Estates and Trusts
1st Question on Exam: According to Blackstone, where does the property go at death? Answer: to the people who were to be expected at the deathbed.
Hodel v. Irving
Facts: Indian Lands were controlled by lands acts which had the effect of “fractionalizing” the parcels of land.
Holding: Indian Land Consolidation Act was unconstitutional because by its grant of deceased property going back to the tribe, it was a violation of the 5th Amendment right as a “taking without compensation.”
Rule: an owner of property has a constitutionally protected right to transfer property at death. (however, there is no right to inherit from someone)
Shriners Hospital v. Zrillic
Facts: Case concerned a Mortmain statute (restricts the Church’s ability to acquire property) in which the court found unconstitutional.
Holding: The statute was unconstitutional because it was unfair because it had an arbitrary 6 month time limitation and it unnecessarily restricted the bequest to a certain type of charity.
Shapira v. Union National Bank
Facts: This case concerned a “dead hand will” (cases wehre person who makes the will wants to control people from the grave). In this case, the will specified a restriction that the sons had to marry a jewish girl with jewish parents or the property would go to Israel.
Holding: Court upheld the will on the basis that the court was not being asked to enfore any restriction upon the son’s right to marry, but being asked to enforce the will’s restriction made by the father. In these circumstances, the restriction was “reasonable” and therefore was constitutional. If it had totally prohibited marriage or made it very difficult, the courts would like have struck down this provision.
Rule: parents can place restriction on their wills to affect the conduct of their children and can in fact disinherit their children if they wish to do so.
Hypo: will asks for devisee to burn down a house. Answer: it is likely to be an unenforceable provision because it is contrary to public policy. However, the dead person can give money to a person with the request to burn it down as long as the person is other than the will’s administrator. Also, according to the notes in the book, provisions encouraging separation or divorce have usually been held invalid, unless the dominant motive of the testator is to provide support in the event of a separation or divorce. Also, provisions requiring a beneficiary to change their name have usually been upheld, unless the dominant purpose is to separate the beneficiary from his family.
Probate Asset v. Non-probate Asset
- A non-probate asset is one in which an individual owns an item/account in which it provides via a contract provision that specifies what is to happen if the owner dies.
? joint checking account (when one spouse dies),
? life insurance (can’t change via a will)
? home (homestead rules apply)
? stocks, bonds, and other securities
? revocable trusts (no will and no probate because trustee handles the devisement)
- Probate assets only come when a person dies with “probateable property.”
Will: must be composed of one person, and be valid.
Jurisdiction for the court is "in rem" jurisdiction.
- Purpose of probate: provide a legal record of the property, to protect creditors, and to protect those who would receive property after creditors are paid. Under probate code, there are two types of proceedings, formal and informal. Informal is more likely in MN and most are conducted in an unsupervised form. Under old days, notice must have been given to everyone who was an interested party with a formal hearing. Heirs at law have to be determined so that proper notice could be given and those people would be able to have their challenges to be noticed and decided. In informal proceeding, there is no formal hearing with a register of probate (one in each county and that person does not have to be a lawyer.) Register examines the will and validates whether it is valid and to look for deficiencies that must be addressed. Registrar will issue an administrative order that will declare the validity of the will and orders that there be published noticed to all interested individuals. The registrar then has full power to collect assets. Up to interested persons to object and the courts do not become involved unless there is a dispute. Time is a big difference between informal and informal (5 days for informal, 6 weeks for formal)
- If there are no assets to pay creditors: like the fact the only property left was a home with a homestead exception. (no personal representative need be appointed.)
- Also, surviving spouse has rights to money via the statute that may completely liquidate the assets. (up to 1,500 per month for spouse under the statute).
- Creditors have 4 months after notification to make a claim against the estate.
- When property left is only personal property that does not exceed 20K, you do not have to have any type of proceeding. (this includes personal checking accounts and personal savings accounts). Affadavit for collection for personal property allows the person to get a hold of the property under MN law and to take care of the estate's affairs.
Duties of a personal representative
1) to inventory and collect the assets of the decedent,
2) to manage the assets during administration
3) to receive and pay the claims of creditors and tax collectors
4) to distribute the remaining assets to those entitled
bequest = giving of personal property
devise = giving of land
I give = ok for everything
Can probate be avoided?
