Source: https://freelawschooloutlines.wordpress.com/2l3l-outlines/wills-trusts-outline-wexplanations-part-i/
Timestamp: 2017-08-19 20:17:04
Document Index: 210017457

Matched Legal Cases: ['§2', '§ 6130', '§2', '§2', '§6131', '§ 21700', '§ 2', '§15400', '§15403', '§15403', '§ 6', '§ 2', '§ 6300', '§ 2', '§2', '§ 5600', '§ 2', '§ 6', '§ 5302', '§ 5301', '§ 5304', '§5', '§ 5', '§ 4404', '§ 15212', '§ 15206', '§ 15205', '§ 15201', '§ 15200', '§ 15203', '§ 15204', '§15400', '§ 15400', '§ 15202', '§ 1527', '§15205', '§15212', '§502', '§412', '§706', '§6111', '§ 21102', '§ 21122', '§ 12', '§ 2', '§ 21109', '§ 2', '§ 2', '§2', '§2', '§ 21111', '§ 2', '§ 21110', '§ 2', '§ 2']

Wills & Trusts Outline W/Explanations (Part I) | Free Law School Outlines
Components of a Will– if a state Wills Act is not complied with in all of its particulars, a testamentary instrument may not be entitled to probate.
Instruments that must Comply with the Wills Act of the State:
Integration of will
Under the doctrine of integration, all papers present at the time of execution intended to be part of the will, are integrated into the will.
Typically, there is no problem, for the pages of the will are physically connected with a staple.
A document is integrated if:
Document is present at time of execution of will- in existence
T must have intended for document to be integrated into the will.
Must be a valid description of document
The attorney can prevent any problem from arising under the integration doctrine by seeing to it that the will is fastened together before the testator signs and by having the testator sign or initial each numbered page of the will for identification.
Codicils– types of will that merely amend already existing wills
A will is treated as re-executed as of the date of the codicil.
Republication by codicil:
Suppose that the testator revokes a first will by a second will
Then executes a codicil to the first.
The first will is republished, and thus the second will is revoked by implication.
First will then has new date- that of the codicil.
Republication by codicil is not applied automatically, but only where the will carries out the testator’s intent.
ONLY applies to prior, VALIDLY executed will (compared with “Incorporation by reference”)
BUT Johnson v. Johnson Supreme OK 1954 p279
Issue: May a valid holographic codicil republish and validate a will that was theretofore inoperative because it was not signed, dated, or attested according to law?
A will may be so defective, that it is not entitled to probate, but if testamentary in character it is a will nonetheless.
By definition a codicil is a supplement to an existing will made by the testator to alter, enlarge, or restrict its provisions and it must be testamentary in character. A codicil need not be called one, rather it is the intention to add a codicil that controls.
The general rule is that a codicil validly executed operates as a republication of the will no matter what defects may have existed in the execution of the earlier document.
WHY did they rule this way? The holograph incorporated the older will, and republished it. This turns the court around, and is really a mix of republication (in the codicil) and incorporation by reference (by referring to previous invalid will).
Incorporates into a will instruments that have never been validly executed– compared with republication by codicil which requires a prior, valid will.
UPC §2-510 Incorporation by Reference/ CPC § 6130 Incorporation by reference
Any writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification.
NY, LA, CT DO NOT HAVE IT
Will must manifest intent by T to incorporate a document
Document to be incorporated must be in existence at time of execution of will
If the document is in existence at the time of codicil, which republishes the will, then the document was in existence and therefore may be incorporated.
Remember, though, that while what must be incorporated must be in existence, the document may be altered after the will is executed, and in UPC 2-513- it may be created after will execution- only needs to be signed.
Will must satisfactorily identify the document with clarity
UPC §2-513 Separate Writing Identifying Bequest of Tangible Property
Whether or not the provisions relating to holographic wills apply, a will may refer to a written statement or list to dispose of items of tangible personal property not otherwise specifically disposed of by the will, other than money.
To be admissible under this section as evidence of the intended disposition, the writing must be signed by the testator and must describe the items and the devisees with reasonable certainty. The writing may be referred to as one to be in existence at the time of the testator’s death; it may be prepared before or after the execution of the will; it may be altered by the testator after its preparation; and it may be a writing that has no significance apart from its effect on the dispositions made by the will.
UPC 2-510 v. UPC 2-513
2-510 says document must be in existence at execution
2-513 says document doesn’t have to be in existence, but must be signed by testator and only applies to tangible property
Advantages of Incorporation by Reference
Pages that cannot be integrated because they were not present at the time of the will’s execution nevertheless may be given effect under the doctrine.
More room for fraud and uncertainty
Problems p309– T executed a deed to his farm that named his niece as grantee. The deed was sealed in an envelope and placed by the T in his safe-deposit box at a local bank, where it remained until his death. Sometime later, T executed a will, with provision, “I have already deeded my farm to my niece and for that reason I do not devise my farm to her in this will. After T’s death, it was held that deed was not effective to convey title, because it was never ‘delivered’. Niece argues that will incorporated the deed by reference. What result?
Courts have held that this should be incorporated by reference, because they cannot correct the error by adding anything to the will, so they generously apply the doctrine here.
Problems p284– Cases have held that handwritten words across typewritten will can operate in 2 ways.
Handwritten words can operate as a holographic codicil, because they do not intend to incorporate the rest of the typed material. The holographic codicil, however, republishes the typed will, as modified.
Handwritten words can be deemed not holographic codicils, because by themselves, they make no sense apart from the type-written words.
Another doctrine which permits extrinsic evidence to identify
the will beneficiaries or
property passing under the will.
If the beneficiary or property designations are identified by acts or events that have a lifetime motive and significance apart from their effect on the will, the gift will be upheld under the doctrine of acts of independent significance.
Eg. I devise ‘the automobile that I own at my death’ to ‘each person who shall be in my employ at my death.’
Translation- sort of like writing a term that’s unspecified, but that has a meaning outside of the will, some other meaning than testamentary- the court can only justify giving some wacky devise to beneficiary if there could have been some real reason for where it is located, or what it entails
This doctrine holds true even though the phrasing of the will leaves it in the testator’s power to alter the beneficiaries or the property by a nontestamentary act.
IS: “I leave my car to Bob”
IS: “I give contents of my safe deposit to Bob”
This has sufficient independent significance- contents are put there for safekeeping
IS: “To Bob such stock as will be found in separate envelopes in my safe deposit box”
Although placing stock in separate envelopes seems to have no other independent significance or motive than testamentary, the situation is relatively free from fraud.
IS NOT: If envelopes are in a desk drawer that many people could access- there would be fraud potential.
UPC §2-512 Events of Independent Significance/CPC §6131 References to acts and events of independent significance
A will may dispose of property by reference to acts and events that have significance apart from their effect upon the dispositions made by the will, whether the acts and events occur before or after the execution of the will or before or after the testator’s death. The execution or revocation of a will of another person is such an event.
If you can’t use this doctrine, try incorporation by reference.
A person may enter into a contract to make a will or a contract not to revoke a will.
The beneficiary of these wills must prove a valid contract.
If contract is not followed? the will is probated but the contract beneficiary is entitled to enforce the contract by having a constructive trust impressed for his benefit.
Issues arise under these when there is a claimed promise to make a will in exchange for something.
In many states, a contract to make a will must be in writing. In these states, if the promisee does not sue for specific performance, then they sue for quantum meruit– the services they did render.
In some states, an oral contract to make a will is specifically enforceable provided the terms are proved by clear and convincing evidence.
Remember, there must be consideration for the contract made.
If the K involves a spouse taking care of the other spouse, that is not consideration as it is the pre-existing duty of the spouse
Issues here arise where husband and wife have executed a joint will or mutual wills.
Joint will- one instrument executed by two or more persons. When one testator dies, the instrument is probated as the testator’s will- when the other dies, the instrument is probated as their will.
Mutual wills- separate wills with reciprocal provisions.
Joint and mutual wills- a joint will that devises the property in accordance with a contract.
Not enforceable unless it is proved by clear and convincing evidence
CPC § 21700(b) The mere execution of a joint will or of mutual wills does not give rise to a presumption of contract.
To reduce litigation, UPC tightens the methods by which contracts relating to wills can be proved:
UPC § 2-514 Contracts Concerning Succession
A contract to make a will or devise, or not to revoke a will or devise, or to die intestate, if executed after the effective date of this Article, may be established only by
provisions of a will stating material provisions of the contract,
an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or
a writing signed by the decedent evidencing the contract. The execution of a joint will or mutual wills does not create a presumption of a contract not to revoke the will or wills.
BUT- When elective share by new spouse is in conflict with will contract not to revoke?
Via v. Putnam, Supreme FL 1995 p290 (Minority)
Edgar and Joann Putnam executed mutual wills contracting that the survivor not do anything to defeat what was set forth therein. The wills devised the spouse’s entire estate to the survivor and the residuary estate to the children upon the survivor’s death.
After Joann died, Edgar remarried and did not execute a subsequent will providing for his new wife, Rachael Putnam.
Upon Edgar’s death, P (Rachael) filed petition to determine the share of Joann and an election to take her share.
The children of the first marriage (Ds) filed claims against the estate alleging that by his remarriage, Edgar violated his contract not to defeat the distribution in the will.
Issue: Should the claims of the decedent’s children as TPBs under the mutual wills of their parents be given creditor status under FL law when their interests conflict with the surviving spouse under the spouse statute?
No. Children are not 3rd party beneficiaries and spouse takes despite contract.
This is minority rule.
CA Majority rule – give priority to k beneficiary- would favor kinds/beneficiaries
Contracts that discourage or restrain the right to marry are void as against public policy.
Surviving spouse- when one spouse dies, the other is limited on the use and disposal of the property inherited, like a trustee. So if Putnam died before Edgar, he would have to act in a way that protected children’s TPB share. These decisions are tough.
Plus, there may be inherent a duty of good faith and fair dealing. He would have to act in a way as to not deplete what they gain. Tough again.
Text seems to urge parties to avoid joint wills, and suggest a trust situation- the property is in a trust for both spouses, and one is the trustee- so has limited abilities, but those duties are clearer than under joint situation.
Revocable TRUSTS as Will Substitutes/Non-Probate Transfers
A trust is a management relation whereby the trustee manages property for the benefit of one or more beneficiaries
The trustee holds legal title to the property & beneficiary holds equitable title
The trustee owes fiduciary duties to the beneficiaries, including loyalty to them and prudence in investments.
The trustee may be one of the beneficiaries, but may not be the sole beneficiary, because then there is no one to whom he owes a fiduciary duty to other than himself.
Don’t have to give up anything of significance
Property may be managed by fiduciary instead of settlor
Keeping the title clear- keeps spouse’s property separate
Costs less than probate
Fewer delays than probate
Less publicity than will
Ancillary probate when will transfers property out of state is not necessary
Can choose the law of another jurisdiction
Trust is harder to contest
Creditors have longer SOL
Restrictions protecting other family members- spouses- don’t exist like with will (could be advantage!)
Lack of certainty in the law, unlike wills
A Revocable Inter Vivos Trust, sometimes called a Living trust, is the most flexible of all will substitutes because the donor can draft the dispositive provisions and the administrative provisions precisely to the donors liking.
Deed/Transfer of Trust-The typical revocable intervivos trust, occurs when the trust settlor transfers legal title to property to another person as trustee pursuant to a writing in which the settlor retains the power to revoke, alter, or amend the trust and has the right to trust income during her lifetime.
The settlor can co-trustee
The trust can be funded or unfunded.
Revocable Declaration of Trust– The second context that revocable trusts arise, under which the settlor declares himself trustee for the benefit of himself during lifetime, with the remainder to pass to others at his death.
In the instrument, the settlor should name a successor trustee to take over after death OR INCOMPETENCY.
Revocable trusts are valid in all jurisdictions.
Retention of Control by Settlor- Too much? (declaration of trust)
If the settlor remains numerous powers and lacks the true trust ‘intent’, the trust may be ruled illusory.
HOWEVER, as long as the trust creates some interests in some category of beneficiaries, courts will recognize a valid nontestamentary trust even though the settlor retains extensive powers.
Creation of valid inter vivos trust NOTWITHSTANDING control retained by settlor/trustee
Farkas v. Williams Supreme IL 1955 p352
Farkas, who died intestate, signed separate declarations of trust to Williams and several others- all identical except for dates. In each of these declarations, Farkas reserved to himself as settlor the following powers:
The right to receive during his lifetime all cash dividends
The right at any time to change the beneficiary or revoke the trust
Upon sale or redemption of any portion of the trust property, the right to retain the proceeds therefrom for his own use.
Does the fact that the interest of a beneficiary is contingent upon a certain state of facts existing at the time of the settlor’s death indicate that no present interest is acquired in the subject matter of a trust, and hence render a trust instrument testamentary in character?
NO. Williams acquired a present interest in the subject matter of the intended trusts. Farkas, immediately after the execution of the instruments, could not deal with the stock in the same manner as if he owned the property absolutely.
THIS IS KEY: This distinction is what made it certain a trust was created.
If settlor owes fiduciary duties to another, or has created an equitable interest in someone other than himself, there is a trust.
If not, no trust.
Does the retention of power by a settlor to redeem stock and keep the proceeds for his own use, to change the beneficiary, and to revoke the trust indicate that the settlor has retained such control over the subject matter of a trust so as to render a trust instrument testamentary in character?
NO. The retention by the settlor of the power to revoke, even when coupled with a reservation of a life interest in the trust property, does not render the trust inoperative for want of execution of a will.
This case gives good tactic to clients interested in avoiding probate: Do what Farkas did- declare yourself trustee of your property by using a revocable declaration of trust, with the trust property to pass to named beneficiaries upon your death.
Estate of Brenner-
Settlor declared a trust & then 5 days later actually acquired the property. Trust didn’t come into existence unti the trust gets the property
Declaration of trust & getting the property doesn’t have to be concurrent
Mere expectancy (life insurance) may be present property
Trust is only revoked if→ presumption irrevocable
Settlor retains right to revoke it in the way he specifies
It’s done in the manner/circumstances he specifies
Majority→ you create a trust inter vivos, generally the majority assume it is irrevocable unless the instrument that creates the trust allow it to be revoked.
CA Exception (minority):§15400 CA presumes all intervivos trusts are revocable unless there’s an express provision stating otherwise
§15403- CPC §15403: Modification or termination of irrevocable trust by all beneficiaries.
a) except as provided in sub (b), if all beneficiaries of an irrevocable trust consent, they may compel modification or termination of the trust upon petition to the court.
b) if the continuance of the trust is necessary to carry out the material purpose of the trust, the trust cannot be modified or terminated unless the court, in its discretion, determines that the reason for doing so under the circumstances outweighs the interest in accomplishing a material purpose of the trust….
All beneficiaries of irrevocable trust—can petition to modify or terminate unless continuance of trust is necessary to carry out material purpose of trust
CPC 15404: modification or termination by settlor and all beneficiaries.
a) if a settlor and all beneficiaries of a trust consent, they may compel the modification or termination of the trust.
b) if any beneficiary does not consent to the modification or termination of the trust,
upon petition to the court, the other beneficiaries, with consent of the settlor, may compel a modification or partial termination of the trust if the interests of the beneficiaries who do not consent are not substantially impaired.
c) talks about limiting ben need to compel the modification or term
Small enough that defeats trust purpose and should be able to terminate.
