Wills, Trusts, & Estates Outline

1. Power to Transmit Property At Death

1. Transmission – The power of the “dead hand”

• Shapira v. Union National Bank à Partial restraint on marriage in a will is allowable & NOT contrary to public policy.

• Court focus is on the rights of the TESTATOR, not the beneficiary

• Court allows reasonable restrictions

• Cannot violate public policy OR constitutional rights of the beneficiary

• Ambiguous conditions may also fail

• Otherwise the will is unenforceable b/c of its unreasonableness

2. Transfer of the Decedent’s Estate

• 4 Steps of Probate Proceeding è

• Inventory & collection of assets

• Management of assets during period of administration

• Tax returns on the estate

• Payment of creditors

• Transferring title of property

 

• Is Probate Necessary ? è

• Certain items do NOT make it to probate à

• Tangible Personalty (possession)

• Joint Savings & Checking Accounts (survivorship)

• Bonds, life policies (survivorship)

 

• Problems à Contingent claims

• Where testator was a Doctor or Lawyer

• Reasoning – contingent claims (malpractice) could be made against the estate

• Must publish in paper – wait 4-6 months for S/L to expire

 

• Should the will be offered for probate ? à

• Must always file the will w/court or violation of law BUT

• NOT necessary to offer it for probate

• Depends on intestacy laws and other heirs

 

• Advantages of a Will à

• Testator may pick his executor (usually beneficiary)

• Disperse property in accordance w/his own conditions

• Problem à

• What if executor & beneficiary are NOT same person ?

• Executor may wish to compel initiation of probate proceeding (5% commission interest)

• Executor MUST protect the interests of the testator

• Family arrangements/agreements allow for the will to be thrown out

• Reasoning – family could divide property any way they see fit after they get it anyway

 

3. Professional Responsibility

 

• Ogle v. Fuiten à Interested will beneficiaries have a c/a against attorney

• No lawyer should prepare a will UNLESS he considers himself competent to do so.

• Privity is NOT a consideration – party may sue as an interested 3^rd party beneficiary (under TORT law of NEGLIGENCE)

 

2. Intestacy: An Estate Plan By Default

 

1. The Basic Scheme

• A person who does NOT make out a will, is said to have accepted the intestate laws of the state by default.

• Share of Spouse UPC § 2-102

• Share of Heirs Other Than Surviving Spouse UPC § 2-103

• Decedent’s descendents take by representation (UPC § 2-106 – per capita)

 

• Per Stirpes Distribution è “by the stocks”

 

• Classic Per Stirpes è

• Begin distribution at 1^st generational level below decedent

• Children of decedents take by representation

 

A

 

 

Start Here è B C

 

D E F

 

G H

• Result è

• B = 1/2 which goes to D (child takes by representation)

• C = 1/2 which goes to E and F (E = 1/4, F = 1/4)

• E’s 1/4 goes to G and H (1/8 each by representation)

• Modern Per Stirpes è

• Begin distribution at 1^st generational level where someone is alive

• Children of decedents take by representation

 

A

 

 

B C

 

Start Here è D E F

 

G H

 

• Result è

• D = 1/3, E = 1/3, F = 1/3

• E’s 1/3 goes to G and H by representation (G 1/6, H 1/6)

 

• Per Capita (UPC) è

• Begin distribution at 1^st generational level where someone is alive

• Remaining portion = “pot” – drops down to next level

 

A

 

 

B C

 

Start Here è D E F

 

G H

• Result è

• D = 1/3, F = 1/3, Pot = 1/3 drops down

• G and H share pot (G 1/6, H 1/6)

 

• Points of Note à

• UPC cuts off those who cannot trace through Grandparents or better

• However, ancestor may still take under a “next of kin” type statute

• Reasoning – prevent the “laughing heir” problem

 

• General Order to look for à

• Spouse

• Children

• Parents

• Brother/Sister

 

