascertainable.

Chapter 12 - Charitable Trusts

A. Nature of Charitable Purposes

Charitable Trusts - Can have indefinite beneficiaries and can last forever. They are generally enforced by the state Atty. General. (Consider also Honorary trusts for your dog.) You can make gifts to existing charitable organizations. These also get tax deductions.

What is Charitable?

Furtherance of Education Relief of Poverty Furtherance of Religion Promotion of Public health Gifts to the Government Other purposes beneficial to the community

Shenandoah Vally NB v. Taylor - (859)Candy Trust - Henry has a charitable trust for “education” of 1-3 grade kids… to be given to the kids themselves at the school. It fails because kids are dumb, and they got the payments before Easter and Christmas. While education is a valid charitable purpose, we cannot ignore the realities of life.

This case gives you the charitable purposes list, and tells us that a court must look at the context of the trust, not just the stated charitable purpose.

Section B. Modification of Charitable Trusts: Cy Pres

Cy Pres - The ability to modify a charitable trust if the purpose is not attainable.

In Re Neher (p870) - Testator devised home in NY to the town, with the direction that the property be used as a memorial hospital. In 1931 the town accepted. In 1937 it decided it could not maintain a hospital, there’s a good one nearby. It asks for reformation of the trust to permit use for town administration memorial hall. The appeals court finally permits this via cy pres, finding a general charitable intent to benefit the town in a clause of the will.

You can reform a general charitable purpose trust. Specific ones not so much.

Illegal Purposes - Maccon v. Newton the racially biased trust could not be given to non-city trustees. They were just agents of the state. (The state gave the property back to his heirs rather than keep it as a park for all people.)

The Buck Trust - 9 million in stock left to the San Francisco Foundation, a private trustee, to be used for charitable purposes in Marin county. This became the 2nd wealthiest county in the nation. The trust became worth over 300 million. This brought the trustee into conflict issues. Do we keep the county limit or the trustees? Cy pres is to be applied only when the trust is wasteful.

C. Supervision of Charitable Trusts

Herzog Foundation - (p.883) Money left to the university of Bridgeport for nursing scholarships. The university later closed its nursing school, funds added to the general endowment. The foundation sues to give it to another foundation to give out nursing scholarships. University argues lack of standing to sue and wins. The State atty. general is to enforce it, and he wont.

You can’t enforce your own charitable trusts, the state atty. general does. If he doesn’t want to, it ain’t enforced. (Other trust beneficiaries might also have standing.)

The Donor can release a restriction, but not enforce it under the Uniform Charitable Trusts Act.

The Bishop Estate - Last descendant of king Kamehameha… Trust assets for $10 billion to run a school for native Hawaiians. Trustees were getting about a million each, trust was reformed… trustees dumped.

REVIEW & TAX SESSION

Of Federal Estate Tax

Its been around since 1916…

The first million is tax free, that eliminates 99% of the nation.

Gross estate - Everything you own at death, or that we treat you as owning.
Deductions (bequests to charity, unlimited to spouse, funeral) (and add in your lifetime gifts) removed to get…
Taxable Estate from which we derive the %…
Tenative Tax (from the tables) and from this you get credits (reductions)
Then you have your tax. Write the check.

Everybody starts with a $345,800 credit (Used up once you hit that 1st million) There are no exemptions for this tax.

On the Exam:

8short answer and 16 mult. choice, 50…. 1 essay at 50.

INDEX:

Abatement, 37
Acceleration into Possession, 65
Acts of Independent Significance, 22
Ademption, 36
Ademption by Extinction, 35
Administration of Probate Estates, 2
Adopted Children, 6, 68
Adult adoption, 7
Advancements, 8
American System, 5
Antilapse, 34
Appointive Power, Holders, 54
Appointive Property, 54
Appointment Power, Exercise, 56
Appointment Power, Failure to Exercise, 57
Appointment, Powers to Consume, 55
Appointment, ,Creation of a Power, 55
Appointment, Fraud, 57
Appointment, Ineffective, 57
Appointment, Intent to Create a Power, 55
Appointment, Limitations on Exercise of a Special Power, 57
Appointment, Release of Power, 56
Appointment, Types of Powers, 54 augmented estate, 40
Bank Accounts, Multi-Party, 26
Beneficiaries, 46
Capacity, 11
Charitable Trusts, 71
Charitable Trusts, Supervision, 72
Children, 6
Class Gift, 36
CLASS GIFTS, 35
Community property, 38
CONSTRUCTION OF TRUST INSTRUMENTS, 65
CONSTRUCTION OF TRUSTS: FUTURE INTERESTS, 64
Constructive Trust, 47
Contracts Not to Revoke a Will, 23
Contracts Relating to Wills, 23
Contracts to Make a Will, 23
Contracts with Payable-on-death Provisions, 24
CREDITORS’ RIGHTS, 51
Death of the Beneficiary, 33
Demonstrative Legacy, 36
Devise, General or Specific, 34
Disclaimer, 10
DISCRETIONARY TRUSTS, 45, 50
Dispensing Power, 17
Duties of Impartiality, 60
Duties of the Trustee, 57
Duty not to Delegate, 60
Duty Not to Mingle Trust funds with the Trustee’s own, 60
Duty of Loyalty, 58
Duty to Collect and Protect Trust Property, 59
Duty to Earmark Trust Property, 60
Duty to Inform and Account to the Beneficiaries, 61
DYNASTY TRUSTS, 45
Elective Share, 4, 39, 40
English System, 5
Extrinsic Evidence, 31
Formalities & Forms, 15
Fraud, 14
General Legacy, 35
Gifts of Income, 67
Gifts to Children or Issue, 68
Gifts to Classes, 67
Guardian, 8
Guardian of the Estate, 8
Guardian of the Person, 8
Half Bloods, 6
Harmless Error, 17
Homicide, 9
Incorporation By Reference, 21
Insane Delusion, 12
Intestacy, 4
INVESTMENT OF TRUST FUNDS, 62
Joint Tenancies, 26
LIABILITY OF THE TRUSTEE TO THIRD PARTIES, 63
Life insurance, 25
Malpractice, 3
Mental Capacity, 11
Migrating Couples, 43
Minor’s Property, 8
Mistakes, 33
Negative Inheritance, 6
Non Marital Children, 7
Nonmarital Children, 69
Per Capita System, 5 plain meaning rule, 31
Posthumus children, 6
Pour Over Wills, 28
Pour-Over Will, 23
Power to Transmit Property at Death, Justification & Limitation, 1
POWERS OF APPOINTMENT, 53
POWERS OF THE TRUSTEE, 62
Premarital Agreements, 42
Privity, 3
Probate Procedure, 2
Quasi-Community Property, 43
Representative’s Actions, 2
Residuary, 36
Restrictions on the Power of Disposition, 37
Revocable Trusts, 26, 29
Revocation by Operation of Law, 21
Revocation of Wills, 18
Revocation, Partial, 19
Revocation, Relative, 20
Rule Against Perpetuities, 70
Rule Against Suspension of the Power of Alienation, 71
Saving Clauses, 71
Self Proving Affidavit, 17
Separate property, 38
Settlor, 45
Shapria v. Union National Bank, 1
Share of Descendants, 5
Share of Spouse, 4
Share of Surviving Spouse, 4
Shares of Ancestors & Collaterals, 6
Specific Legacy, 35
SPENDTHRIFT TRUSTS, 51
Spousal Share, 4
Substantial Compliance, 17
Succession, 9
Surviving Spouse, 38, 39, 43
Taxation of Trusts, 48
Testamentary Capacity, 11
The Class-Closing Rule, 69
Transfers to Children, 6
TRUST A & B FOR SPOUSE, 44
TRUST ADMINISTRATION: THE FIDUCIARY OBLIGATION, 57
TRUST FOR MINOR, 45
Trust, Creation, 46
Trustee, 45
Trustees, Changing, 53
Trusts, 44
Trusts, Intent to create a trust, 46
Trusts, Necessity of Trust Beneficiaries, 48
Trusts, Oral Trusts for Disposition at Death, 50
Trusts, Termination and Modification, 52
Trusts,.Necessity of a Written Instrument, 49
Trusts,.Necessity of Trust Property, 47
Undue Influence, 12
WILL SUBSTITUTES, 24
Will, Components, 21
Will, Executing, 16
Will, Spouse Omitted, 44
Wills, Attested, 15
Wills, Holographic, 17
Wills, Integration, 21
Wills, Omitted Issue, 37
Wills, Personal Usage Exception, 31
Wills, Republication by Codicil, 21
X, 2, 69