CPC 15409: modification or termination in changed circumstances
a) on petition by a trustee or beneficiary, the court may modify the administrative or dispositive provisions of the trust or terminate the trust if, owing to circs not known to the settlor and not anticipated by the settlor, the continuation of the trust under its terms would defeat or substantially impair the accomplishment of the purposes of the trust.
See Klimer v. Meyer
GR: If there is no method stated by which it should be revoked, then any reasonable revocation can be used, however if the trust instrument gives a method of revocation, then the court requires that that method be followed
Note that you can create an irrevocable trust
Cannot revoke trust with provision in will
In re Estate and Trust of Pilafas AZ 1992 p307- e.g. of pour-over will (see below)
Common Law Presumption of wills– if a will is last seen in a testator’s possession and cannot be found after his death, the testator destroyed the will.
BUT A trust, unlike a will, involves the present transfer of property interests to beneficiaries. These interests can only be taken from the beneficiaries 1) in accord with a trust provision 2) by their own acts or 3) by a court decree
T’s trust provision allowed revocation by a written instrument only
“If a settlor reserves a power to revoke the trust by transaction inter vivos, by a notice to the trustee, he cannot revoke his trust by his will.”
Uniform Trust Act provides that a revocable trust may be revoked, unless the terms of the trust explicitly make the specified method exclusive. That is, if settlor specifies way, unless they say that is the only way- then they can revoke any way they want.
Re3d Trusts- a revocable trust may be revoked, absent contrary provision in the terms of the trust…in any way that provides clear & convincing evidence of the settlor’s intention to do so, which includes revocation by will
Problems p. 308
Suppose that Pilafas, the settlor in the preceding case, had executed a will expressly revoking the inter vivos trust. This will is found among his papers at death. Does it revoke the trust?
The trust says writing, but does not say what type—the will might qualify
if Pilfas was one of the trustee—then revoked because he has it
but if not a trustee—then still not revoked because not delivered to trustee.
Should it matter if it is a transfer in trust or a declaration of trust?
In decleration of trust, a later will effectively revokes the trust
A transfer of trust instance, cases say it will not be proper as there has effectively never been a delivery to the trustee
What if trust instrument was silent as to method of revocation?
1) Whether a transfer or a decleration of trust you only need a reasonable manner of revocation, and this example would be deemed reasonable.
Creditors may reach trust assets over which the settlor had control at the time of his death.
If settlor made irrevocable trust, then at death creditors cannot get to it
If settlor made revocable trust, then at death they can get to it
If you create a trust for your own benefit, your creditors can reach the maximum that trustees could pay you, or you could pay yourself
Rationale– settlor retains all ownership until death, can’t hide behind it
State Street Bank & Trust v. Reiser MA 1979 p308
Decedent, Wilfred Dunnebier, created an inter vivos trust with power to amend or revoke the trust, and conveyed to the trust the capital stock of five closely held corporations (subject to creditors).
Right after the execution of the trust, T executed a will under which he left his residuary estate to the trust.
Issue– When a settlor places property in trust, may the settlor’s creditors reach those assets owned by the trust (residuary estate?) over which the settlor had control at the time of death?
YES. Credits can reach the assets of a revocable trust. This is just another way of transferring property so it should be treated as probated property
But– assets that pour over into such a trust as a consequence of the settlor’s death over which the settlor did not have control during his life are not subject to the reach of creditors.
NOTE- If probate assets (wills) are insufficient, UPC § 6-215 allows creditors to reach a decedent’s payable on death P.O.D. accounts and his joint bank accounts.
Should there be a staotute of limitations by which creditors can no longer come after a trust beneficiary? CA code allows trustee of revocable trust to provide notice of the trust assets they receive and this will avoid creditors coming out of woodwork later.
Testamentary “Pour-Over Wills” into an Inter Vivos Trust
The settlor creates a revocable inter vivos trust by naming a trustee and then transferring probate assets (stocks and bonds) to that trustee.
The settlor then executes a will devising the residue of his estate to the trustee, to hold as trustee under the terms of the trust.
Property that passes from the will “pours into” the trust.
2 Theories were found useful in validating pour-over wills in probate
Incorporation by reference- a will can incorporate by reference a trust instrument in existence at the time the will is executed, but it cannot incorporate trust amendments made after the will is executed.
Create trust first!
Create will next, incorporate trust into will by referring to trust and its provisions
Can’t change terms of trust though
Doctrine of independent significance- a will may dispose of property by referring to some act that has significance apart from disposing of probate assets.
The trust instrument does not have to be in existence when the will is executed, but the trust must have some assets in it before the time of the testator’s death.
Trust must exist apart from ability to transfer property at death (independent significance)
Can change terms of trust after having executed
Incorporation by reference- trust instrument must be in existence at time will is executed.
Independent significance- inter vivos trust must have some property transferred to it during life
Advantages of Pour Over Wills into Trusts
Trust easier to amend than will
Trust can serve as receptacle for other assets- life insurance, etc.
T may “pour over” into trust created by someone else- spouse, etc.
Don’t have to pay probate fees
Unify & distribute all assets through the trusts
UPC § 2-511 Testamentary Additions to Trusts / CPC § 6300
A will may validly devise property to the trustee of a trust established or to be established
during the testator’s lifetime by the testator, or
at the testator’s death by the testator’s devise to the trustee.
The devise is not invalid because the trust is amendable or revocable, or because the trust was amended after the execution of the will or the testator’s death.
Unless the testator’s will provides otherwise, a revocation or termination of the trust before the testator’s death causes the devise to lapse.
THIS SECTION- validates a pour-over of probate assets into an inter vivos trust only if the trust instrument is executed before or concurrently with the will.
BUT- trust can be amended after T’s death by some document incorporated by reference which changes it.
Problems p312
Revisions to Uniform Testamentary Additions to Trusts Act permit a pour-over trust to be created after the will is executed. Why does UPC § 2-510 doctrine of incorporation by reference continue to require a writing to be in existence when it is incorporated into a will?
Less possibility of fraud in world of trusts.
Assume Uniform Testamentary Additions to Trusts Act is valid. What if T, with a house full of things, executes a trust deed that names W as trustee and provides that W shall distribute the trust property in equal shares to W, L, S and R. The trust deed provides that the trust can be revoked or amended at any time by written or oral communication to W from T. T subsequently makes a will pouring over all property into the trust. T invites W for a visit and tells W exactly what item she wants to go to whom. T then writes a letter indicating a memo will be created which gives instructions regarding silver and heirlooms. At T’s death, the memo is found. What happens?
Is it possible to have oral will by executing a will pouring assets into inter vivos trust amendable by oral instructions? What has to be in writing? The trust itself? The amendments to the trust?
RULE per 2-510- The trust instrument has to be in writing, but amendments to the trust need not be in writing.
§2-511 says the devise is not invalid because the trust is amendable or revocable, or because the trust was amended after the execution the execution of the will OR the testator’s death. Thus, one could argue that Fanny’s oral amendments should be effective in disposing her property.
CPC 6300 is based on the Uniform Trust Act and arguably should be interpreted similarly, although the specific language of the statute does not allow for the creation of an instrument after the execution of the testator’s will.
The intention of the legislative branch and history was that CPC 6300 is to be the same as the UPC which allows for the creation of an instrument established after the execution of the testator’s will, so W could argue this.
Traditionally, a revocable trust can dispose only of property transferred to the trust during life, and settlor cannot transfer to the trust property the settlor does not have at the time of creating the trust.
You can do it with will, and you can do it with a will pouring over after-acquired property into the trust, but does not seem like you can dispose of property transferred to the trust after death via a memo.
Might be because trust is present transfer, and can’t transfer something you don’t have via the trust, but may via the will.
Lastly, though, W could argue- look to T’s intent!
Unfunded life insurance trust –(Valid)- exists when a settlor names the trustee of her trust the beneficiary of her life insurance policy, but does not add any other fund or assets to the trust.
In Clymer, the trust res (property) – a necessary ingredient for a valid trust – exists in the trustee’s contingent right to receive the proceeds of the policy. This right is a valuable property right because if the insured dies without changing the policy beneficiary the trustee will be entitled to the policy proceeds.
Funded inter vivos trust – exists when a settlor adds other assets to the inter vivos trust other than the life insurance policy.
Will provisions are revoked upon divorce
Trust provisions can also be revoked, particularly where the trust was executed as part of a comprehensive estate plan
Some would even revoke trust to spouse’s child.
CPC § 5600 Nonprobate transfer to former spouse executed before or during marriage
A nonprobate transfer to the transferor’s former spouse fails if at the time of the transferor’s death, the former spouse is not the transferor’s surviving spouse
Unless there is clear and convincing evidence that the transferor intended to preserve the transfer
UPC § 2-804 revokes not only all provisions for the divorced spouse in revocable inter vivos trusts but also in other revocable will substitutes, AND all provisions for a relative of a divorced spouse
Effect of divorce on validity of dispositions to former spouse made by revocable inter vivos trust
Clymer v. Mayo MA Supreme 1985 p375
Decedent, Clara Mayo (T), was married to James Mayo (D) from 1953 to 1978. They had no children and sole heirs were parents.
Because of $300,000 gift, couple executed new wills and trusts in 1973 wherein each other was made principal beneficiary.
Under the terms of the will, D was to receive T’s property. The residue of the estate was to “pour over” into the inter vivos trust she created that same day.
T’s trust name herself and John Hill trustees. T retained the right to revoke or amend.
Mayos divorced in 1978. Court incorporated into their divorce a stipulation of their property settlement. D waived any right, title, or interest in T’s securities, savings accounts and certificates, retirement fund, furniture and art.
T died in 1981.
Did T create a valid trust despite the fact that it was not funded until her death? YES.
Does a statute that revokes any disposition to former spouse made by will– apply to revoke dispositions to the former spouse made by a revocable inter vivos trust that has no funding or significance until T’s death? YES.
“Probate courts are empowered to terminate or reform a trust in whole or in part when its purposes have become impossible to achieve and the settlor did not contemplate continuation of the trust under new circumstances.”
The divorce was not clear and unequivocal. He waived certain rights, but didn’t waive any interest he may have had as beneficiary of trust.
“Reference to an existing trust in a will’s pour-over clause is not of itself sufficient to incorporate that trust by reference without evidence that the testator intended that result.
The MA statute that revoked any disposition to a former spouse “made by the will” was applicable to revoke dispositions to a divorced husband made by a revocable inter vivos trust- inasmuch as the trust had no funding or significance until the T’s death.
“Nieces and nephews” of D got to take.
Ways to set up a trust for proceeds of an insurance policy:
Start w/a valid stand alone trust w/res
or set up an unfunded revocable life insurance trust- contingent right
execute a will & pour over residue into the trust- creates a unified trust
advantage- treated as an inter vivos trust so the property is not treated as propate property
Will Substitutes: Non-Probate Transfers
Contracts with Payable-on Death (POD) Provisions
Transfers that are made during life that have effect of passing property at death, avoiding probate.
Doesn’t have to comply with formalities that come from making a will.
Deemed “Nontestamentary”- Under the UPC, written agreements to pay, after the death of the decedent, money or other benefits to a person designated by the decedent in either the instrument or a separate writing are deemed to be nontestamentary.
UPC § 6-101 Nonprobate Transfers on Death
A provision for a nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage, promissory note, certificated or uncertificated security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or other written instrument of a similar nature is nontestamentary. This subsection includes a written provision that:
money or other benefits due to, controlled by, or owned by a decedent before death must be paid after the decedent’s death to a person whom the decedent designates either in the instrument or in a separate writing, including a will, executed either before or at the same time as the instrument, or later;
money due or to become due under the instrument ceases to be payable in the event of death of the promisee or the promisor before payment or demand; or
any property controlled by or owned by the decedent before death which is the subject of the instrument passes to a person the decedent designates either in the instrument or in a separate writing, including a will, executed either before or at the same time as the instrument, or later.
This section does not limit rights of creditors under other laws of this State.
The issue in these cases includes whether a beneficiary of a life insurance policy can be changed by will.
A majority of courts hold that if the policy requires written notice of change of beneficiary filed with the insurance company, the beneficiary of a life insurance policy may not be changed by will.
Traditional→ Successor beneficiary not permitted in life insurance contract→ Can change beneficiary of life insurance policy by will
Wilhoit v. Peoples Life Insurance Co., Ct of Appeals 7th Cir. 1955 p325
Issue: Where the proceeds of a life insurance policy are to be disposed of in accordance with its provisions, may a beneficiary of the policy designate a successor beneficiary (to take upon the death of the primary beneficiary?)
No. The will provision takes effect over a successor beneficiary of life insurance. A successor in a life insurance policy would not be executed with formalities required by Wills Act.
Modern→ Cannot Change the Beneficiary of Life Insurance Policy by Will
Cook v. Equitable Life Assurance Society 1981 p331
Decedent, Douglas Cook (T), purchased a whole life insurance policy in 1953 naming his wife, Doris, as the beneficiary.
In 1965, T and Doris were divorced.
After the divorce, T stopped paying the premiums on his life insurance policy and the company notified him in 1965 that his whole life policy was automatically converted to a paid-up term policy. It contained a provision allowing the owner to change the beneficiary by written notice provided that the change is endorsed on the policy by the insurance company
ISSUE: Can a beneficiary of a life insurance policy be changed by the testator’s intent as expressed by will.
An attempt by the insured to change the beneficiary without more is invalid. The insurance companies have specified policies which must be followed so that they may pay benefits to the persons properly entitled to them without subjecting themselves to claims by others of whose rights they had no notice or knowledge.
Compliance with the requirements of an insurance policy will be enough to change the beneficiary, but Douglas Cook did nothing in 14 years before his death other than the will to change the beneficiary.
This case follows majority on need to stick to insurance formalities.
This case follows majority on fact that divorce does not revoke spouse’s status as beneficiary on life insurance.
Notes– if it is possible for a person who wants to avoid probate- and they set up payable on death contracts- shouldn’t they be able to make, what the note calls a “super-will”- under which you can change the beneficiaries on all of your POD contracts?
Policy wise– not a good idea.
Formalities need not be followed for partnership agreements/ TPB contracts
Estate of Hillowitz, Appeals NY 1968 p328
Issue: Is a partnership agreement providing that, upon the death of one partner, his interest shall pass to the surviving partner or partner, resting in contract– valid?
This is a third-party beneficiary contract, performable at death- it need not conform to the requirements of the statute of wills.
Other such Ks include
Contracts to include a will
Inter vivos trusts in which the settlor reserves a life estate
Arguments have been made that lapses that occur when beneficiary predeceases T, applying to wills, should also apply to will substitutes. Reason being- that people use will substitutes not to get out of formal rules, but to get out of probate.
Multiple-Party Bank Accounts– These include joint and survivor account, agency account, payable-on death account, and savings account (Totten trust)
CPC § 5302 Sums Remaining Upon Death of Party
Sums remaining on deposit at the death of a party to a joint account belong to the surviving party as against the estate of the decedent unless there is clear and convincing evidence of a different intent.