• Shares of Ancestors and Collaterals

• Where intestate is survived by a descendant, the decedent’s ancestors and collaterals do NOT take

• Collaterals take IF: 1 thru 4 above are not in existence

 

2. Transfers to Children

 

• Adopted Children à Hall v. Vallandingham

• Adopted children lose inheritance rights through natural parent

• Reasoning – Adopted child would have superior status (dual inheritance rights) – also open to fraud

 

• Advancements à

• Common-law definition – Any lifetime gift to a child is presumed to be a pre-payment of the child’s intestate share

• UPC § 2-109 à Presumes that lifetime gift is NOT an advancement UNLESS…(in writing as such…)

• Problems è

• Difficulty of proof (intent)

• Parents don’t anticipate the charging of a gift as an advancement

• Solution – put intent in writing

• Valuation – what is the property worth ?

• How do you value a future interest ?

• Calculation è

• “Hotchpot” calculation

• Suppose there are 3 children (estate = $90,000) (C1 gets $20,000 advancement, C2 gets $10,000 advancement)

• Hotchpot = $120,000 (each child gets $40,000) so…

• C1 gets $20,000 C2 gets $30,000 C3 gets $40,000

 

• Managing a Minor’s Property è

 

• Guardianship/Conservatorship à Appointed by court if both parents die w/o will designating who is to be guardian

• Duty of preserving property left to the minor and delivering it to the ward at age 18.

• Court must approve sale, lease, or mortgage of property

• Extensive court supervision 4

 

• Custodianship à Person who is given property to hold for the benefit of a minor under the State Uniform Transfers to Minors Act.

• Property is transferred to a person as custodian for minor

• Custodian is required to transfer property to minor at age 21

• Custodian has right to manage property & reinvest it

• Custodian is NOT under the supervision of the court BUT

• Custodian IS subject to standard of care of a prudent person dealing with the property of another

• Simple to create – under Uniform Transfer to Minors Act

 

 

• Trusteeship à Established for the benefit of the child

• Most flexible of property arrangements

• Testator can tailor trust to specific family circumstances

• Trust can postpone possession until the donor thinks child is competent to manage the property

 

3. Bars to Succession

 

• 3 Lines of Casesè

• Legal title passes to the slayer and may be retained in spite of the crime

• Legal title does NOT pass to slayer b/c of principle that no one should be permitted to benefit by his own wrong

• Legal title passes to the slayer BUT equity holds him to be a constructive trustee for the heirs or next of kin of the decedent

 

• Problems è

• Is a criminal conviction required ?

• Who takes if the slayer is barred from taking ?

• Is there a difference b/w intentional & unlawful killings ?

 

• Effect of Homicide è UPC § 2-803 (text pg. 137)

(b) must be felonious & intentional

• If intestate - estate passes as if the killer DISCLAIMED his share

 

• Disclaimer è UPC § 2-801 (text pg. 140)

• An intestate successor CANNOT prevent title from passing to him

• Reasoning – must always be someone seised of the land

 

• If testate – the devisee can refuse to accept the devise, thereby preventing title from passing to the devisee.

• Reasoning – any gift requires acceptance

 

• Most states have enacted disclaimer legislation that provides that the disclaimant is treated as having predeceased the decedent (avoiding tax consequences & creditors)

 

3. Wills: Capacity & Contests

 

4 Requirements è “I C E E”

 

1. Testamentary Capacity

2. Testamentary Intent

• Intend that it operate at death and NOT at present

• Understandable Expression

• Court must understand your disposition

• Valid Execution

• Compliance with formalities of court & law

 

1. Mental Capacity

• Entire will fails if T found w/o mental capacity

 

Mental Capacity TEST è 4 Elements Strittmater “N E X T – N O D”

• Decedent must have the ability to know à

• The nature & extent of the decedent’s property

• The person’s who are the natural objects of decedent’s bounty

• The disposition that the decedent is making

• How these elements relate so as to form an orderly plan for the disposition of decedent’s property