- Yes, provided that the property owner during their life transfers all of his or her property into a joint tenancy or a revocable or irrevocable trust or, in many states, executes a contract providing for distribution of contract assets to named beneficiaries on the owner's death. However, a will always serves as a backup function in these cases to catch overlooked assets or changes which must be made afterwards.
- statutes in all states permit heirs to avoid probate where the amount of property involved is small, but the states differ as to what kind of, and how much, property can be transferred without a formal administration.
- statistically, only 20 to 34 percent of estates go through probate, so there are a lot of ways to avoid the process.
Universal Succession: a system that allows the heirs to avoid a personal representative and probate to ensue as long as the heirs take title to the property and assumes personal liability for the decedent's debts that are chargeable against the property. Under the system, each heir holds the property as "tenants in common." (Currently LA and CA are the only states where one can see to use this type of system.)
Ogle v. Fuiten
- Facts: Fuiten, the atty, negligently drafted a will for the P's aunt and uncle, causing their property to pass in intestacy, rather than to the P which was the intended beneficiary. Ps brought case under two theories: tort and contract.
- Holding: an atty is liable to intended beneficiaries who have been damaged by the atty's negligent drafting of his client's will. In other words, lawyers have duty to the will beneficiaries as well as to the clients.
- Notes: a few states have held that the lack of privity of contract between the lawyer and the intended beneficiaries prevents a malpractice action by the beneficiaries. When drafting wills, make sure you usually provide for the normal causes of death, not just the rare.
- This is a high risk area to practice in because lawyer has duty to third party beneficiaries.
Question on page 70
- parents cannot be heirs of their child has a child. (under all codes this is the case)
Look at notes on pages 68 and 69 (bottom)
- residuary clause: the residue of what is left is given to someone or something.
- however, if the gift no longer exists (like stock which has since been sold) is not given through the will, but is given by way of the resduary clause. The specific bequest fails because the gift no longer exists (the heir cannot get the value of the stock when sold). Also, this may happen in another situation where the person who get the gift is no longer living. In that case, no one gets it because the gift fails.
- specific gifts often fail because the circumstances change and then the item falls under intestacy.
- also, be aware and learn the Uniform Probate Code provision on 69. regarding the share of the spouse and heirs other than surviving spouse.
- be aware of current law (which is different than probate code) that the most common statutory provision is to give the surviving spouse a one half share if only one child or issue of one child survives, and a one-third share if more than one child or one child and issue of a deceased child survive. Page 71.
Janus v. Tarasewicz
Facts: A married couple accidentally took capsules laced with cyanide. Soon afterwards, Stanley collapsed and within minutes Theresa started experiencing seizures and both were taken to the hospital. The doctors at the hospital recorded Stanley's death on Sept. 29, 1982 and Theresa's death on October 1, 1982. Because the insurance company concluded that Theresa survived Stanley, the life insurance co paid the proceeds of Stanley's life insurance policy to the administrator off Theresa's estate. On doing so, Stanley's mother sued because she claimed that the proceeds of the policy should go to her because she was listed as the contingent beneficiary on the insurance policy and argued that there was not sufficient evidence to prove that both victims did not suffer brain death prior to their arrival at the hospital on Sept. 29, 1982. The trial court held that there was evidence sufficient to show that Theresa survived Stanley and therefore the insurance proceeds should go to Theresa's estate instead of Stanley's mother.
Holding: the record clearly established that the treating doctor's diagnoses of death with respect to Stanley and Theresa were made in accordance with the usual and customary standards of medical practice and the trial court's finding of sufficient evidence of Theresa's survivorship was not against the manifest weight of the evidence.
Transfers to Children
- unborn children have a rebuttable presumption that they are the deceased’s child if the period of gestation is 280 days. (10 months)
- Uniform Parentage Act: presumes that a child born to a woman within 300 days after the death of her husband is the child of that husband.
Hall v. Vallandingham
Facts: Earl died and was survived by his wife Elizabeth and their four children, who included the P. Elizabeth then married Jim Kilgore and Kilgore adopted the P. When Earl’s brother died childless, unmarried, and intestate, his sole heirs were his surviving brothers and the children of his brothers which included the P. However, the court held that P was not entitled to inherit from his father’s brother because he was adopted by his mother’s husband.