Joint bank account– gives rise to a number of difficulties because it is used for a variety of purposes.
A, bank depositor, may open joint account with B, intending:
True Joint Tenancy Account- That either A or B is to have power to draw on the account and the survivor owns the balance of the account
P.O.D. Account- B is not to have power to withdraw on the account during life but upon A’s death
CPC § 5301(b) Lifetime Ownership– In the case of a POD account, payee has no right to money during the lifetime of decedent, unless evidenced otherwise
The POD beneficiary designation of a bank account can be changed during life of T- just not by will.
This is contrasted with silence of UPC stance of authorizing change of POD contract beneficiary
CPC § 5304– These transfers are NOT testamentary, not part of probate estate.
Agency Account- B is to have power to draw on the account during A’s life but not at A’s death→ is not entitled to balance at A’s death
When setting up the account, court will look to intent of testator. Even though the signature card may say one thing, the testator may have meant another.
In minority- the signature card was conclusive evidence- most Js, you can bring in evidence to show otherwise.
Joint Bank Account: Lack of Donative Intent at time of Joint Tenancy creation=Severance of Joint tenancy?
Franklin v. Anna National Bank of Anna IL 1986 p345
The executor of the decedent’s estate brought an action against the bank alleging that funds in a joint savings account were the property of the estate.
The bank interpleaded that Goddard, T’s sister, had a right to the money as a surviving joint owner.
ISSUE: Does evidence of lack of ordinary donative intent at the time of creation of a joint tenancy sever the joint tenancy?
BUT- Evidence of lack of donative intent must relate back to the time of creation of the joint tenancy.
The decision of the donor, after the creation, that he did not want the proceeds to pass, would not in itself, be sufficient.
PRESUMPTION- is for the instrument creating a joint tenancy. In order to go behind these terms, one claiming adversely thereto has the burden of establishing by clear and convincing evidence that a gift was not intended.
In recent years, in order to avoid litigation costs of determining intent of account opener, courts have ruled that a joint bank account conclusively establishes a right of survivorship- evidence to the contrary is not admissible.
A deposits money in savings account as trustee for B and retains the right to revoke the trust by withdrawing funds during A’s lifetime- and right to name new beneficiary. B, the beneficiary, is allowed to take whatever is left.
This has been upheld in most jurisdictions as
A POD account
NOT testamentary, so not subject to probate.
A joint tenancy or a tenancy by the entirety in land is a common and popular method of avoiding the cost and delay of probate.
Upon the death of one joint tenant or tenant by the entirety, the survivor owns the property absolutely, freed of any participation by the decedent.
A creditor of a joint tenant must thus seize the joint tenant’s interest during life.
The creation of a joint tenancy in land gives the joint tenants equal interests upon creation- person who transfers land into a joint tenancy cannot revoke. In contrast, a POD designation can be changed by the owner during life.
A joint tenant cannot devise his or her share by will. If joint tenant wants someone else to take, he must sever the joint tenancy during life, converting it into a tenancy at common.
Planning for Incapacity pp.346
Determining incapacity is difficult and there is no one way of doing so
Tools available to the attorney planning for the possible incapacity of the client
Unlike ordinary power of attorney, which terminates on the incapacity of the principal, a durable power continues throughout the incapacity of the principal until the principal dies.
Permitted by UPC §5-501 or § 5-505 in all states. CPC § 4404
Despite similarities, there are differences between irrevocable trust and durable power of attorney:
A durable power ceases when the principal dies.
A durable power does not avoid probate.
A trust continues after the settlor’s death
Trust transfers power without probate.
A power of attorney is an instrument by which a principal confers express authority on an agent to perform certain acts or kinds of acts on the principal’s behalf.
A trustee has title to the trust assets and generally has all the powers an owner has- trustee can sell and reinvest the trust property.
Agent’s actions upheld, even if to amend the will
Franzen v. Norwest Bank Colorado Supreme CO 1998 p347
James Franzen created a trust for the benefit of himself and his wife, Frances Franzen. James died four months later.
The bank was concerned because the trust did not include the vacant home and other assets.
Mrs. Franzen’s brother moved her to Kentucky and provided the bank with a power of attorney authorizing him to act on her behalf and purporting to revoke the trust and removing the bank as trustee.
Rule– A power of attorney giving an agent broad authority to act on behalf of the principal should be construed in light of the surrounding circumstances.
DICTA– where a broadly worded power of attorney arguably authorizes acts that may be inconsistent with the principal’s interests or intent, the instrument should not be interpreted as allowing the agent to undertake such acts in the absence of specific authority.
NOTE– this holding gives the attorney in fact the power to change the will once the principal becomes incompetent. An individual who drafts such a broad power may unleash a dangerous weapon in the hands of an unscrupulous individual.
The holding, though, is against the law in CO, but the law couldn’t impose a restriction retroactively
CPC 15401(c)
A trust may not be modified or revoked by an attorney in fact under a power of attorney unless it is expressly permitted by the trust instrument.
CA law is very specific, as was CO law that couldn’t be applied in previous cases.
Hypo: have a person that leaves house to A and remaining cash to B and names B atty in fact, then person becomes incompetent and that person has lots of bills. B who is to get the cash residue also has power of atty during the testator’s life time. As bills come rather than use the cash he will get under the residuary clause, he says he will sell house to pay bills and get cash to pay bills.
So A gets nothing under doctrine of ademption?
At C/L in atty in fact (power of atty) can’t act against the interest of the principal
CPC 4232: principal’s interest; conflicts
a) an atty-in-fact has a duty to act soley in the interest of the principal and to avoid conflicts of interest (hypo above)
b) an atty-in-fact is not in violation of the duty provided in sub (a) soley because the atty in fact also benefits from acting for the principal, has conflicting interests in relation to the property, care, or affairs of the principal, or acts in an inconsistent manner regarding the respective interests of the principal and the atty-in fact.
CPC 21134: person that lost out because of atty wrong act probably be able to sue atty in fact that abused power to get back the value of the house—above hypo.
Case law has held that while T may give gifts regularly during his or her life, upon death, there is no power of attorney to give gifts, because there is no knowing whether decedent would have revoked those gifts.
The only way to allow gifts to be given by attorney are to provide for their giving in the power of attorney explicitly.
Directives Regarding Health Care and Disposition of the Body
In Cruzan v. Director MO Department of Health, the Supreme Court held that a person may make known her desires regarding termination of medical treatment, or may appoint a surrogate to make those decisions.
A document has been created called a living will, which contains directives concerning termination of medical treatment, but it could possibly be viewed as an advance disposition of a person’s life when competence is lost.
Almost all states have living will legislation.
The living will provides that the life of a terminally ill person shall not be prolonged by extraordinary measures.
In every state that has them, there is exception for pregnancy.
An alternative to living will. A person can appoint an agent to make health care decisions in case of the person’s incompetency.
All states have enacted Uniform Anatomical Gift Acts, which allow a person to donate his body to any hospital, physician, or medical school for research or transplantation.
California has adopted the Uniform Anatomical Gifts Act
testator by clear and convincing evidence.
Generally speaking, a trust is a device whereby a trustee manages property for one or more beneficiaries.
In the modern trust, the trustee holds legal title and the responsibilities of management and the beneficiaries have equitable title and the benefits flowing from the trustee’s management.
Language to show an intent to create a trust
Naming of a beneficiary or beneficial interest in someone else
If the trustee isn’t named, the trustee will probably be created and a new trustee will be appointed by a court.
Private Express Trust: Created by the express intention of the owner of property. Types:
Revocable Trust: A declares himself trustee with income to A for life, and upon A’s death the principal goes to A’s children.
A retains the power to revoke during lifetime
This avoids the expense and delay of probate.
Marital Trust: Federal estate law permits a marital deduction for property given to the surviving spouse. The deduction is allowed for a life estate to be given to the spouse.
A devises property to X to hold in trust, with income going to spouse B for her life, and upon B’s death, property goes to A’s children.
Trust for an Incompetent Person: A transfers property to X to hold in trust for B (incompetent) until B dies, then the property goes to issue of B
Trust for a Minor: Federal tax free gift of 10K a year to a minor, A creates a trust with A as trustee for B, when B reaches 21 principal goes to B
Can make a 10K gift every year
When not seeking the gift tax exclusion, the settlor can create a trust for a minor postponing the distribution to the beneficiary until she reaches 25 or 30, when they deem beneficiary mature enough.
Dynasty Trust: A devises property to X in trust with income going to A’s children, then grandchildren, then great grandchildren.
Preserves family capital and reduces or eliminates estate and generation-skipping transfer taxes
Can last for 100 years in some Jxs, in some it lasts forever.
Discretionary Trust: A devises property to X in trust, who at his complete and sole discretion gives income to A.
Makes the trust property unreachable by A’s creditors
Divides the family’s wealth and gives to individuals in lowest tax bracket
Charitable Trusts: Same structure as above, BUT no definite class of beneficiaries need be named.
Resulting Trust: A trust that is created for the presumed intention of the owner of the property by operation of law. (SOF DOES NOT APPLY).
Occurs in one of two situations:
When an express trust fails or makes an incomplete disposition, OR
Purchase Money Resulting Trust: When one person pays the purchase price for a property to be taken in the name of another, the other holds it in trust for the original purchaser (unless it was an outright gift to a natural object of the purchaser’s bounty ie child or spouse)
Used to evade creditors by placing the property in another’s name
Constructive Trust: Created by an operation of law to prevent unjust enrichment and/or fraud. (SOF DOES NOT APPLY).
Law of equity converts a holder of property who does not really deserve it (induced by fraud, procured by homicide?) into a constructive trustee for another beneficiary
Confidential or fiduciary relationship
Promise by the transferee
Transfer of property in reliance on the promise
Unjust enrichment of the transferee
If the donee changes position to their detriment in reliance on the promised gift, it will be held in trust for him by the donor
Applies if the donor dies before an effective transfer of the property
Honorary Trust: One that is not enforceable by the beneficiaries (ie for the care of a dog), but may fail because the law requires a beneficiary with enforceable legal claims against a trustee
CPC § 15212: Trusts for care of animals; duration
A trust for the care of a designated domestic or pet animal may be performed by the trustee for the life of the animal, whether or not there is a beneficiary who can seek enforcement.
Effect of death of the donor
Where the owner of property makes an ineffective conveyance of an intended gift, he is not ordinarily compelled to complete the gift.
But if the owner of the property dies believing that he has made an effective gift, and if the donee is the natural object of his bounty, such as a wife or child, it has been held that the donee can obtain the aid of a court of equity to complete the gift as against the heirs or next of kin of the donor.
Equity imposes a constructive trust on the property.
To create a trust, the property owner transfers assets to a trustee with the trust instrument or will setting forth the terms of the trust. A properly drafted trust will set forth both the dispositive provisions fixing the beneficiaries’ interests and administrative provisions specifying the powers and duties of the trustee in managing the estate.
Ordinarily, a trust involves three parties: the settlor, trustee and one or more beneficiaries. The different persons are not required, in fact only one may be required.
Settlor/Trustor: Person who creates the trust, may create an inter vivos trust or a testamentary trust
Inter-vivos Trust: One created during life of settlor. May be created in two ways:
Settlor declares that he holds certain property in trust for another, must impose duties upon himself for the beneficiary (he is trustee)
Example: O executed a written declaration of trust declaring herself trustee of Whiteacre to pay income therefrom to herself for life and upon her death Whiteacre is to pass to A. VALID! It is only invalid where trustee owes no duty to someone other than herself.
To make an outright gift of real property, the donor must deliver the property or execute a deed of gift
SOF does not apply for personal property, BUT does for real property
CPC § 15206. Statute of frauds
A trust in relation to real property is not valid unless evidenced by one of the following methods:
By a written instrument signed by the trustee/agent OR settlor/agent
To make a gift of personal property, the donor must only manifest an intention to hold the property in trust. Delivery or a deed are not required.
Delivery of Property for Inter-vivos Transfer (Hebrew University): Property must be delivered!!
Actual Delivery: The property must be out of the settlor’s control (unless declaration of trust made)
Constructive Delivery: Must be nearly perfect and as complete a delivery as the circumstances permit (pointing out hidden places where money is, delivery of safety deposit box keys)
But the court could have assumed the imperfect delivery meant that the donor wanted to impose a declaration of trust.
Deed of Trust: Settlor transfers property to another as trustee
Here the settlor actually transfers property to a third party as trustee.
If the settlor is not the trustee of an inter vivos trust, a deed of trust is required. To bring the trust into being, the deed of trust or the trust property must be delivered to the trustee.
If O wanted to make her lawyer, C, a trustee, O would have to deliver a deed of trust to C or deliver the property to C.
Testamentary Trust: One that is created at death by a will
Problems p559- O executes a revocable trust declaring that she holds in trust all of her Security Bank stock, and insurance policy she owns on her household goods and other tangible personal property. The trust provides that O is the income beneficiary of the trust, and that on O’s death the trust property will be distributed to A. O does not transfer the Security Bank stock to herself as trustee nor does she change the name of the owner of the life insurance policy to herself as trustee. She does not open a bank account in the name of the trust. She pays insurance premiums from her personal bank account. Several months later, O dies. Is this a vlid trust, with the trust property now distributable to A?
First, characterize the nature of the trust document. i.e. declaration of trust or a deed of trust. Where a declaration of trust is used, no transfer is required to be transferred.
Personal property trust is valid because no transfer is required – merely the manifestation of intent is required.
Real property requires the execution of either a deed of trust or declaration of trust to the trustee. Where she executes the declaration of trust document and is responsible to another beneficiary, the trust is valid.
Trustee: One who holds the legal title of property for the benefit of another, he must owe equitable duties to another
There may be one or several. The trustee may be an individual or a corporation. May be settlor or third party beneficiary.
The trustee may not be the sole beneficiary, however, because there must be someone to owe a duty to.
If a trustee is not named, the court will appoint one.
If it is an inter vivos trust created without trustee, it may fail for want of transferee or failure of delivery.
DUTIES of trustee:
Must administer the trust solely in the interest of the beneficiaries
Self dealing is limited or not allowed at all
If trust specifies that the money was to be used for a single purpose (educational expenses), it must only be used for this purpose
Must account and maintain records for all disbursements, if not all the presumptions about fiduciary duties are against him
Must make the property productive and where required pay the income to the beneficiary.
Keep trust property separate from own property
Subject to personal liability or can be denied compensation
Problem p561- In January O executes a written instrument creating an irrevocable trust and naming X as trustee. The trust instrument provides that the income from the trust is to be paid to A for life, and upon A’s death the corpus is to be distributed to B. Shortly thereafter, O delivers a copy of the instrument and $100,000 in cash to X and tells X that this money is to be held by X under trust. X immediately puts the money in his safe-deposit box. O dies the following February. In November next, X, saying that he does not want to be trustee, divides the money between D, and E, the residuary legatees of O’s estate, paying $50,000 to each. Has a trust been established? Can A and B recover the $100,000 from D and E?
Has a trust been created?
Is X liable for any breach of trust?