 

2. Insane Delusion

 

• Special type of mental incapacity

• Only parts of the will fail

 

Rule in Honigman è Person persistently believes supposed facts, which have no real existence except in his perverted imagination and against all evidence and probability, and conducts himself, however logically, upon the assumption of their existence… [false conception of reality – T adheres to against all evidence & reason to the contrary]

 

3. Undue Influence

 

4 Elements è

1. Testator was susceptible to undue influence

2. Influencer had the disposition to exercise undue influence

3. Influencer had the opportunity to exercise undue influence AND

4. The disposition IS the result of the influence

 

• NOTE: Presumption of undue influence exists where a sexual relationship b/w attorney & client [Moses]

• Solutions à to insure intent of T is followed

• Video tape

• Witnesses

• Letters explaining exclusions

• [careful NOT to do this when person might appear incapacitated]

 

 

4. Fraud

 

• Definition è T is deceived by a misrepresentation and does that which T would not have done had the misrepresentation not been made.

 

• 2 Types è

 

1. Fraud in the Inducement è Person misrepresents facts, causing T to execute a will to include provisions in the wrongdoer’s favor, to refrain from revoking a will OR, not to execute a will

 

2. Fraud in the execution è Person misrepresents the character or contents of the instrument signed by T, which does NOT in fact carry out T’s intent

 

• Remedy for Fraud è Constructive Trust

• Heir/devisee who is a wrongdoer is deemed a trustee, of the property, by operation of law… to the amount or extent that the defrauded party would have received… [Latham]

• Compels trustee to hand over the property in favor of those intended to be benefited by T

 

4. Wills: Formalities & Forms

 

1. Execution of Wills

 

UPC § 2-502 è

1. Writing

2. Signed by T – conscious presence

3. 2 W’s – w/i reasonable time after…

 

Common Law è W presence MUST be at the same time 4 [Groffman]

• Historically – only disinterested W’s allowed

• Purging statutes à Save will by purging interested W’s take

 

Purpose of Formalities è

1. Prevent fraud

2. Make sure will is the deliberate intention of T

 

• NOTE: Other issues include à

• Presence – what is required ? [line of sight, actual presence, constructive presence]

• Addition After Signature – General rule – must sign at the foot. BUT can also show line was there before signature

 

• Order of signing – T should sign in front of W’s first

 

Attestation Clause è Raises a presumption that formalities were complied with PRESENT TENSE

1. Provided prima facie evidence that will was signed by T in presence of W’s

2. Permits probate when a W forgets circumstances or dies

3. Express the present intent of the attestant to act as W

• Form added to a new will

• Unless someone contests the will, it will be upheld

 

Self-Proving Affidavit è Sworn statement that will has been executed & already witnessed – PAST TENSE

• Same function as attestation clause

• Permits probate of will w/o requiring W’s to appear

• Add this form to an existing will

 

2. Curative Doctrines

 

Mistake in Execution è E.g. signed wrong will [Pavlinko]

 

1. Formalist/Strict View à Wills act is clear & court will NOT allow probate

• Reasoning à Floodgates/slippery slope

 

2. Modern View à Substantial Compliance with statutory compliance is enough

 

UPC § 2-503 – Substantial Compliance – Clear & convincing evidence that decedent intended the writing to constitute:

1. decedent’s will

2. a partial or complete revocation of the will

3. an addition to or an alteration of the will OR

4. a partial or complete revival of his formerly revoke will

 

3. Holographic Wills

 

• Written in T’s handwriting and signed by T

• Attesting W’s are NOT required 4

 

• UPC § 2-503 è Covers holographic wills

• Valid IF à

• Signature &

• Material provisions in handwriting of T 4

 

 

5. Revocation of Wills

 

3 Methods of Revocation è

1. By operation of law à

• T gets married or divorced after executing a will, this change in status may revoke, by operation of law, all or part of the will

 

2. By later will or codicil – 2 Ways à

• Language that expressly revokes the prior will should be included

• Alternatively, a later will may revoke a prior will IF there are inconsistent provisions in the later will that impliedly revoke the earlier will.