Issue: Is an adopted child no longer considered a child of either natural parent, and does he lose on adoption all rights of inheritance from his natural parents? YES
Holding: The statute in the state provides that on adoption a child no longer shall be considered a child of either natural parent. To construe this statute so as to allow dual inheritance would bestow upon an adopted child a superior status. Because an adopted child has no right to inherit from the estate of a natural parent who dies intestate, it follows that the same child may not inherit through the natural parent by way of representation. Affirmed.
- this case goes against the adoption so that the children can inherit from relatives that die intestate.
Notes: we go with what the statute says, not what the intent of the decedent is or what should happen out of fairness through equity. Read the statute literally and apply strickly.
- an adopted child takes just like a natural child in all states****
O’Neal v. Wilkes (equitable adoption)
Facts: The P’s mother died in 1957 when she was 8 years old. The P’s natural father never recognized her as his daughter. After the P had lived with a maternal aunt for four years, she was taken to live with another aunt Page. Page ultimately sent the P to live with the testator who she lived with for more than 10 years until she was married. During this time, the testator referred to the P as his daughter and her children as his grandchildren. After he died intestate, the P claimed she was entitled to inherit, under the theory of equitable adoption, the property she would have been entitled to had she been the testator’s statutorily adopted daughter. Wilkes, the executor of the estate, contested the P’s claim and the court granted a judgment n.o.v in favor of the D on the grounds that Page, the paternal aunt who sent P to live with the testator, had no legal authority to enter into an adoption contract with the testator.
Issue: May a contract to adopt be enforced if it is entered into by a person without any authority to consent to an adoption? NO
Holding: Consent to adoption may only be given by a child’s parent or legal guardian. Since the P’s aunt was not her legal guardian, she could not consent to her adoption by the testator. The contract was, therefore, invalid and thus P’s claim is defeated.
Dissent: the majority is harming the child which equity is made to protect.
- under all of them the adopted child takes both from the adoptive parents and their past parents and their relatives. (special statutes may be different)
- watch for situations like this where you can make an "equitable argument" for a fairness out of result and weigh with the requirement and value for formalization, certainty, and order through strict enforcement of the statute. *****
Transfers to children: look at page 107 for Uniform Parentage Act! ***
4 tests to determine when illegitimate children can inherit
1) subsequent marriage of the parents
2) acknowledgment by the father
3) the adjudication during the life of the father
4) clearly and convincing proof after his death (DNA evidence)
Hecht v. Superior Court
Facts: This case concerned a divorced father who was living with the P for five years until he committed suicide. The father already had 2 college-aged children, but before taking his own life, he deposited 15 vials of his sperm in a sperm bank and authorized the sperm bank to release the specimens to the P, or to her physician, should the P desire to become impregnated with his sperm after his death. The father also left a will which left all the right and title to the sperm specimens to the P along with other property. His children then contested the will, alleging lack of mental capacity and unde influence by the P. The administrator of his estate petitioned the court for destruction of the sperm on public policy grounds and the court granted the petition. The P appeals.
Issue: Does artificial insemination with the sperm of a decedent violate public policy? NO
Holding: Because Kane had an ownership interests in his sperm sufficient to constitute property within the meaning of Probate Code 62, the probate court had jurisdiction with respect to the vials of sperm.. The public policy of California does not prohibit the artificial insemination of the P because of her status as an unmarried woman. Furthermore, nothing indicates that artificial insemination with the sperm of the decedent violates public policy. While any child produced under such circumstances could not inherit under the state’s laws of intestate succession, individuals may explicitly provide for such children in their wills. The state legislature has not inhibited the use of this technology and any restraint given would raise serious questions in light of the fundamental nature of the rights of procreation and privacy. The order is set aside.
Advancements: page 120 (giving to people before death when will or law of intestacy applies afterwords.) Any life time gift is presumed to be an advancement.
1) Common law - presumption for advancements
2) Many states - presumption against advancements
3) UPC - advancement only if written acknowledge at time of gift or later that it was an advancement.
4) Advancements unless written, says it's not.