Are there any theories under which A and B can recover the money from X?
Yes. There is intent that the property be put in a trust and delivery has occurred.
Can we separate out the creation of the trust and the issue of whether the person to whom the money is given is the trustee?
It is important to know if we have a trust because it gives A and B a beneficial right.
Is X liable for any breach of trust to A and B as a trustee?
X took the money, said nothing and put the money in the safe deposit box. Is this action an acceptance of the duties of a trustee?
There was an acceptance of the role of being a trustee even though he did not actually accept.
Silence or inaction to whom property has been delivered are normally taken as a disclaimer and not an acceptance. Acceptance typically requires an affirmative act. Several arguments as to why this would or would not make X a trustee.
Can A and B get the money from D and E?
If there was no trust created, then no because no enforceable beneficial interest was created.
If there was a trust created, then A and B can follow the assets into the hands of D and E. This is where the court can create a resulting or constructive trust. A and B can follow the assets as long as the subsequent holders of the property are not BFPs with value. Gratuitous changes of the property do not protect the subsequent holder from the assets being taken away.
Beneficiary: One who holds the equitable title of the property held by the trustee.
Since beneficiaries hold an equitable interest, they have a personal claim against the trustee for breach of trust.
Remedies against trustee:
Personal claim against trustee
If trustee wrongfully disposes of property, beneficiaries can re-claim, unless to a bona fide purchaser
Necessity of Beneficiaries: There must be a person that the trustee owes duties to, and that can enforce against the trustee
MUST be present for all trusts except charitable trusts
BUT the trust when created can name unborn or unascertainable beneficiaries and it is ok (court will monitor trustee)
HOWEVER, when the trust becomes operative, if the beneficiaries are too indefinite to be ascertained, the trust may fail
Beneficiary must accept the trust, either express or implied
CPC § 15205: Designation of beneficiary
A trust, other than a charitable trust, is created only if there is a beneficiary.
The requirement of subdivision (a) is satisfied if the trust instrument provides for either of the following:
A beneficiary or class of beneficiaries that is ascertainable with reasonable certainty.
A grant of a power to the trustee or some other person to select the beneficiaries.
Classes: Classes of beneficiaries (all my relatives, brothers and sisters, etc) is an acceptable designation, as long as reasonably definite….
BUT “to all my friends” is not, friend has not legal meaning and is not definite enough.
BUT powers of appointment can solve this, “to my wife for life, then to the issue as my wife appoints”
Trust compared with a legal life estate
Legal life estate – “to A for life, remainder to A’s children”
Equitable life estate – “to X in trust for A for life, remainder to A’s children”
an equitable life estate is better than having a legal life estate because an equitable life estate provides administrative powers that do not exist with a legal life estate holder.
best way to establish this trust is to use a third party trustee.
Consider the power of sale
life tenant cannot sell the property but a trustee may have a right to sell property. The trustee is the person who really has the control. The trustee also has a duty to look out for the remainder persons preventing the squandering of the property in A’s benefit.
Borrowing money – power to mortgage real estate may be the only way the owners can afford to make improvements on the property
remainderman may be entitled to an injunction or damages
INTENT TO CREATE A TRUST,
THERE MUST BE TRUST PROPERTY,
TRUST BENEFICIARIES, and need a
Settlor MUST manifest an intention (ORAL OK) to create a trust relationship AND vest beneficial ownership in a third person.
No special verbage is required, the sole question is whether the grantor manifested an intent to create a trust relationship.
CPC § 15201: Intention to create trust:
A trust is created only if the settlor properly manifests an intention to create a trust.
CPC § 15200: Trust may be Created By:
A declaration (ORAL included) by the owner of property that the owner holds the property as trustee.
A transfer of property by the owner during the owner’s lifetime to another person as trustee.
A transfer of property by the owner, by will or by other instrument taking effect upon the death of the owner, to another person as trustee (testamentary trust)
An exercise of a power of appointment to another person as trustee
An enforceable promise to create a trust.
CPC § 15203: Trust purpose:
A trust may be created for any purpose that is not illegal or against public policy.
CPC § 15204: Trusts for indefinite or general purposes
A trust created for an indefinite or general purpose is not invalid for that reason if it can be determined with reasonable certainty that a particular use of the trust property comes within that purpose (CHARITY??)
CPC §15400 Presumption of Revocability- If a trust is drafted and there is nothing stating whether the trust is revocable or irrevocable, generally it is irrevocable. In CA, the minority, it becomes a revocable one.
Majority: Trusts can not be revoked UNLESS the settler specifies that the trust is revocable
If it states how to revoke the trust, it can only be revoked by this method
If it does NOT state how to revoke trust- Any method will suffice, even by will
Minority: Trusts that are silent on revocability are presumed to be revocable (CPC § 15400)
Divorce: UPC 2-804: Many states see trusts revoked to revoke devises of property to former spouse, just like wills
Gift was given to the father for the educational benefit for the daughter.
Daughter suing her father who happens to be both a lawyer and a judge. Father is attempting to unilaterally terminate the trust by turning it into a custodianship.
Daughter argues that he is a trustee and thus she is owed an accounting of the property.
Why does the father want this to be a custodianship?
As a custodian he can use the money for the general benefit of the minor. But as a trustee he must comply with the specific intent of the trust.
The court finds that as a trustee, father violated his obligations and he may not unilaterally attempt to terminate the trust.
Can you terminate a trust?
This case tells us that on one’s own, a trustee may not terminate it.
Sometimes a trust may be terminated by the consent of all the beneficiaries or a court order.
Can the beneficiaries get together and end a testamentary trust?
A lot of courts say yes, unless termination would be in conflict with a material purpose of the settlor setting up a trust.
Hebrew U Assoc v. Nye
Facts- T indicated to friends that wanted to give library to a center in Israel. H dies- W went to Israel & discussed w/University & announced that shes going to give the library to the University & Signs a press release. W dies before signing over library.
A trustee need not maniest an understanding of its technical meaning or the technical meaning of the term trust- he must manifest an intention to impose upon himself enforceable duties of a trust name
π claims an inter vivos gift based on a constructive deliverty
For a constructive delivery the donor must do that which under the circumstances, will in reason be = to an actual delivery
Ct- delivery of mem coupled w/decedent’s acts & declarations show an intention to give & divest
Necessity of Property: PP. 508 TEXT Must be identifiable and separate and subject to legal ownership by the trustee.
Does NOT need to be real property, or even a substantial amount of personal property.
Even $1 can be enough to find a trust, just needs to be an interest that can be transferred.
CPC § 15202: Trust property: A trust is created only if there is trust property.
The property can NOT take the form of future uncertain earnings:
The actual stock is enough, but future profits is NOT, no certainty
The property CAN take the form of future certain earnings:
Expected earnings from existing contract can form trust property
Chose in action can be property: Right to being suit
Property can not be an unenforceable gift
Lacked testamentary intent so the will could not be probated as a holographic will
One could argue sufficient testamentary intent by looking at the language he used. “I will here bind my estate” demonstrates testamentary intent.
This turns into an interpretation problem. If the letter meant a probate estate then there may have been sufficient intent. If it meant estate in terms of present property then it might be an attempted declaration of trust. Even so, if this is a trust without a specific designation then this will not be sufficient.
The court held that there was not enough certainty in intent to bind the estate into trust. This is no more than a gratuitous gift with a promise for making a gift in the future.
Reasons why this was not a trust:
failure to say where the $200/mo. is to come from
RULE: property must be identifiable in order to have a trust
Problem 2 – pg. 583- A executes a deed of trust and gives checks to fund the trust to the person named as trustee and a beneficiary. Two weeks later, A dies. After A dies, the trustee presents the checks to the bank for payment, but the bank, with notice of the death of A, dishonors the checks. Is the trust valid?
You have to have property to have a trust. Two ways to argue this. What do the checks represent in terms of the settlor and the bank on which the checks are drawn? Is a check a sufficient way to offset the property?
If I give you a note and altogether my assets are worth $500, no assets of his are segregated out due to the IOU that he may have written. A right against a bank may not be sufficient to be a trust res.
Majority view holds the same as the case that you have to have a trust res that is identifiable. This is what distinguishes a trust from a debt or a chose in action. The idea of a trust is that it gives the trustee the power to deal with specific property that has to be kept separately from the trustees own funds. The person who has to pay that money, may use the money however they want. Even a bank can do the same.
Property must be identifiable, separate, and subject to legal ownership by the trustee.
SEE RESULTING TRUST pp511 note 3- especially example Case 13
The remainder part of the trust fails, so X holds the remainder in trust for the settlor or setllors heirs
Hypos: Say A buys blackacred from O but says to put it in B’s name
Does B have clear title to Blackacre?
Presumption that Party B is holding the property in trust for the settlor→ he has title but holds for settlor
To overcome this presumption B should
If B is grandchild or spouse etc then there is a presumption that it was a gift
You would have to show that the money to buy the house and the house was intended to be a gift
Oral declaration in front of his wife and mother, and declares a trust of the benefits of any stock trading that he might earn, distribution of those profits minus a reasonable fee for his services.
At this time however, he has invested no money, has earned no profits. Subsequent to this, he invested and earned some money. He distributed the property to him family and took his fees and reported it on his tax return.
The real question is when the trust was created b/c this result dictates what must be taxed.
The declaration of trust alone was not sufficient property to cause the creation of a trust. If it isn’t funded, there isn’t a trust. Accordingly, future profits do not constitute a valid trust. The mere notion of future profits is not sufficient. (Majority view)
arguably, if there is some trust property to begin with, then this may have been sufficient. You can always add to the trust as you go along.
Had he already owned the stock in 1927, then he should have set this up by issuing a declaration of trust to himself for the benefit of his wife and mother. In so doing, he would have created a valid trust res b/c there was property in the trust.
Issue: Was there a proper gift i.e. was 5% of the future profits of a musical to be done in the future enough to create a gift?
A trust of future profits compared to a gift of future profits
Majority view: a mere statement that you are going to set a trust up of future profits is not enough to establish a valid trust regardless of the inconsistency with gift cases.
But is enough for an intervivos gift
maybe the court just dislikes the idea of someone getting away
Oral Trust? CPC § 1527 an oral trust can only be proven by clear and convincing evidence. There must be other witnesses to you having created the trust other than yourself.
Grantor trusts- trusts in which the income is taxable to the settlor (grantor) because the settlor has retained substantial control & is deemed by the Code still to be the owner of the trust assets
Where the grantor has a reversionary interest at the inception of the trust which exceeds 5% of the value of the corpus or the income→ trust is a grantor trust
Where the settlor or a nonadverse party- either as trustee or in any individual capacity- is given discretionary power over income or principal exercisable w/o consent of an adverse party- grantor trust
Exception 1- discretionary power can be given to an independent trustee w/o adverse taxes
Necessity of Trust Beneficiaries
Rule- a trust must have one or more ascertainable beneficiaries
May be unborn
Must be ascertainable- RAP 21 yrs after relevant life in being
Facts- “I therefore give to my trustees my property in trust to make disposal by the way of a memento, to such of my friends, as they, my trustees, shall select”
Ct- CL cannot be a valid bequest to an indefinite person (for private not public trusts)
Will creates a power of appointment rather than a trust created in the trustees
Power of appointment is discretionary- not fiduciary
CPC §15205(b)(2) necessity of having an ascertainable beneficiary- satisfied by grant of power to the trustee to select the beneficiaries based on a standard OR in the discretion of the trustee
The beneficiaries may be designated by a class
Here, the class must be capable of delimitation- the word “friend” has no limitation
“I give & bequeath dog Trixie to Florence- $1k to be used by him to pay for Trixie”
Pets cannot enforce equitable rights- no formal fiduciary duties
Honarary trust- binds the conscience of the trustee, since there is no beneficiary capable of enforcing the trust- any specific purpose that is not capricious
CPC §15212 can create a trust for care of a pet & can be performed w/in life of the animal
Necessity of a Written Instrument
Oral Inter Vivos Trusts of Land
Under the Statute of Frauds, oral agreements re: real property are unenforceable
O conveys land to X upon oral trust to pay income to A for life then to B
SOF prevents enforcement of the express trust
Split Jx- most cts permit X to retain land- a constructive trust will be imposed where the transfer was wrongfully obtained by fraud or duress, where the transferee X, was in a confidential relationship w/the transferor, or where the transfer was made in anticipation of the transferor’s death
Hieble v. Hieble- π transferred title to land from herself to herself in joint tenancy w/her son & daughter. 3 made an oral temporary agreement- son refused to reconvey interest→ son ordered to reconvey
Re 2d Where the owner of an interest in land transfers it inter vivos to another in trust for the transferor, but no memo properly evidencing the intention to create a trust is signed, as req’d by SOF, & the transferee refuses to perform the trust, the transferee holds the interest upong a constructive trust for the transferor- if there was a confidential relationship between the 2
Olliffe v. Wells– T will devised residuary estate to Wells to distribute the same in such manner as in his discretion shall appear best calculated to carry out wishes which I have expressed to him”- heirs sued
Ct- since no mention of beneficiaries in the will- no one to enforce duties against trustee→ failed trust
Rule- a trust not sufficiently declared on the face of a will cannot be set up by extrinsic evidence to defeat the rights of the heirs
Semi-secret trust– on the face it is a trust, intention to create a trust, the would be settlor was not intended to have the beneficial interest of the $- but the purpose is undisclosed in the trust itself
Majority- semi-secret never valid
Secret trust– if T left property to Wells absolutely- nothing in will re: secret wishes, or trust
Oral statement by the T how the $ should be dealt w/
Fails as an express trust- BUT cts have been willing to impose upon Wells a constructive trust to carry out the purpose of the T
Re3d Trusts- recognizes semi-secret & secret trusts
a testamentary trust, which typically are created in a testator’s will, must be in writing pursuant to the Wills Act formalities.
Secret trust:
a secret trust is a testamentary trust that fails because the terms of the trust are not set forth in the will.
It is secret trust because there is nothing on the face of the will that indicates that the testator intended the devise to take the property as a trustee, not as a devisee, with the beneficial interest in some third party.
Courts use extrinsic evidence to impose a constructive trust on the devisee, ordering the devisee to transfer the property to the intended beneficiaries.
Note 1. pg. 616
Will indicates no trust.
Court admit evidence of the promise for the purpose of preventing Wells from unjustly enriching himself by pocketing the legacy.
Having admitted proof of the promise, they proceed to enforce the promise by imposing a constructive trust on Wells for the benefit of who she wanted it to go to (ben’s).
Example: she left a legacy to Wells absolute on its face w/out anything in the will indicating an intent to create a trust, a promise from Wells to Ellen to use the legacy for the Mission would be enforceable by a constructive trust.
Constructive trust for beneficiaries.
From an evidentiary view point:
To find out if secret trust—have to admit evidence
Semi-secret trust:
A semi-secret trust is a testamentary trust that fails because the terms of the trust are not set forth in the will.
It is “semi-secret” trust because there is something in the express language of the will that indicates, or at least hints at, the fact that the devisee was not intended to take the property for his or her own benefit.
The courts do not need extrinsic evidence to realize that the devisee is not to take the beneficial interest, so the courts will not take any extrinsic evidence to id the ben’s.