 

3. By physical ACT or destruction

• Generally, burning, tearing, or obliterating a material part of the will revokes it

• Another person can do the tearing or burning IF in the testator’s presence

• Must act & have the intent to revoke

• Problem with revocation by ACT è

• ACT is open to interpretation, whereas words are more clear than an ACT

 

NOTE: Presumption that will was revoked where will cannot be found [Harrison]

• Presumption rebutted where heir/devisee has motive & opportunity

 

Partial Revocation by Physical Act è UPC § 2-507

 

• Statute à May expressly allow for partial revocation

 

• Common-Law à 2 alternatives – where item is crossed-out

 

1. Partial revocation by ACT [in such jurisdiction]

2. NO partial revocation by ACT jurisdiction [2 more choices] è

0. If legible, probate as b/f b/c cannot change the provision

1. If illegible, [2 choices] è

1. probate with change

2. refuse probate

 

NOTE: Important to consider intent of T

 

Dependent Relative Revocation è DRR

• Sets aside the revocation as if it were conditional

• E.g. – where prior will is revoked by the making of a new will

• If new will fails, prior revoked will is reinstated

 

 

• Elements of DRR è

• Revocation (conditional)

• Mistake of law- or fact (that revoking the later will allows for prior will to be revived)

• Alternative dispositions ?

• Intended disposition ?

 

6. Components of a Will

 

1. Integration of Wills

• What pages constitute the will

• Make sure pages are stapled together

 

2. Republication by Codicil

• Implied restatement OR rewriting of the language of a valid will

• Sometimes used to validate a prior invalid will [Johnson]

• PROBLEM à Where 1^st will is revoked by 2^nd will and then 1^st will is re-published by codicil

 

3. Incorporation by Reference

• Pages which were not present BUT in existence at the time of execution may be given effect

• Will may refer to extrinsic document even though the other document was NOT properly executed. The following is required:

 

1. Document in existence at the time will was executed

2. Will expressly refers to document in present tense

3. Will must describe document clearly so as to make no mistake

4. T must have intended to incorporate the extrinsic document

 

4. Acts of Independent Significance

• Will disposes of property by reference to ACTS and EVENTS which have significance apart from their effect upon dispositions made by the will

• E.g. à Artist gives away paintings in gallery which rotate regularly [valid – b/c motive of rotating paintings unrelated to testamentary disposition in will] – OR

• “I devise Blackacre to the persons named as B’s in my sister’s will”

 

7. Contracts Relating to Wills

 

1. Contracts to Make a Will – Allowed

• K law applies – K beneficiary must sue under law of K’s & prove a valid existence of a K

• Remedy = constructive trust against the estate or devisees of the defaulting party for the B

2. Contracts NOT to Revoke - Allowed

• Typically arise w/joint or mutual wills

• Problem of proof of the K not to revoke

• NOT enforceable UNLESS clear & convincing evidence

• Mutuality of provisions [reciprocal] refers to the K

 

3. Joint Wills – Big problem & should NOT be used

 

8. Will Substitutes

 

1. Contracts w/Payable-On-Death Provisions

• UPC § 6-101

• Pension Benefits

• Bank Accounts

• IRA’s

• Life Policies

• Cannot change B of life policy by a will [Cook]

• K is too informal compared to a will

 

2. Multiple-Party Bank Accounts

• Joint & survivor accounts

• POD Accounts

• Agency Accounts

• Savings Account Trusts

• Lack of donative intent at the time the account was created severs a joint tenancy [Franklin]

• Extrinsic evidence MAY be used to show such intent

• Form of account is ambiguous [bank only offers 1]

 

3. Joint Tenancies – Decedent’s interest vanished upon death

• Joint tenant CANNOT devise his/her share by will

• Must first convert interest into tenancy in common

 