3 ways to manage a minor's property: page 123
Estate of Mahoney
Facts: Mrs. Mahoney was convicted of voluntary manslaughter for shooting her husband. When Mr. Mahoney died intestate, the probate court ordered his property to be distributed to his mother and father since the court found that a conviction of voluntary manslaughter disabled Mrs. Mahoney from taking any part of her husband’s estate.
Issue: May a party convicted of the intentional killing of another inherit property through them? NO
Holding: Any inheritance in a killer’s favor is held as a “constructive trust” in favor of the other heirs or next of kin. We remand for a constructive trust action to be brought in a property court of chancery.
Rule: In a majority of states, a killer is barred by statute from inheriting any interest in the estate of his victim. In those states without a statute, courts have been reluctant to take away the killer’s inherited property. However, a court of equity will sometimes use the “constructive trust” approach favored here out of fairness.
- this exlusionary rule does not apply to accomplices and instigators.
- rule only applies to a "feloneous" and "intentional" murders
- UPC treats the killer as having "disclaimed" their interest in the victim's property, however, MN says that we will treat the person as "predeceased."
- life insurance (does the assets go directly to the contingent benficiaries)?
- no criminal "conviction" is required - court can decide by a preponderance of the evidence that the person was a slayer.
In re Strittmater
Facts: Strittmater died and left her estate to the National Women’s party rather than to her cousins. The cousins contested the will and at trial Strittmater’s personal doctor testified that she felt that Strittmater had suffered from schizophrenia. At trial, it was also shown that her relationships with her bankers and lawyer were entirely normal.
Issue: Will a will that is the product of an insane delusion be probated? NO
Holding: The testator must have been sane at the time of the will’s execution to enforce the will. Strittmater’s extreme hatred of men and feminism to a neurotic extreme demonstrated her obvious mental illness. This is true even though she had the capacity to transact ordinary business. While the woman gave her money to this organization, to which she belonged for 11 years, she did not involve herself enough in the party to justify her bequest. Strettmater’s will was a result of mental illness and thus will not be entered into probate.
Policy Reasons: a will should carry out a person’s intent and reflect a person’s true desires, an insane person is not recognized as a legal entity and therefore cannot be allowed to bequeath possessions, and mental capacity is required to protect the family, which relies on the decedent for economic support. Other reasons explained on page 148.
- if a person dies with the will, the devisee can refuse to accept the devise, thereby preventing title from passing on to him.
- all states have enacted disclaimer legislation that provides that the disclaimant is treated as having predeceased the decedent.
- UPC : requires notification of disclaimer to be in writing and within 9 months of death.
- If a person disclaims, they are treated as if they died (so their relatives can obtain a right in the remainder - but this will depend on the jurisdiction.)
- Disclaimers does not affect eligibility of Medicare and Medicaid claims - a person can disclaim property in order to be eligible for these services without any problem.
TEST OF MENTAL CAPACITY
- The decedent only has to have the ability to know 1) the nature and extent of the decedent’s property, 2) the persons who are the natural objects of the decedent’s bounty, 3) the disposition of the decedent is making, and 4) how the elements relate so as to form an orderly plan for the disposition of the decedent’s property. The testator does not have to have the average intelligence as this would incapacitate almost half of the people making wills, but the testator must have the mind and memory relevant to the four matters mentioned. The testator must understand the significance of the act.
- If a person suffers from an insane delusion, it will likely cause a particular provision in the will or the entire will to fail for lack of “testamentary capacity.” An insane delusion is defined as one which impairs testamentary capacity to the point that the testator adheres against all evidence and reason. The majority view is that delusion is insane even if there is some factual basis for it if a rational person in the testator’s situation could not have drawn the conclusion reached by the testator. Insane delusion cases often involve some false belief about a member of the testator’s family.
- mistakes are not considered to be insane delusions.
In re Honigman
Facts: After 40 years of marriage and after a serious operation, Honigman began to believe that his wife was unfaithful to him and began accusing her of all sorts of unreasonable acts (like hiding men in the cellar and closets and having them climb up bed sheet to reach the apartment). Honigman visited a psychiatrist and several times mentioned to others that he was mentally ill. After Honigman dies, his will left a small life estate to his wife, with the remainder going to his relatives. His attorney stated that his decision to make a new will just before his death was based on the belief of his wife’s infidelity, her large independent estate, and the need of his other relatives. Mrs. Honigman moved to deny probate of the will alleging that he was operating under an “insane delusion” and lacked the mental capacity to make a will. While some testimony was offered to establish some slight grounds for his belief, the jury found that he lacked mental capacity to make a will as he did.