The gift to the devisee as trustee fails
Note 1 pg. 616
If the will indicates that the Wells is to hold the legacy in trust but does not identify the beneficiary, a semi-secret trust is created.
Since the will shows on its face that it is not to go to Wells personally, it is not necc to admit evidence of Wells’ promise in order to prevent his unjust enrichment.
Legacy to Wells fails.
Constructive trust for heirs
Look at document itself—clear that Wells is not to get an absolute interest
Impose a constructive trust for heirs
No evidence in.
Hypo: what if testator left property to Wells absolutely, 100% bequeathed. Nothing in the testator’s will about a trust, nothing about oral statement. Wells had in fact orally promised her that if left money to him spend it to help out Saint Stevens?
nothing on face of will
not an enforceable trust but the court will impose a constructive trust for the intended beneficiaries.
Rights of the Beneficiaries to Distributions from the Trust
i. Types of Trusts–
Mandatory– trustee must distribute all the income
Thus: O transfers property to X in trust to distribute all the income to A. this is a mandatory trust. The trustee has no discretion to choose either the persons who will receive the income or the amount to be distributed.
As a beneficiary’s interes in a trust is freely transferable, credtiros of a beneficiary can reach the beneficiary;s interest in the trust
The creditor steps into the shoes of the beneficiary and receives whatever interest the beneficiary has in the trust.
Under mandatory trust, the creditor can force the trustee to distribute the income to the creditor.
Discretionary– trustee has discretion over payment of either the income or the principal, or both
How much? When to give it out? To whom give it to?
Beneficiary does have a rt to bring an action against trustee for bad faith
Example: O transfers property to X in trust to distribute all the income to one or more members of a group consisting of A, A’s spouse, and A’s children in such amounts as the trustee determines (or sometimes “may pay” is the language used to indicate discretion).
This kind of discretionary trust knows as a spray trust.
The trustee must distribute all the income currently, but has discretion to determine who gets it an in what amount. If desired, the trustee could be given discretionary power to accumulate income and add it to principal.
So as the benefificary cannot force a trustee to distribute property to the beneficiary here, nor can a creditor of a beneficiary of a discretionary trust force a trustee to distribute property
Support– trustee’s discretion may be limited by an ascertainable support standard
“such amounts as are necessary to support my children in the style of living to which they are accustomed”
Discretionary Support– combines discretion w/support
“such amounts as the trustee shall, in his uncontrolled discretion, deem necessary to support my children”
As compared to mandatory trusts, discretionary trusts provide greater flexibility, which is often desirable because the settlor cannot foreclose all of the problems or opportunities that her family might face after the trust is created.
With added flexibility however comes the need for a mechanism to police the trustee’s exercise of that discretion→ the primary mechanism being the fiduciary obligation.
Let us consider a case that examines the beneficiary’s rights to the trust fund in a discretionary support trust:
The trust at issue in this next case contained an ascertainable standard (“comfortable support and maintenance”) as well as a broad grant of discretion (“sole and uncontrolled”):
Marsman v. Nasca–
Rule: trustee holding discretionary power to pay principal for the “comfortable support and maintenance” of a beneficiary, has a duty to inquire into the financial resources of that ben so as to recognize his needs.
Cappy to be provided for comfort and support of the same standard of living
Trustee able to give cappy income and principal in his discretion
Cappy lost job and ran into financial trouble
When Cappy asked the trustee for more money—trustee gave him a minimal payment and then told him to explain in writing what needed and why
Cappy failed to reply and trustee failed to follow up
Trustee breached duty to inquire and therefore breached duty to distribute principal when cappy’s standard of living fellow below his normal standard.
Able to get remainder of the principal of the trust—go after trust property
And could have cause action against the trustee
Farr as trustee– active duty to become familiar w/H to give enough $ to live
Duty to inquire & duty to distribute estate
Duty to consider all means of support when givint out $- presumption that settlor of trust intended beneficiary to receive support from the trust, even if beneficiary receving funds elsewhere
CPC allows exculpatory clause- but invalidates them if inserted by an abuse of a fiduciary relationship
UPC– an exculpatory term drafted by the trustee is invalid as an abuse of a fiduciary or confidential relationship unless the trustee proves that the exculpatory term is fair under the circumstances & that its existence & contents were adequately communicated to the settlor
Notes and problems pg. 539
Note 4: one source of litigation is whether a trustee, in exercising his discretionary power to spend income or principal for the ben’s support may consider the other resources of the beneficiary.
Where not dealt with in the trust instrument issue may wind up in court
Presumption is: that the settlor intended the ben to rec’ve his support from the trust estate regardless of the ben’s other financial resources
This can however be rebutted by the special circumstances of the case
Note 5 pg. 540
Talks about an exculpatory clause
Not uncommon for a discretionary trust to contain an exculpatory clause to protect the trustee against liability except for willful neglect or default
Generally upheld as long as not shown that it was put into the trust as a result of the trustees overreaching or abuse of relationship
May be a way to encourage people to act as trustees for discretionary trust—if know can’t be held liable
Extended Discretion:
If the trustee has simple discretion unqualified by adjectives such as sole, absolute, uncontrolled, etc, the courts will not substitute their judgment for that of the trustee so long as the trustee “acts not only in good faith and from proper motives, but also within the bounds of a reasonable judgment.”
When dealing with a situation where these adjectives are present (e.g. “A has absolute and uncontrolled discretion”) the courts face certain problems:
This power is in reality not uncontrolled and absolute
The limitations arguably is subjective “good faith” and proper motives, and not the reasonableness standard used when these adjectives are not present.
In the case above, the court upheld the exculpatory clause excusing the trustees from liability except for “willful neglect or default.”
Upheld because there was no evidence that it was inserted as a result of an abuse of confindence reposed by the client in the lawyer.
Generally speaking the line is drawn at bad faith, recklessness indifference and intentional or willful neglect
An exculpatory clause that purports to immunize the trustee for any such conduct will not be enforce
A court has held that if a trust instrument provides that all disputes between the trustee and the beneficiary must be resolved by arbitration→ this is unenforceable
The trustor may not unilaterally strip trust beneficiaries of their right to access the courts absent their agreement
Rights of the Beneficiaries Creditors
A crditor’s ability to reach a beneficiary’s interest in a trust depends on whether the beneficiary is the settlor or someone other than the settlor.
General rule: it is against public policy to try and use a trust to shield one’s assets from creditors.
Creditors of a beneificary who is also the settlor have a greater ability to reach the beenficiary’s interest in the trust than a creditor would if the beneficiary is not he the settlor.
General rule: creditor can reach a debtor’s property as long as the property interest is transferable.
Normally: beneficiaries interest in a trust is transferable
Creditors of a ben can reach the ben’s interest in a trust.
Creditor steps into the shoes of the ben and receives whatever interest the ben has in the trust.
Mandatory trust: creditor can force the trustee to distribute the income to the creditor pursuant to the terms of the trust just as the ben could have. Trustee must distribute the income to the creditor
Discretionary trust: if a trust is discretionary, just as the ben could not force the trustee to distribute property to the ben, nor can the creditor of a ben of a discretionary trust. Can’t force distribution of property
Example: US v. O’shaughnessy (discretionary trust—creditor can’t force the trustee to make payments to him or her)
Because the beneficiary has no right to a payment, neither does the beneficiary’s creditor
CPC 15303(a)
Exception– In some states, if the trustee decides to make payment to a beneficiary, then the creditor is entitled to payment as creditor stands in beneficiaries shoes.
You don’t want to provide any standard such as “support A” as this seems to limit the discretion.
CPC 15300: restraint on transfer of income: rb. 481
Except as provided in section 15304 to 15307, inclusive, if the trust instrument provides that a beneficary’s interest income is not subject to voluntary or involuntary transfer, the ben’s interest in income under the trust may not be transferred and is not subject to enforcement of a money judgment until paid to the beneficiary.
O transfers property to X in trust to pay the income annually during A’s lifetime to “A personally, to be for A’s support” and on A’s death, to pay the principal to B.
One year later A gratuitously writes, signs, and delivers to his cousin, C, the following memo “I hereby assign to my cousin C all my rights to rec’ve future income for my lifetime from the trust,” identifying the above trust in the memo. X, who ha no notice of the assignment, pays the next annual installment of income, 5K to A, who having meanwhile become angry with C, refuses to pay this sum over to C. Instead A uses it to by stock for himself. The stock is now worth 10K. does c have any claim against A?
Is this a support trust? If a support trust—interest not alienable
Any limit on the amount of income to go to A.
Not support trust if have all income given to beneficiary
If support trust—even though no language of spendthrift (says not voluntarily or involuntary alienable/transferable) court assume it is spendthrift trust.
If all income assume not spendthrift—unless other language says it is.
In this case: all given and no other language to evidence spendthrift to interest was alienable.
Spendthrift Trust/Provisions(Dead Hand Controls)– cannot be voluntarily alientated by the beneficiary
Here the settlor can modify a beneficiary’s ability to transfer his interest through the inclusion of a spendthrift clause in the trust that expressly restricts the beneficiary’s power to transfer his interest.
Such a spendthrift clause bars the beneficiary from transferring his interest voluntarily (by sale or gift) or involuntarily (creditors reaching it).
Example: 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 kids. A clause in the trust provides that A may not transfer her life estate, and it may not be reached by A’s creditors (spend thrift clause #8 in Shelly v. Shelly). By this trust A is given a stream of income that A cannot alienate and her creditors cannot reach.
CPC 15300-301 general creditors cannot get the beneficiary’s interest
Under plain language of the statute, a spendthrift provision is enforceable unless the beneficiary is also the settlor or the assets were fraudulently transferred to the trust
Scheffel v. Krueger (tort creditor)
Facts- Δ is a beneficiary of a spendthrift trust. Δ is accused of criminal activity as well as found guilty in a civil lawsuit for damages. Δ cant pay w/o withdrawing from the trust
NJ statute creditor cant get claim- exceptions:
Cant set up self-settling trust (make self beneficiary)
Fraudulent transfers- already have creditors & set up trust to avoid
Π arg- if they had meant to have other exceptions they would have included them- would have added others if wanted them
Court holds that the spendthrift provisoin is valid
Majority– does NOT allow an exception for tort creditors
E.G.- Shelley v. Shelley (child support)
Rule: spendthrift provision will not bar a child’s claim for support or a spouses claim for alimony as to the beneficiaries interest in the income of a trust .
Facts- H is beneficiary of a trust subject to a spendthrift clause- prior W’s & children have support judgments against him. Corpus- discretion to give to beneficiary or his children. H disappears & W’s sue bank for judgments
Ct- judgments for child or spousal support can be enforced against the debtor’s interest in spendthrift trusts in the majority of states
The trust corpus could not be reached as it was discretionary
Rights of Tort Creditors:
Maj: Judgments for child or spousal support can be enforced against the debtor’s interest in spendthrift trusts in the majority of states
Min: Cannot be reached
Tort Creditors:
Wehtehr a spendthrift clause prevents tort victims of a trust beneficiary form reaching the benefiicary’s interst in the trust is not entirely settled
In Scheffel (above) court held spendthrift clause effective against a tort creditor
On other hand some courts don’t agree
US can reach beneficiary’s interest to satisfy tax claim against the beneficiary
Fed. tax law trumps state spendthrift trust rules
Excess over amount needed for support:
NY statest aht he beneficiary’s creditors can reach that part of spendthrift trust income in excess of the amount needed for the support and education of the beneficiary.
This amount is called the station in life rule
Pension trust:
Retirment income security act requires each pension plan covered byt eh act shall provide that benefits under the plan may not be assigned or aliented.
Provides that such benefits may be reached for child support, alimony, or marital property rights.
Kids are judgment creditors—not ben’s under the trust
As judgment creditors then can get a judgment against the spendthrift trust as to the income.
Re3d- exception for child & spousal support- but some possibility for tort claimants (minority)
CPC 15301– can be reached to pay spousal/child support
CPC 15306 spendthrift to reimburse state for funds paid for child support
15306.5(b) creditors can reach these trusts to satisfy money trusts in an amount not to exceed 25%
15307- allows creditors to reach assets not necessary for support- “station in life”
UPC §502 Spendthrift Provision & Exceptions p. 553
Self- Settled Asset Protection Trusts pp.557
Here the settlor is the beneficiary
Rule- you cannot shield your assets from creditors by placing them in a trust for your own benefit
Creditors always have recourse against entire interest in a self-settled trust, even if the trust is discretionary, spendthrift or both.
Creditors can reach the maximum amount that the trustee could pay the settlor or apply for the settllor’s benefit.
E.g. pp.557- Say O sets up a trust and transfers property to X in trust to pay so much of the income and principal to O as X determines in X’s sole and absolute discretion. Then O gets sued by A for some reason…A may enforce an award against the entire corpus of the trust, because X could, in X’s discretion, pay the entire corpus to O.
This would be the same result even if the trust instrument provides that O’s interest may not be reached by O’s creditors (through a spendthrift trust).
Offshore jx’s allow creation of self-settled trust- creditors have no recourse
Domestic- UFTA- if there are known creditors not protected
UFTA- a transfer made w/the intent to hinder, delay or defraud creditors is actual fraud; a creditor is defined to include even contingent, disputed & unmatured rights to payment
DE & RI- have adopted UFTA
AK & NV have not adopted
Two cases below show that courts don’t like offshore self settled spendthrift trusts:
∆ created telemarketing scheme to defraud purchasers, and then put this money in an offshore self settled spendthrift trust- cook islands
FTC sued them in Ct & ordered them to repatriate the assets in offshore trusts or put in contempt for violating ct’s order.
When the ∆’s asked for their funds to be repatriated, the AsiaCiti trust limited said no as this was “Duress” and AsiaCiti under the terms of the trust were authorized to remove Andersons (∆’s) form the trust
The court held ∆’s in contempt, but ∆’s argued that they couldn’t get the funds
Court was skeptical as the ∆’s had created this trust this way
Court held narrowly, that the ∆’s were still the protectors of the trust so they could reach the assets and held them in contemept
So the fact that he Adnersons retained borad powers over their trust funds got them in the end…note that settlors usually don’t include such broad powers in these, so that was maybe their mistake.
In re Lawrence-
Facts- same drafting problem as above, argued that could not comply w/lower cts order
Under terms Δ could have named new trustees
Danger giving settlor an affirmative power over the trust
He could have appointed new trustees
Read note 4 pp.568
Teacher says: Thrust is that this is a fraud on creditors if you know you owe and then set up this trust
So some courts simply wont recognize the trust holding that doing so would be a fraud on creditors
In 2005 Congress enacted a bankruptcy act→ the interest that is not alienable (which could be a setlors interest in a domestic settlor-asset protection turst) does not pass as your assets for purposes of bankruptcy and thus can’t be reached by creditors.
Medicaid & other State Support
The question arises whether trusts benefiting an individual can be counted as resources available for the support of the individual
This is a big deal as to be eligible for Medicaid and public support benefits you must earn under a certain income level
Federal laws draw a distinction between self settled and third party trusts:
Self Settled Trust– trust created by individual applicant (or spouse or person w/legal authority) if assets of the individual were used to form all or part of the corpus of the trust.