4. Revocable Deeds – Should NOT be used

• E.g. Sign over a deed while retaining the life interest [Wright]

• Deed of this type generally does NOT operate at death

• Intent controls – look to the language – also look for delivery

• Look to the behavior of the parties

 

5. Revocable Trusts – Most flexible of all will substitutes

• Equitable title is given up immediately upon creation of trust

• B has rights immediately & Trustee has fiduciary obligations

• Doesn’t matter how much power you reserve… if you can revoke the trust, you have all the power anyway

• Invalid trusts where – 3 party trust where settlor retains right to revoke

• Revocation è MUST be done in accordance with terms of the trust

• Should NOT be done by destruction… SHOULD be done in writing

• Trust law does NOT support the fact that destruction = revocation

• Silence in trust instrument = irrevocable trust

 

1. Creditor’s Rights è Creditors may reach the trust assets to the extent that the trust B has such control over trust assets [Reiser]

• Reasoning – If he can take voluntarily from the trust, then creditors should be able to reach it too

 

6. Pour-Over Wills – O to X(as trustee)… Will – residue to X, as trustee, to hold under the terms of the inter vivos trust

• Advantages à

• Merges assets into single administration

• Can incorporate a trust in existence by reference

 

2 Important Theories Here è

 

1. Incorporation by Reference

• Will can incorporate a trust in existence at the time it is executed

• Will cannot incorporate trust amendments after will execution

• 2 results è

• Probate assets pass in accordance with trust BEFORE amended [at time will was executed] OR

• Probate assets pass through intestacy if above is not in tune with T’s intent

 

2. Doctrine of independent significance

• Will may dispose of some property by referring to some ACT which significance apart from disposing of probate assets

• E.g. – By reference to an inter vivos trust that disposes of assets transferred to the trust during life

• Doctrine requires trust to be in existence as a legal entity at the time T dies

• Doctrine also requires that the inter vivos trust have assets transferred to it during life

 

7. Use of Revocable Trusts in Estate Planning è

1. Consequences during the life of Settlor

• Revocable trust used to relieve Settlor of the burdens of financial management

• Deal with the contingency of Settlor’s incompetence

• To clarify title & ownership of assets

• NO tax advantages since income is taxable to the Settlor regardless to whom it is paid

 

2. Consequences at death of Settlor

• Can be used to avoid probate

• Income & principal can be disbursed to the B’s w/o significant delay [no delay]

• No short-term statute of limitations applicable to revocable trusts to cut off the rights of creditors

• Avoids publicity – not public record

• To avoid ancillary probate over real property out of state – land may be transferred to a revocable inter vivos trust

• Some states allow a funded revocable trust to defeat a spouse’s elective share under certain circumstances

 

8. Durable Power of Attorney – Continues throughout incapacity of principal

• Agent makes decisions for principal

• Power ceases – Upon death of agent OR principal

• Agent does NOT own the property like a trustee does

• Useful when à Small amount of money

• Transactional costs of trust is too large

• No high standard for accounting & maintenance of records

 

9. Trusts

 

1. Creation, Types & Characteristics

• 2 Types è

• 3-Party trust

• Settlor, Trustee, and Beneficiary

• Beneficial & Equitable title transfers to B

 

2. Self-declared trust

• Settlor = trustee

• Only beneficial title transfers

• How do we know when this trust is created ?