Issue: May a will be denied probate where the testator had an insane delusion concerning one of his heirs, though he was sane in other respects? YES
Holding: The jury was warranted in finding that there was no rational or reasonable proof of infidelity and the Honigman was operating under a totally insane delusion as to his wife’s conduct. It is immaterial that he could have had other reasons for his action and it is sufficient that the dispositive provisions of the will might have been caused by the insane delusion.
- Undue influence = coercion (making someone does something that they do not desire to do themselves)
- To establish Undue Influence:
1) must be proved that the testator was susceptible to the undue influence
2) that the influencer had the disposition and the opportunity to exercise undue influence
3) that the disposition is the result of the influence (causation)
Lipper v. Weslow
Facts: The testator left a will that left the bulk of her estate to her two surviving children and specifically disinherited three of her grandchildren who were descendants of a son who had died some years before. The will contained reasons for the disinheritance including that the grandchildren’s mother had been unfriendly toward the testator and the grandchildren had shown no interest in the testator and had refrained from any contact with her. The will was prepared by the testator’s son, who was also a lawyer and had maintained close ties with his mother. As a result of the disinheritance, the son increased his share of the estate by redistributing that portion that would have gone to the grandchildren. When the grandchildren challenged the admission of the ill to probate on the basis of undue influence of the son, and factually challenged the will in the sense that they provided proof that they had not neglected her and that the lawyer-son improperly influenced his mother because he disliked his deceased brother. The jury returned a verdict for the grandchildren and the lawyer-son brought this appeal.
Issue: Was there undue influence? NO
Reasoning: The grandchildren were able to show opportunity and motive for the son to exercise influence over the mother in the preparation of her will. However, a showing of undue influence requires more than a showing of opportunity and motive. There must be a positive showing that such control was exercised over the mind of the testator as to overcome her free will and free agency and to substitute the will of another so as to cause the testator to do what she would not have otherwise have done but for such control as a result of a confidential relationship. The grandchildren failed to carry the burden of proof to show that the will of the testator was replaced by that of the son. In addition, 3 non-interested witnesses testified that the testator had told them why she had written off the grandchildren in her will. Jury verdict reversed.
No Contest Clauses
- provides that a beneficiary who contest the will shall take nothing, or a token amount, in lieu of the provisions made for the beneficiary of the will.
- designed to discourage contests of the will
- a majority of courts enforce a no-contest clause unless there is probable cause of the contest itself. (but states vary)
Bequests to Attorneys
- a presumption of undue influence arises when an attorney-drafter receives a legacy, except when the attorney is related to the testator. The presumption can be rebutted only by “clear and convincing” evidence provided by the attorney.
- Professional responsibility 1.8 prevents an attorney writing himself into the will, but not when you do it for a family member.
In re Moses
Facts: A woman had an affair with an attorney who was 15 years younger than she was even though she suffered from heart trouble, cancer, and was an alcoholic. When she died and left her money to her attorney, her sister attacked the will on the basis of undue influence. The evidence presented at trial showed that she had sought the advice of an attorney on her own, that that attorney had no knowledge or connection with her lover, and that he drafted the will to accomplish what she had said was her wish to leave her estate to her boyfriend lawyer. The trial judge found undue influence and denied probate and the attorney appealed.
Issue: Is the presumption of undue influence overcome by the showing that the testator sought the advice of and had an independent attorney draw up her will? NO
Holding: The two people had a “continuing fiduciary relationship” and while a presumption of undue influence can be overcome, there was just not enough evidence to overcome that presumption in this case. The counseling attorney did not give enough “meaningful independent advice” regarding this subject for the presumption to be rebutted by the lover lawyer.