If the trust is revocable all income considered available assets/resources
For Medicaid purposes, a trust is created by the individual applicant “if assets of the individual were used to form all or part of the corpus of the trust” and the trust was established by the individual, by the individual’s spouse.
If the trust is revocable by the individual, the corpus and all income of the trust are considered resources available to the individual.
if the trust is irrevocable, any income or corpus which under any circumstances could be paid to or applied for the benefit of the individual are considered resources of the individual.
If the trust is irrevocable, then any income or corpus that under any circumsntaces could be paid to or applied for the benefit of the individual are considered resources of the individual
Exceptions: where not considered assets
Can set up discretionary trust by will– by 1 spouse for the benefit of a surviving spouse
Supplemental needs trust (more below)– Disabled persons- CPC 15306(b)- purpose of trust is to provide for care over & above what Medicaid would provide & a provision to reimburse Medicaid upon beneficiary’s death
Third Party Trust– trust created by a 3rd party (so applicant had no role in creation of trust) → done to provide for a child or some party by not wanting all current money to go to medical care etc.
Beneficiaries interst in the trust is considered part of the Medicaid applicants resources only to the extent that the beneficiary could compel the trustee to make a payment of income or principal– e.g. a mandatory trust or support trust, but not in a discretionary trust
If mandatory or support trust is considered a resource for qualification
Discretionary which would give the beneficiary no legal right to income- not considered assets
If a beneficiary of a discretionary trust can, under some conceivable circumstances, obtain a ct order requiring payment to the beneficiary- possible that trust assets may be reached by state
Again if there is language such as “provide support to A” then it probably wont be considered discretionary as this is a standard
With respect to trusts established by a 3rd person for the benefit of a Medicaid applicant, the rules are different
Medicaid regulations provide that trust income or principal is “considered available both when actually available and when the applicant or recipient has a legal interest in a liquidated sum and has legal ability to make such sum available for support and maintenance”
Thus were a mandatory or support trust is created, wherein the ben has the legal right to income, such income is treated as a resource available to the ben.
But if a DISCRETIONARY TRUST is created: giving the individual no legal right to trust income or principal, the trust is not considered a resource available to the individual in applying for Medicaid unless it was intended to be used for the applicant’s support.
Teacher says: need to make sure don’t use the word “support”
Once say support—medicaid can get at it.
Supplemental Needs Trust– this is a form of a discretionary trust- settlor intended to provide only benefits that the state is unable or unwilling to provide→ state cannot reach the trust assets
P.572 (1) Barbara is disabled but mother does not support her. Mother failed to provide B with social security benefits that M received on B’s behalf. B’s aunt sues on her behalf and a consent decree was entered ordering M to fund a trust for the benefit of B with $150,000 M had inherited from sister. M complied and created a discretionary trust for B with a spendthrift provision.
.Q: can the govt get to the $ for support of B?
Whether or not mediciad can consider it for resources/finances purposes
Evaluating for qualifying—if can make trustee pay—consider it part of income
i.e if discretionary trust and support—any way to go to court and force payment for support—may be considered.
Even if discretionary hybrid support trust—lose some of discretionary—person has something to enforce.
Problem pg. 650
Prob 1: Barabara is a developmentally disabled person. Her mother, Edith neglected Barbra and failed to provide for her w/ social security benefits Edith had re’vd on behalf of Barbra. Upon suit by B’s aunt, her guardian, a consent decree was entered ordering Edith to fund a trust for the benefit of B w/ 150K. Edith made a discretionary trust for B w/ a spendthrift provision. The trust agreement named Edith as settlor. It directed the trustee to terminate the trust immediately should any agency providing support for B attempt to reach it. Can the trust assets be reached by the state to provide B’s care?
1. self-settled or 3rd party?
Edith inherited the money from sisters—could argue 3rd party
However, took B’s money originally—could argue her money—self-settled trust
Because consent decree from court order her to use that money for B.
If self-settled
Medicaid could reach it for her support
Could be argued that the child is the settlor if she has a right to the money due to the court decree
This is what the court found→found that the consent decree meant it was Barbara’s money
Therefore she couldn’t avoid this money being considered for Medicaid etc.
What if 3rd party
If mandatory trust—B has interest in the income and B enforce it—considered by Medicaid
If plain discretionary can’t reach
If support—lose some discretion
Teacher says best way to set up: discretionary supplemental needs trust
2. Wendy and Howard Brown’s daughter injured in accident unable to care for her. She has been placed in a nursing home. The cost is 40K. Sarah rec’vd 200K in insurance proceeds Have applied for Medicaid. They want advice about what to do with 200k and what provisions should make in will to provide more comfort for her.
1) can make a self-settled trust with supplemental needs trust (to supplement what state gives in care) then with a payback clause—reimburse state after her death for care provided. the payback clauseà works for self-settled or 3rd party. but with third party could make it discretionary.
2) Second piece of the puzzle, Parent’s want to make some disposition in ether wills, and want to make sure that she gets something above the lifestyle that she would get thought Medicaid?
Modification & Termination of Trusts (remember Mayo case from earlier)
Usually a trust ends naturally pursuant to its terms, when all the trust res is completely disbursed.
The trusts terms will provide for when the trust res (principle) is to be disbursed
This section deals with when the trust may be modified or terminated prematurely.
This issue turns on who has an interest in the trust and what the extent of their interest is
In theory there are 3 parties who could have an interest in a trust: the settlor, the trustee, and the beneficiaries
If all 3 groups agree to modify or terminate the trust, the trust can be modified or temrinated
If the settlor & all the beneficiaries consent, an irrevocable trust may be modified or terminated
Even if the trustee objects
If the trustee and beneficiaries consent- Assuming the setllor has no interest (e.g. an irrevocable trust), then if all beneficiaries consent and trustee consents, the trust can be modified or terminated.
At CL, even if the trusee objects, if an unforseen change of circumanstces defeats or substantially frustrates settlor’s intent, and all beneficiaries consent, the court will order modification of the trust.
Under CL the assumption is that the modification is to further the settlor;s intent
Traditionally limited to how the money is invested and used- see Pulitzer case below→ administrative terms are easier to modify
In the Stuchell case, they tried to push beyond this and wanted to set up an entirely new trust→ the court didn’t want to go this far→ so dispositive terms are harder to change
What qualifies as an unforeseen change?
CL: More protective of setltor’s intent, so the courts tend to apply a rather high threshold for what constitutes an unforeseen change in circumsntaces.
Modern Trend: Shift toward giving the beneficiaries greater control over the property in the trust after the settlor’s death.
So this translates into a low threshold for what constitutes an unforeseen change in circumanstances.
E.g. an unusually high rate of inflation or increased medical costs can be enough
What satisfies as substantial impairment?
CL: Courts more protector of settlors intent again, so the threshold is high
Modern trend: Again, favors granting beneficiaries greater power over the trust.
In re Trust of Stuchell– π wants to modify trust to become a supplemental needs trust because of mentally retarded son. All beneficiaries consent
Trust was established by J.W. Stuchell, in his 1947 will.
The trust was to terminate on the death of the last income beneficiary, at which time the remainder is to be distributed equally to petioner’s children or their lineal descendants, per stirpes.
(upon death of grandkids the trust principal was to be distributed to issue of grandkids)
One of Petitioner’s 4 kids, Harrell, is mentally retarded 25 year old who is unable to live independently w/out assistance.
He is institutionalized
He receives Medicaid and social security benefits (that have income limits)
Petitioner requested the court to approve on behalf of Harrell, an agreement which the other income beneficiaries approved of, to modify the trust.
If no modification—the an interest will go to Harrell and will effect his ability to qualify for Medicaid and social security.
The modification asks for the trust funds be used only as a secondary source of funds to supplement, rather than to replace, his current income and benefits from public assistance.
The Petitioner using common law: that a trust may be terminated if:
1. all of the ben’s agree
2. none of the ben’s is under a legal disability and
3. the trust’s purpose would not be frustrated.
Ct held– the proposed modification were only intended to make the trust more advantageous to the beneficiary.
Court declinesd to modify the trust
No authority to modify a trust, modifications allows trustee to deviate from admin matters
Admin- type of investment- may harm purpose of the trust
Arg against limited view- settlor probably didn’t know that one of the beneficiaries was disabled & $ would go to the state
No unforeseen change was present which substantially impaired the settlor’s intent
If the will had stated that for any mentally retarded son the assets would go be distributed in a discretionary trust…
note 2 pp.575- The most typical situation in modification cases is wehre a widow can no longer live comfortably on the income form a trust created by husband and thus asks the court to permit invasion of principal for support.
Unless the remaining beneficiaries consent, which is usuallynot the case as one will loss their share, relief is often denied unless the trust is construed to containt a power to invade, express or implied.
CPC 15403- need consent of all, and cant run counter to settlors intent
So, can you argue changed circumsntaces– thus enabling CPC15409
This can run counter to settlors intent or even what is stated in the trust
This clearly adopted equitable modification (discussed below in Pulitzer trust
There must be circumanstnces not know to the setllor that arise and would defeat or substantially impair the accomplishment of the purpose of the trust.
The court can even modify a spendthrift trust
You can argue what the settlor probably would have intended today under the new circumstances
Note 3 pp.576- 3rd party trust protector
As many unforeseen issues may occur it is advantageous to provide to a beneficiary or an independent third party the power to modify or terminate the trust.
Could give life beneficiary a power of appointment instead of just given beneficiaries the remainder after the life hodler dies.
CPC 15403
UPC 412 Modification or Termination p. 577
Note 1 pp.578-
Does the ability to modify hmake trusts less or more desirable?
Pulitzer Trust
Doctrine of equitable deviation (settlor’s probable intent)- approved sale of newspaper shares when became unprofitable; clause in trust prohibited sale of newspaper shares under any circumstnaces→ allowed to sell
What about clause saying prohibited sale even if unprofitable?
Traditional change circumsntaces rule– this has to do witht eadmnistration and not who gets what, so even traditionally we are more likely to allow changes.
Proposals for change- UTC §412(b) trustee can apply to the Ct to get modification
Should the trustee be under a duty to petition for modification when terms rendered unwise under changed circumstances?
If substantial harm to beneficiary trustee has a duty to petition the Ct for modification
CPC 15409- allows a Ct to change terms of trust for changed circumstances; even if contrary to what settlor says- admin & dispositive positions
What if Pulitzer knew it may be unprofitable and then still puts this in that nobody can sell shares, then what?
Under UTC pp.577-78- (b) one can argue applies as it has been impracticable→ this is an administrative issue
Doesnt have duty of trustee to petition as under Rest. 3d→ but one can argue that this duty is implicit in the fiduciary obligation
Reformation- an equitable remedy that conforms the instrument to what the settlor actually intended at the time of its execution
Termination pp.578→
GR- a trust cannot be terminated if it is a spendthrift trust, if the beneficiary is not to receive the principal until attaining a specified age, if it is a discretionary trust, or if it is a trust for support of the beneficiary
The issue of premature termination of a trust where all the beneficiaries consent, but the trustee objects, trouble the courts.
Facts- trust used to provide an education for the children of my nephew- when terminated the income from said trust for the care, maintenance & welfare of my nephew & his wife
An active trust may not be terminated even w/the consent of all beneficiaries if a material purpose of the settlor remains to be accomplished
The education purpose was met, however the purpose of supporting them would be cut short if the trust is now terminated
Q. Is this really a support trust?
They get all the income
CPC 15408- Does allow termination of trust if…
Q.1 pp.582-
They probably could do this
15407- Catch all section- allows court to terminate even an irrevocable trust…see reasons
Mayo case illustrates this applied
Removal of Trustees pp.585
Has more to do with remedies that beenficiariies have against trustee
Traditionale/ Majority– Beneficiaries cannot remove trustee unless there is a showing of dishonesty or showing of serious breach of trust.
Not liking trustee is not sufficeint
UTC §706 p.586-
This would liberalize this process, however it still has to be in best interest of trust
CPC 15642- much more like majority, there must be dishonesty etc…
Not in text- A fled Nazi Germany, he died and created trust under which trustee was a NY bank. NY bank then sold out to Duetsche Bank
Beneficiaries argued that they should be able to change the trustee as the new bank played a part in nazi support
Traditionally→ this is not enough
Under Uniform Trust Act→ maybe, but still hard as new bank would argue nothing really changed other then the name of the bank→ the administration of the trust is still the same as its probably the same people working on the administration of the trust
Main purpose of this section is to point out errors in wills that could have been avoided by appropriate drafting.
Majority jurisdictions follow Plain meaning rule– a plain meaning in a will cannot be disturbed by the introduction of extrinsic evidence that another meaning was intended.
Mahoney v. Grainger– Court strictly followed the plain meaning rule and did not allow extrinsic evidence.
IMPORTANT DISTINCTION– This section deals with use of extrinsic evidence AFTER formation (before we talked about extrinsic BEFORE formation to prove it was formed).
Some jurisdictions do not apply this rule rigidly, but invoke a presumption that can be overcome with strong evidence of a contrary meaning. Parol evidence may be admissible to resolve ambiguities in a will.
Basically, this is a two-step analysis:
1st: Will formation: Do you have a valid will? (need testamentary intent)
a. In order for the will to be valid, the instrument must show testamentary intent.
Under the C/L, testamentary intent must be found from the document itself, it cannot be shown by extrinsic evidence.
However, California does allow extrinsic evidence
2nd step: after determine have a valid will deal with any ambiguities: admission of EX.Ev.
1. interpretation of the will
a. Majority follow the plain meaning rule: a plain meaning in a will cannot be disturbed by the introduction of extrinsic evidence that another meaning was intended.
CPC 6111.5: “or to determine the meaning of a will or a portion of a will if the meaning is unclear”
CPC 6111.5 allows extrinsic evidence to determine the meaning of a will only if the meaning in the will is unclear.
Only after the language of the will has been analyzed under the plain meaning rule and found with some ambiguities will the court allow extrinsic evidence to be used
Patent ambiguity : ambiguity that appears on the face of will.
Latent ambiguity: is an ambiguity that does not appear to support on the face of the will but appears when the terms of the will are applied to the testator’s property or designated beneficiaries.
Example: in Ihl v. Oetting
The testator devised his home to “Mr. and Mrs. Wendell Richard Hess” or the survivor of them presently residing at No. 17 Barbara Circle”
When the will was executed they resided at that address but when Wendel died he was remarried at a diff address
The ambiguity arose because of the description of the beneficiaries at that address.
b. if the courts after using the plain meaning rule find an ambiguity: question then is what kind of extrinsic evidence is allowed in?
2 different types of extrinsic evidence:
1. evidence of circumstances surrounding the testator when made will
Court tend to allow this more
Majority rule: this does not include statements made by the testator.
2. evidence of the testators statements.
Tend to not allows this as much.
Latent Ambiguities- A latent ambiguity exists when the language of the will, though clear on its face, is susceptible to more than one meaning when applied to the extrinsic facts.
In these cases, parol evidence is admissible.
Patent Ambiguities- A patent ambiguity exists when the uncertainty appears on the face of the will.
The traditional view is that parol evidence is not admissible to clarify a patent ambiguity.