• Written instrument – declaration of trust

 

2. Definitions

• Settlor – Person who creates the trust

• Inter-vivos – Created during the settlor’s life

• Testamentary – Created in WILL of settlor

• Trustee – May be a 3^rd party or B

• Failure to name a trustee will NOT defeat the trust creation

• Court will appoint

• Holds legal title to property

• Beneficiaries – Hold equitable interests

• Have personal claim against trustee for breach of trust AND

• Have equitable claims on the trust property

NOTE: Trustee who wrongfully disposes of the trust property can recover the trust property UNLESS à It has come into the hands of a bona fide purchase for value

 

3. Use of Trusts in Estate Planning

• Avoid probate

• Effective property management

• Transfers to minors or incompetents

• Tax advantages

 

 

4. Elements to Create a Trust (4)

1. Intent – To create a trust

2. Trustee

3. Trust Corpus – [res]

• Trust can only come into existence upon separation of legal equitable title to property

 

• If there is no property, there is nothing to split

• What IS considered “res” for a trust è

• Binding K

• Interests in property

• Contingent Remainders

4. Ascertainable Beneficiary

• B or Class of B’s must be capable of coming into court & claiming benefit [Campbell]

• Not possible for the court to decide who is in ambiguous definition such as “friend”

• Exceptions

1. Honorary Trust

2. Charitable Trust

NOTE: Writing is required only when transferring property or created by a will

 

5. Trustee Duties

1. Careful Records – Account for every penny

2. Preserve trust assets

3. Segregate res from own property

4. Use trust assets solely for trust purposes – Prudent investment

NOTE: Failure to account makes trustee L – UNTIL he accounts è

• All presumptions are made in favor of beneficiary

• Settlor’s intent controls

 

6. Custodianship – Under Uniform Gifts to Minor’s Act

• Gift to minor is transferred to custodian for the benefit of minor

• Simpler than trust – custodian = fiduciary

• Custodian may expend property for the benefit of minor

• Must hand over property when B reaches 21 years of age

• Liability à

• Accounting – personal L for damages

• Trace the assets – B can get title to assets which can be traced

7. Resulting Trusts è Arises by operation of Law [2 situations]

1. Where an express trusts fails or makes an incomplete disposition OR

• E.g. – Trust which fails in a will

• Will gives legal interest in property

• Equitable interest transfers by way of resulting trust

2. Person pays purchase price of property & causes title to be taken in the name of another who is NOT the natural object of the bounty of the purchaser

 

8. Constructive Trusts è Flexible remedy imposed to prevent unjust enrichment

• Under a duty to convey property to another on the ground that retention would be wrongful

• Requirements à

1. Confidential relationship

2. A promise, express or implied

3. A transfer of property in reliance on the promise AND

4. Unjust enrichment of the transferee

 

9. Honorary Trusts – Binding on the conscience of the trustee – courts will uphold as long as trustee is willing

• Requirementsè

• Person must on their honor do it

• Definite Purpose – for trustee to carry out

• Accepted purpose in accordance w/public policy

• Does NOT violate RAP

 

10. Charitable Trusts - Trust established for public institution or other non-profit group

• Attorney general can enforce

• Enforceable as a matter of public policy

 

11. Secret Trusts – Title transfers to trustee & only trustee knows who to give it to

• Extrinsic evidence of intent allowed

• Result looks FORWARD à Goes to B [by way of a constructive trust]

• Problem à Where secret trustee dies or in unsure of who B’s are

 

12. Semi-Secret Trust – Property goes by way of resulting trust

• Extrinsic evidence NOT allowed [b/c of the nature of a will]

• Result looks BACKWARD à Goes to heirs by way of resulting trust

 

13. Discretionary Trusts – Trustee has discretion over payment of either the income of the principal or both

• Trustee MUST exercise prudent judgment

• Trustee must act in good faith

• All of the duties extend to potential B’s when trustee makes discretionary decisions

• Trustee’s tend to favor remainderman [so spell out the hierarchy of T’s intent to make it clear to trustee]

NOTE: Trustee has a duty to inquire into the financial resources of B to make determination of needs of B [Marsman]

 

14. Spendthrift Trusts – B’s cannot voluntarily alienate their interests NOR can creditors reach their interests [B has a stream of income]

• E.g. à Income to A for life and upon A’s death to distribute property to A’s children

• B cannot take credit against it

• Trustee can be given power to invade it for the benefit of B

 

15. Support Trusts &n