- fraud occurs where the testator is deceived by a misrepresentation and does that which the testator would not have done had the misrepresentation not been made. It is usually said that the misrepresentation must be made with both the intent to deceive the testator and the purpose of influencing the testamentary disposition. A provision in a will procured by fraud is invalid. The remaining portion of the will stands unless the fraud goes to the entire will or the portions invalidated by fraud are inseparable from the rest of the will. When fraud occurs, a court with equity powers can impose a “constructive trust” on the wrongdoer, compelling the wrongdoer to surrender the property acquired by the wrongful conduct.
* know the difference between fraud in its execution and fraud in the inducement.
Lathan v. Father Divine
Facts: A woman died and left a will which devised her entire estate to Father Divine, a leader of a religious cult. The will was contested by the woman’s closest relatives, who were two cousins, on the ground that the testator had expressed an intention to alter her will so as to bequeath to them property in the amount of $350,000. They also alleged that the testator had been prevented from doing so by the false representations, undue influence, and physical force of Father Divine. The cousins requested that the court impose a “constructive trust” in their favor upon the proceeds of the will to the extent of the property that would otherwise have gone to them if the testator had not been prevented from executing her new will. The suit was dismissed for failure to state a cause of action and the cousins appealed.
Issue: Can the court impose a constructive trust? YES
Holding: Where the testator is prevented from executing a new will by the wrongful acts of a present beneficiary or heir to the detriment of an intended beneficiary, and the existing will is otherwise valid, then the existing beneficiary takes his bequest subject to a constructive trust as to that portion that would have gone to the intended beneficiary but for the wrongful acts. If the cousins are able to show that the testator intended a different testamentary disposition than is reflected in the probated will, then Father Divine cannot profit from his misconduct. Reversed and remanded.
*** constructive trusts may also be imposed where no fraud is involved, but the court thinks that unjust enrichment would result if the person retained the property.
*** also, there can be a tort action, called the “tortious interference with an expected inheritance.” Under this theory, P must prove that the interference involved conduct tortious in itself, such as fraud, duress, or undue influence.
Wills: Formalities and Forms
Requirements of due execution: 3 purposes: all functions serve as a channel in that they create a “safe harbor” which provides that the testator with assurance that his wishes will be carried out.
1) ritual function = court needs to be convinced that the statements of the transferor were deliberately intended to effectuate a transfer
2) evidentiary function = the requirements of transfer may increase the reliability of the proof presented to the court
3) protective function = to safeguard the testator, at the time of the execution of the will, against undue influence or others forms of imposition.
- a few states permit nuncupative (oral) wills under very limited circumstances: usually value of property has to be very little and the will must be uttered before 3 persons who have to reduce the oral will to writing to satisfy the statute of wills.
UPC: 2-502 (requirements of wills)
1) in writing
2) signed by testator
3) signed by two witnesses
4) if first 3 factors are not met, the will is valid as a holographic will as long as the signature and material portions of the document are in the testator’s handwriting.
Holographic wills = handwritten wills.
In re Groffman
Facts: Groffman signed his will and then went to the home of some friends and asked them to act as witnesses. Two people signed as witnesses, though neither was in each other’s presence at the time and neither witness actually saw Groffman sign the will. Mrs. Groffman challenged the validity of the will, alleging that it was inadmissible to probate since it had been improperly executed. The statute required that the testator sign the will in the presence of two or more witnesses who shall then acknowledge the signature in the presence of the testator. The court found that the will had not been properly acknowledge and denied it probate.
Issue: Must there be a compliance with the acknowledgment statute to have a valid will? YES
Holding: There is no doubt that Mr. Groffman contained his intent and that he had actually signed it. However, the Statute of Wills is to be strictly interpreted, and for a will to be valid, it must be executed in literal compliance with the statute. Here, Groffman did not sign the will in the presence of both witnesses, nor did they acknowledge his signature in each other’s presence. This will must be denied probate.
Rules: A will is not properly executed unless signed in the presence of two witnesses.
Notes: Normally, the witnesses must sign in the physical presence of the testator. Failure to sign where he can see them renders the acknowledgment void. However, an exception is made for those who are blind. In some jurisdictions, an exemption is made where the witnesses are within the “conscious presence” of the testator.
Under this test, the witness is in the presence of the testtor if the testator, through sight, hearing, or general consciousness of events, comprehends that the witness is in the act of signing.