The modern trend is to admit parol evidence here as well.
CPC §6111.5 Admission of Extrinsic Evidence
Extrinsic evidence is admissible to determine whether a document constitutes a will pursuant to Section 6110 or 6111, or to determine the meaning of a will or portion of a will if the meaning is unclear.
(PLAIN MEANING RULE). CA Court will not allow extrinsic evidence to show testamentary intent if there is no evidence of such in the will, BUT will allow evidence to show that there was not testamentary intent in order to determine what the true meaning is.
CPC § 21102: Limits on use of extrinsic evidence (Intent!)
The intention of the transferor as expressed in the instrument controls the legal effect (PLAIN MEANING RULE) of the dispositions made in the instrument.
The rules of construction in this part apply where the intention of the transferor is not indicated by the instrument.
Nothing in this section limits the use of extrinsic evidence, to the extent otherwise authorized by law, to determine the intention of the transferor.
Traditional Rule: No extrinsic evidence to correct drafter’s mistake
Mahoney v. Grainger Supreme MA 1933 p410
Upon Sullivan (Ts) death, her only heir at law was her aunt.
However, shortly before T’s death, T executed a will, instructing her attorney to leave the residue of her estate to her 25 cousins and “let them share equally”.
The language of the residue clause read: “I give, devise, and bequeath to my heirs at law living at the time of my decease, absolutely; to be divided among them equally, share and share alike.”
ISSUE: Are statements regarding T’s understanding of “heirs at law” admissible?
There is no doubt as to the meaning of “heirs at law”. A drafter’s mistake does not authorize a court to reform or alter a duly executed and allowed will.
Court says- not latent ambiguity, it is patent, so you can’t bring in extrinsic. THIS RULING IS FOLLOWED REGARDING DRAFTERS ERROR, BUT NOT DISTINCTION BETWEEN PATENT AND LATENT.
Type of Latent ambiguity:
(1) Equivocation (Description meets 2 or more objects)- Admission of evidence to clarify a latent ambiguity first began in cases of equivocation, where a description fits two or more external objects/people equally well.
Rule: When there is equivocation, direct expressions of the testator’s intent are admissible in evidence.
Personal usage exception to rule that extrinsic not allowed– If the extrinsic evidence shows that the testator always referred to a person in an idiosyncratic manner, the evidence is admissible to show that the testator meant someone other than the person with the legal name of the legatee.
CPC § 21122 Ordinary grammatical meaning; technical words
The words of an instrument are to be given their ordinary and grammatical meaning unless the intention to use them in another sense is clear and their intended meaning can be ascertained.
Extrinsic evidence admissible to ascertain circumstances under which will was made
Estate of Russell Supreme CA 1968 p417
ISSUE– may extrinsic evidence of the circumstances under which a will is made be considered in ascertaining what the testator meant by the words used in a will?
Rule: When the language of will is ambiguous, resort may be to extrinsic hard evidence. A court cannot determine whether the terms of the will are clear and definite in the first place until it considers the circumstances under which it was made.
Notes and Problems pg. 412
In re Estate of Smith: testator left a bequest to Perry Manor Inc. at time of will was executed was a Nevada Corp
Before he died it was sold to nursing home but called it Perry Manor
Who should get it Perry Manor Inc. or Nursing Home?
Teacher said always start with tough approach: plain meaning rule
Here the court found no ambiguity
No extrinisic evidence necessary
Perry Manor inc. get it
If the will said left to Perry Manor w/out Inc…then latent ambiguity and bring in extrinsic evidence.
Or if there was another in another state—ambiguity
Teacher said something about striking it.
note 3: personal usage exception: pg. 413
if the extrinsic evidence shows that the testator always referred to a person in an idiosyncratic manner, the evidence is admissible to show that the testator meant someone other than the person w/ the legal name of the legatee.
Plain meaning rule has been much criticized.
It is rejected in the RS (3rd) of Property, Donative transfers
Failure to Comply with Statutory requirements of Intent
Flemming v. Morrison Supreme MA 1904 p414
Francis Butterfield (T) executed a sham will leaving all of his property to Flemming in an effort to get her to sleep with him. The will was drafted by Goodridge, T’s attorney, who also attested the will as a witness.
Prior to having two other witnesses attest to T’s signature, T informed Goodridge that the will was a fake and made for a specific purpose.
ISSUE- has the proponent of the will proved the necessary animus testandi (intention) to make a will?
NO. Decree reversed.
Rule: If the intention to make a will does not exist when a will is signed or acknowledged before each of the necessary three witnesses, the statutory requirements have not been complied with.
Nuts and Bolts re: Construction of Wills
The old traditional hostility towards reforming wills rests on the premise that mischief will ensue if courts are allowed to reject the seemingloy clear words of a will.
So how do we explain the doctrines of undue influence, testamentary capcity, duress etc?
Under these circumstances the court considers evidence of circumstances surrounding the will sexecution.
SEE CHART ON pp. 372 and you will see that when a mistaken term has an innocent cause (mistake), then no relief is available to correct the error
AS is evident is a modern trend toward admitting extrinsic evidence not merely to resolve ambiguity, but also to correct mistakes in view of the actual intent of the testator.
Misdescription of property or person­– A well established principle is that a mere false description does not make the instrument inoperative.
A false description of property or the intended recipient may be stricken (but not corrected)
Malpractice– When a lawyer has drafted an ambiguous will, should the lawyer be liable in malpractice for any costs and loss from litigation of the will?
An attorney is liable to the testamentary beneficiaries if the beneficiaries designated by the testator lose their legacy as a direct result of the attorney’s negligence
An attorney is not liable for drafting an ambiguous document.
If the alleged mistake involves the reasons that led the testator to make the will and the mistake was not fraudulently induced, no relief is granted. See chart on pp.372
If a provision was omitted mistakenly from the will, or it is not what the testator intended, parol testimony is generally not admissible to show the existence of the mistake and what they had intended.
Thus, mistakes of omission generally cannot be corrected, nor can a mistake in describing a beneficiary or item of property.
But new rulings and ideas show courts leaning towards correcting mistakes. See Erickson below This is primarily done through:
Striking a mistaken description
Calling mistaken beliefs insane delusions
If T believes incorrectly that child is dead
Using extrinsic evidence to resolve scrivener’s error
Extrinsic evidence of scrivener’s error admissible to ascertain testator’s true intent– Example of openly reforming wills for mistakes
Erickson v. Erickson Supreme CT 1998 p427
Decedent, RONALD Erickson, executed a will 2 days before he married DOROTHY Erickson (D).
The will left everything to D. If she predeceased him, half of Ronald’s estate was to go to HIS children and half to D’s children.
Ronald’s attorney innocently misrepresented to Ronald that the will would be valid after the marriage to D, but the will did not contain any language of the sort. (***CT law provides that if a testator marries subsequent to the making of a will and the will makes no provision for such contingency, the marriage operates as a revocation of the will.)
Issue- should the trial court have admitted extrinsic evidence regarding the decedent’s intent that his will would not be revoked automatically by his subsequent marriage?
Ruling: If a scrivener’s error has misled the testator into executing a will on the belief that it will be valid notwithstanding the testator’s subsequent marriage, extrinsic evidence of that error is admissible to establish the intent of the testator that his will be valid notwithstanding the subsequent marriage.
CPC: 21102: Intention of transferor as controlling; rules of construction; limits on use of extrinsic evidence
a) the intention of the transferor as expressed in the instrument controls the legal effect of the disposition made in the instrument
teacher says: not what the court later on decides it meant
intention of transferor at time form language of instrument
b) the rules of construction apply where the intention of the transferor is not indicated by the instrument
rules of construction: considered extrinsic evidence?
CPC 21122: ordinary grammatical meaning; technical meaning
The words of an instrument are to be given their ordinary and grammatical meaning unless the intention to use them in another sense is clear and their intended meaning can be ascertained
Tech sense construed to be used in tech sense unless a) context clearly indicates a contrary intention or b) it satisfactorily appears that the instrument was drawn soley by the transferor and that the transferor was unacquainted with the technical sense.
Teacher says this raises a rebuttable presumption that can be rebutted by extrinsic evidence. Rebuttable presumption that testator meant to use word in tech sense, unless testator not know about tech sense of word (show by extric evidence)
RECAP: Exceptions to the plain meaning rule where extrinsic evidence is allowed:
1. personal usage exception
2. doctrine of reformation through scrivener/drafter error
Most state allow statement by testator.
3. equivocation
4. language unclear
5. misdescription error
Wrong address down
6. to prove
or incapacity
So why the modern change toward a more intent-serving approach to the wills act formalities is described on pp.381-383 of text:
rise of nonprobate system;
experience in other jx’s
growing embarrassment that fialre to cure well proved mistakes inflicts unjust enrichment; and
concern to spare lawyers form needless malpractice liability
Doctrine of probable intent (NJ)– if a contingency for which no provision is made in the will occurs, the court studies the family circumstances and the plan of testamentary disposition set forth in the will, then places itself in the position of the testator and decides how the testator probably would have responded.
Restatement 3rd of PROPERTY § 12.1 Reforming Donative Documents to Correct Mistakes
A donative document may be reformed to conform the text to the donor’s intention– if the following are established by clear and convincing evidence:
That a mistake of fact or law affected specific terms of the document, AND
What the donor’s intention was
Death of Beneficiary Before Death of Testator
CPC 21109, 21110, 21111, 21137, 21402, 21131, 21135
Cl it was assumed that the beneficiary must survive to take
If gift is made to relative, then almost all jx’s have an anti lapse statute→ in CA we use word Kin, so if deivse is to X, but X was kin of testator and had issue, then the issue take→ the gift does not lapse
In context of interpretation→ if something in will indicates that the T does not want anit lapse to apply then it wont
Lapse– If a beneficiary fails to survive a testator, the gift is said to lapse, and thus fails:
Premise– Unless T specifies otherwise, if a devisee does not survive the testator, the devise lapses.
UPC § 2-601– Under this section, if a devisee does not survive the testator by 120 hours, then he is treated as having predeceased the testator, unless the will contains explicit language dealing with simultaneous deaths.
Lapse caused by:
Death of devisee before T dies
Devisee commits crime (legally designated as predeceased)
Devisee disclaims gift (legally designated as predeceased)
Nearly all states have anti-lapse statutes which, under certain circumstances, substitute another beneficiary for the predeceased devisee
What happens to devise?
If T specified an alternate taker, then that provision takes effect
Common Law– apply only if the will does not provide what happens when a beneficiary predeceases the testator
Void devise– where a devisee is dead at the time the will is executed, the devise is void
Specific or general devise- if it lapses, it falls into residue→ if there is no redisue mentioned, then it goes intestate
E.g. T’s will bequeaths her watch (a specific gift) to A and $1000 ( a general gift) to B. The residuary devisee is C. A and B predecease T, so the watch and the 1,000 go to C.
Specific gift– gift of a particular thing that can be identified
General devise– gift that is insufficiently described→ e.g. I leave $1,000 to X
CA has same rule in 21111
No-residue of a residue rule- (NOT FOLLOWED by modern statutes, ONLY COMMON LAW)- If a share of the residue lapses, the lapsed residuary share passes by intestacy to the testator’s heirs rather than the remaining residuary devisees.
Note- If gift is only made to one person, then under CL the this lapses and goes intestate- CA 21111(3) is same
If gift left to more then one person→ the dead persons share goes intestate e.g. Russel case
Modern CA rule→ 21111(3)(b)→ if gift to more then one person, and one residuary legatee dies before T, then that persons share goes to other legate’s
E.g. After making several specific and general devises to a number of persons, T devises the residue of her estate one-half to B and one-half to C. B predeceases T. B’s one half share goes to T’s heirs, not to C.
Note that the modern trend is that if the testator includes a residuary clause, the testators intent was for all the testators property to pass via the will and nothing through intestacy
Class gift- if devise is to a class of persons and one member of the class predeceases the testator, the surviving members of the class divide the gift.
CL→ class gift went to surviving members of class if one of those in class died→ same in CA 21111(b)
He said something about if members of this class are Kin→ then their share passes to their issue???
In order to be a class, the group # must be able to fluctuate
A “class” label is not necessary for a class gift.
IS: To my children- members identified only by label
E.g. to the children of A is valid calss gift
IS NOT: To my 3 children- members identified by number or name
BUT: Can disregard rules and call it a class if it carries out the testator’s intent. Beneficiaries described by their individual names, but forming a natural class, may be deemed a class gift.
21115(c)(1)→ kindred include…and also includes spouses kindred as transferee’s
Void devise- Where a devisee is dead at time the will is executed or the devisee is a dog or cat or some other ineligible taker, the devise is void.
Estate of Russell– CA Supreme Court
Will stated that deceased leaft everyithng (residue) to Quinn and Roxy.
Testators heirs offered extrinsic evidence to prove that Roxy was a dog.
Court ruled that the fact that Roxy was a dog was a latent ambiguity and extrinsic evidence was admissible to establish that fact
Dogs, are not eligible beneficiaries so the gif tto Roxy failed.
The gift to Roxy was in the residuary clause and the court applied the “no residue of a residue” rule (See above) and held that Roxy’s half fell to intestacy to the testators heirs.
So CA’s position as to extrinsic evidence for unclear instruments:
Judge says they reject the plain meaning rule→ no longer look to see if its latent or patent
pp.390 says the judge must place himself in the position of th testator→ DANGEROUS position
The judge here went to far, and added things that were not there
Continue pp. 395 text
Note 1 pp.392→ states CL rule that there is no residue of a residue- any lapse is void and goes intestate→ so not to the surviving residuary legatee
Modern says→ if you have more then one transferee of a residue and part of it fials, then that part goes to the other transferees
Under 15212 remember you can set up a trust for a pet
Ellan v. Fally?→
Issue: What does the phrase living brothers and sisters mean?
Taken from time of will execution or at time of testator’s death?
If it means living at time of T’s death, then this arguably shows intention that anti lapse statute not apply
If it doesn’t apply then the two living siblings share equally, instead of the issue of deadhsiblings taking under anti lapse statute.
What type of language suffices? pp.395
1. “Share and share alike”→ does that imply that testator meant that they had to survive to take, and thus anti lapse statute not apply?
Held that this language was not a clear indication that anti lapse not apply→ so anti lapse statute applied
Clause in will that makes specific bequests and says, residue is to include all lapsed residue and devises.
Is that enough to show anti lapse statute not apply?
YES, that overcomes presumption, so anit lapse does not apply
“surviviro of them” is not usually enough to show that anit lapse does not apply
The language usually needs to be really clear
UPC 2-603 adopts minority view that gives a really strong presumption that anti lapse statute should apply…even “if he survives me” does not prevent anit lapse from applying
In CA this would probably be enough
21110(b)→ discusses what language would amount to suffice by testator to overcome anti lapse
Doesn’t just apply to wills, also to non-probate transfers
Although, most non-probate transfers have alternative takers in them already
True in joint accounts, life insuarance etc.
21109→ Allows anit lapse statute to apply also to beneficiary of a revocable trust
Gernelaly the beneficiary of revocable trust must survivie settlor/testator
But anti lapse will apply if beneficiary predeceased transferor and was kin of settlor
But these are usually professionally drafted to this lapse issue does not dome up ofter
If enacted, supercede common law, but do not apply if the testator indicates that it not.
Substitute other beneficiaries (usually issue) for the dead beneficiary if certain requirements are met.
Rationale: Provide a distribution that T would have preferred over the property passing under the residuary clause or via intestacy.
An anti-lapse statute applies to a lapsed devise only if the devisee bears a particular relationship to the testator specified in the statute.
There appears to be no empirical rationale to support the limiting anti-lapse statutes to close relatives even though the majority of legislatures do so.
Experience has shown this makes statutes too narrowly drawn and that courts have sometimes found a substitute gift to issue in the words of the will or stretched the concept of a class gift so as to apply, in circumstances where they desire to protect the testator’s intent.
[Statute indicates necessary relationship, if satisfied, then go to next step. If not, then it goes to residue, then intestacy- or look at common law]
Who are the substitute takers? [Usually issue or estate]
CPC § 21109 Transferees; failure to survive
A transferee who fails to survive the transferor of an at-death transfer or until any future time required does not take under the instrument.
If it cannot be determined by clear and convincing evidence that the transferee survived until a future time required by the instrument, it is deemed that the transferee did not survive until the required future time.
PRESUMED TO NOT HAVE SURVIVED
UPC § 2-605 Anti-Lapse; Deceased Devisee; Class Gifts
If a devisee who is a grandparent or a lineal descendant of the testator is dead at the time of execution of the will, the issue of the deceased devisee who survive the testator by 120 hours take
And if all issue are of same degree in relation to devisee- will take equally
If not equal degree, the remotest will take by representation.
ALMOST ALL STATES apply their anti-lapse statutes to class gifts.
UPC § 2-603(b)(3) revised UPC 2-605 (above)
The revisers reversed the majority rule and provided that words of survivorship, such as in a devise to an individual ‘if he survives me’ or in a devise ‘to my surviving children’ are not, in absence of additional evidence, a sufficient indication of an intent contrary to the application of this section (the anti-lapse statute section).
This provision of §2-603 has come under sharp criticism.
The UPC 1969 §2-605 is still used in most states as a result.
CPC § 21111 / UPC § 2-604 Failed Transfers
Except as provided in subdivision (b) and subject to Section 21110, if a transfer fails for any reason, the property is transferred as follows:
If the transferring instrument provides for an alternative disposition in the event the transfer fails, the property is transferred according to the terms of the instrument.
If the transferring instrument does not provide for an alternative disposition but does provide for the transfer of a residue, the property becomes a part of the residue transferred under the instrument.
If the transferring instrument does not provide for an alternative disposition and does not provide for the transfer of a residue, or if the transfer is itself a residuary gift, the property is transferred to the decedent’s estate.
CPC 21111(b) Subject to Section 21110, if a residuary gift or a future interest is transferred to two or more persons and the share of a transferee fails for any reason, and no alternative disposition is provided, the share passes to the other transferees in proportion to their other interest in the residuary gift or the future interest.
THIS OVERRULES NO-RESIDUE OF RESIDUE- says that the void gift goes to the other residuary transferees in proportion to their interest in their state.
CPC § 21110. Transferee’s death; taking by representation; contrary intent in instrument
Subject to subdivision (b), if a transferee “fails to survive”, the issue of the deceased transferee take in the transferee’s place
The issue of a deceased transferee do not take in the transferee’s place if the instrument expresses a contrary intention or a substitute disposition.
A requirement that the initial transferee survive the transferor or survive for a specified period of time after the death of the transferor constitutes a contrary intention.
A requirement that the initial transferee survive until a future time that is related to the probate of the transferor’s will or administration of the estate of the transferor constitutes a contrary intention.
As used in this section, “transferee” means a person who is kindred of the transferor or kindred of a surviving, deceased, or former spouse of the transferor.
21110 (c)= 21110 does not include the spouse of the T, it is kindred of the T or kindred of the spouse, but not the spouse. WATCH FOR DEVISE TO SPOUSE- THIS ONE DOESN’T APPLY! (Goes to estate)
To know what kindred means, have to go to CPC 21115
Kindred- Includes all those related by blood, or adoption, or as foster children, to the testator, or OF the testator’s wife- but not the spouse himself or herself.
Ex: Brother-in-law gets if T dies, T’s kids get.
Ex: A says “to the children of B”. B is dead at A’s death:
Common law- x and y take
CPC 21115- x, y and C take
Non-probate transfers?
If a beneficiary does not survive, an anti-lapse statute may be applicable. Should the survival requirement and the anti-lapse statute be applied to nonprobate transfers?
Payable-on-death designations? Beneficiaries of P.O.D. are required to survive.
Revocable trusts? Remainders are created, and typically- no requirement of survivorship is implied, but some states require it.
Joint tenancies? The anti-lapse statutes do not operate to save a decedent’s interest in property held in joint tenancy. Under common law, it vanishes.
Rule of Construction– “And” must be read as “or” to effectuate testator’s intent
Jackson v. Schultz DE 1959 p446
The will bequeathed all property to Bessie Bullock and “whatever nature and kind to her and her heirs and assigns forever.”
Bessie dies before testator and left 3 children from prior marriage, not children of current spouse
Issue: Will the words “and” or “or” be substituted for each other in arriving at a proper construction of a will for the purpose of carrying out an obvious testamentary purpose of the testator?
Reference to “heirs” or the like has been deemed to designate those who will take by way of substitution in the event that the primary devisee predeceased the testator and a lapse is thereby avoided.
Court states that sometimes the word and is used in stead of or→ so here the court substitutes
Hofing v. Willis 1964, court held that while there is some support for the proposition that the phrase ‘and to their heirs’ could be considered as words of purchase by reading the word “and” as “or”, the presence of the words “and assigns” makes such a construction unacceptable.
Dawson v. Yukas?
Residue left to Yukas and someone else
In Ill. They have more restrictive anti lapse statute→ applies only to decednetnat of testator, not collaterals
Argues this is really a class gift and becaseu one of the members has died, the surviving members should take that share
Others argue that this was not a class gift but a specific gift and so it should go to residuary legateese
Court holds that this was specific and not class because there of the wordings, the wording did not word it as a class group, but specified people who would take
Same situation in In Re Moss
Issue is what happened to Fowlers share?
Did it lapse and fall into the residue? Or was the remainder in stock a class gifts,which would mean the others in the class will take that share?
Court here finds that this was a class gift because it was to go to nieces and nephews, a class
In the last two cases the anti-lapse statute did not apply
Pp.404 we see that anit lapse statutes can apply to class gifts where appropriate
If you have class gift and kindred die………
If one of children of class predeceases testator and leaves issue→ then in that case there is no lapse as the issue of the dead child gets that share
SO WHEN DOES THIS OCCUR AS OPPOSED TO THE OTHERS IN THE CLASS TAKING?
Changes In Property After Execution of Will: Specific and General Devises Compared
Ademption by extinction– Failure of a specific gift, it is adeemed (TAKEN AWAY) when it is no longer in T’s estate after her death.
Ademption only applies to specific devises, not general or demonstrative devises.
If there is specific devise, which is disposition of a specific item of the T’s property, it is adeemed.
E.g. Blackacre to A and residue to his son→ but testator sells Blackacre and buys whitacre
Genral rule is that the gift is addemed
If there is general devise, “A legacy to G of $10,000”, and there isn’t $10,000 in T’s estate, other assets can be sold.
So other assets are sold if there is not 10,000 in cash
If there is demonstrative devise, which is hybrid of a general devise payable by a specific source, “Proceeds of my GM stock of $10,000”. If there aren’t these funds, other assets must be sold.
Intent theory- if you can show that the testator wantedt he legatee to get equal value of that gift in cash etc. see below
Wasserman v. Cohen MA 1993
Frieda Drapkin created an inter vivos trust and retained the right to add property by inter vivos transfer and will, and right to amend and withdraw property from the trust.
A trust provision ordered David Cohen (D), trustee, to convey a building to Elaine Wasserman (P). However, Drapkin sold the building prior to her death.
Issue: Does the doctrine of Ademption by extinction apply to the specific gift of real estate contained in a revocable trust?
Rule: When a testator disposes during her lifetime of the subject of a specific legacy in her will, that devise is held to be adeemed.
Identity Theory (MAJORITY) Objective- It is irrelevant whether T intended to adeem the gift. If property isn’t found at T’s death, the gift is adeemed.
Test: Can we find this piece of property in the estate? If NO, then adeemed.
Courts have developed escape routes, however, to avoid ademption:
Classify the devise as general or demonstrative rather than specific
Classify the inter vivos disposition as a change in form, not substance.
Corporate merger which changes nature of shares, not substance.
Construe the meaning of the will as of time of death rather than time of execution
Create exceptions- like when the T is not the one who gets rid of property, but a conservator
HYPO: T bequeaths “my bank account in First National Bank” to A. After executing her will, T closes the account at First National and purchases certificates of deposit to obtain a higher rate of interest. At T’s death, is A entitled to the certificate of deposit?
Courts have ruled no, and adeemed.
Stock Splits– Suppose that T executes a will devising 100 shares of stock of Tigertail Corporation to A. Subsequently, Tigertail splits its stock three-for-one. A T’s death, T owns 300 shares of Tigertail. Does A take 100 or 300?
if specific – beneficiary gets 300 shares
if general – beneficiary gets 100 shares
BUT- This is the old rule. The new/modern rule acknowledges that the gift relates to percentages of ownership and stock splits should not change the amount of the gift because the split did not alter the percentage of stock owned of the company only the number of shares that are required to maintain the same percentage.
Intent Theory (MINORITY) Subjective-
Test: Did T intend to adeem the gift?
If YES, then it’s adeemed.
If NO, the devisee is entitled to replacement property, but if no replacement property, then equal value.
UPC § 2-606 Can replace with something similar in function. Focuses on intent of T. Gives exceptions of when Ademption doesn’t apply.
UPC 2-606: Nonademption of Specific Devises; Unpaid Proceeds of Sale
A specific devisee has a right to specifically devised property in the testator’s estate at the testator’s death AND to:
Any balance of the purchase price,
Any amount of a condemnation award for the taking of the property unpaid at death;
Any proceeds unpaid at death on fire or casualty insurance on or other recovery for injury to the property;
Any property owned by the testator at death and acquired as a result of foreclosure, or obtained in lieu of foreclosure,
Any real property or tangible personal property acquired as a replacement for specifically devised real property or tangible personal property; and
CA doesn’t have this
If not covered by paragraphs (1) through (5), a pecuniary devise equal to the value as of its date of disposition of other specifically devised property disposed of during the testator’s life.
If specifically devised property is sold or mortgaged by a conservator or by an agent acting within the authority of a durable power of attorney for an incapacitated principal, or a condemnation award, insurance proceeds, or recovery for injury to the property is paid to a conservator or to an agent acting within the authority of a durable power of attorney for an incapacitated principal, the specific devisee has the right to a general pecuniary devise equal to the net sale price, the amount of the unpaid loan, the condemnation award, the insurance proceeds, or the recovery.
The right of a specific devisee under subsection (b) is reduced by any right the devisee has under subsection (a).
Replacement property rules:
If item not in estate, devisee entitled to replacement property (similar in use)
If NO replacement property, then entitled to value of property as of the time it was sold
CA– If there is replacement property, then there is presumption against ademption.
CA– If NO replacement property, then need to overcome presumption for ademption (you assume T adeemed unless shown otherwise).
See note 4 and 5
Different versions of UPC→ switching burden etc.
In CA, we have 21133→ a lot like 1990 UPC version, raising a mild presumption against ademption
21133 lists all the exceptions that you find in the UPC 1990 except for (e)→ CA does not include idea that property owned by testator at death intented as replacement….etc.
Example pp.411 problem 1
Under UPC § 2-606(a)(5), dealing with replacement property, if T executes a will bequeathing “My Ford car” to A and later sells it and buys a Rolls Royce, is A entitled to the Rolls?
It is arguable that the devisee should get the car because it is a replacement for the Ford even though the values are substantially different.
If the decedent bought two cars, Rolls and Honda? It becomes more difficult to argue.
Under 1990 UPC does legatee get Rolls Royce?
Could argue under (5) that it was replacement property
Under 97 UPC probably not
Uncer CA we don’t have the 90UPC (5) so that wouldn’t work
If T devises Blackacre to A and sells it and buys Whiteacre with the proceeds, is A entitled to Whiteacre?
Yes under 90 UPC, because this is a replacement.
Under 97 UPC and CA not as they don’t have replacement clause
Aunt Fanny has a collection of snuff bottles, some of which may be worth a lot of money, all of which are rare. Aunt Fanny bought hers in the 1950s through the 1970s, one at a time. She kept no records and they were not insured. She bequeaths some of them to Wendy. At her death, they are not found in her house. No one knows how many there were. What are Wendy’s rights under common law? UPC? CPC?
Identity rule (Massachusetts) clearly tells us that this is a specific devise that is no longer there and thus is adeemed.
UPC intent rule however gives a presumption that the devisee is intended to receive the value of the bottles.
If a devise is against a testator’s intent then it should be adeemed.
If there is intent to give it away, and the property is lost or stolen then the devisee should get the property.
The failure of a testamentary gift because the T has already transferred the property.
Applies when T makes a transfer to a devisee after executing the will.
If T is parent of beneficiary and after execution of will transfers to the beneficiary property of a similar nature to that given in will, there is a presumption that the gift is in satisfaction of the gift made by will.
Must prove that inter vivos gift is in fact satisfaction, so must prove
Intent via writing, OR
Intent via express directions in will providing for deduction in amount already given inter vivos
General gifts are when this comes into question
Specific gifts are not a concern, because they are gone by ‘ademption by extinction’.
CPC 21115– Advancements? Raises presumption that lifetime advancements are not in satisfaction of will.
Abatement (Reduction in gifts…)
The process of reducing testamentary gifts in cases where the estate assets are not sufficient to pay all claims against the estate and satisfy all bequests.
At common law, all gifts of personal property abate before dispositions of real property.
SEE pages to see the priority order→ CPC 21402 also lists these
Today, in most states, the distinction between real and personal property has been abolished- statutes provide a general order in which types of gifts are abated (reduced).
CPC says how abatement happens depends on the nature of gift. Follows the same line as below:
If T doesn’t provide an order, the general order is:
Intestate devises is reduced
Residuary devises are reduced
General devises are reduced
Specific devises are reduced
Jurisdictions that follow this doctrine presume that specific dispositions of property subject to mortgages or other encumbrances are to be paid out of the testator’s residuary estate, absent language to the contrary.
In CA, devisee takes subject to mortgage.
Note 3 at pp. 413→
Advancement– You have a mother that has 3 kids→ the mother gives one child a gift etc. and then she dies intestate→ so can the other kids say the one kid already got their etc?
Presumption against advancement needs to be in writing etc.
So if you have a bequest in the will to give a certain amount o fmoney to a daughter→ should advancement be considered to satisy this?
CA says this is satisfied only if there is a writing showing this intent→ so treated the same as advancements→ presumption against he idea that any money given during life of testator counts against the person.