Notes: Acknowledgment of will - is by the person who does the will to verify that the will is what the person intends, etc. Testator has to acknowledge that he states that this is his signature in front of 2 witnesses who are present at the same exact time. This is why the will in this case must fail because the two witness were not present at the same time.
** Look at MN handout. Eliminates the simultaneous presence requirement and adopts the "conscious presence test." Also, allows someone else to sign for the testator in the testator's conscious presence and by the testator's direction. Look at MN code for differences. Minn. Stat. 524.2-502
? adding something after the testator signed it, the line in fact would cause the line to be ineffective. BE SURE OF RULE AND look up case on page 217 at note 7.
Estate of Parsons
Facts: Two of the three persons who signed the testator’s will as witnesses were also named as beneficiaries in the will. After the testator’s death, one of the witnesses filed a disclaimer of her $100 bequest. However, the relatives of the testator claimed that the will was invalid because the statute provided that a “gift to a subscribing witness is void unless there are two other and disinterested subscribing witnesses to the will.” The relatives of the testator insisted that Nielson’s subsequent disclaimer of her bequest did not change the fact that she was not a disinterested witness, that only one of the subscribing witnesses could be considered disinterested. The trial court rejected the family’s argument.
Issue: Does a witness to a will, who is also named as a beneficiary in the will, are they able to disclaimer their interest after the testator’s death? NO
Holding: A witness cannot disclaim their interest of the testator’s death. The statutory provision regarding the requirement of disinterested witnesses looks solely to the time of the execution and attestation of the will. Therefore, a subsequent disclaimer will be ineffective to transform an interested witness into a disinterested one. Reversed.
Notes: The will in this case does not fail, only the provision that affects the particular beneficary who also was a witness. The will is therefore saved, but the particular bequest is eliminated. In MN, the state has a different and minority rule that will not invalidate the provision if the witness is interested party.
- joint wills are theoretically possible (although there are problems with a joint will)
UPC 2-505: Any person generally competent to be a witness may act as a witness to a will. A will or any provision thereof is not invalid because the will is signed by an interested witness. (adopted in a third of all states)
- The law of the decedent’s domicile at death determines the validity of the will insofar as it disposes of personal property. The law of the state where real property is located determines the validity of a disposition of real property. (therefore, a careful lawyer draws up a will that satisfies the formal requirements of all states).
- review formal requirements that should be implement when drawing up a will on page 225.
In re Pavlinko’s Estate
Facts: Two married people, who spoke very little English, had wills prepared for them. In each will, both people left their property to each other with a residual going to plaintiff, which is Hellen’s brother. At the time of signing the wills, however, each made a mistake of signing the incorrect will. (Hellen signed Vasil’s and Vasil’s signed Hellen’s). When several years passed and Hellen died, the property went to her husband. After some time, when her husband died, the Plaintiff filed Hellen’s will, the only one which Vasil had signed, and asked that the court admit that will to probate as Vasil’s will. The Register of Wills refused to admit the will to probate and the Orphan’s Court affirmed. P appeals.
Issue: If a party mistakenly signs another will instead of his own, may the will he signed be modified at his death to include the provision of the will which he had intended to sign? NO
Holding: We cannot rewrite a will even for the purpose of implementing the obvious intentions of the testator. The will which Vasil signed cannot be admitted to probate as his will and the will which was prepared for him cannot, of court, be probated, because he never signed it. Therefore, Elias Martin is entitle to no relief.
Notes: Look at and compare to In re Snide at page 235. which allowed a similar situation and still admitted the will to probate.
In Re Will of Ranney
Facts: The testator here signed his will in his attorney’s office in the presence of another lawyer and a secretary. The witnesses, however, did not sign the will itself but instead signed an affidavit which was contained on a separate page. At the time, both witnesses believed that they were signing and attesting the will and both attorneys believed that the signatures on the affidavit complied with the statutory requirements. After the testator’s death, his wife contested the probate of his will on the ground that it failed to comply with the statutory formality requirements. The trial court refused to admit the will to probate and the appeals court admitted it. His wife appeals.
Issue: Where witnesses, with the intent to attest a will, sign an affidavit instead, if clear and convincing evidence of their intent be produced to establish “substantial compliance” with statutory requirements, will that be enough to allow the will to go to probate? YES
Holding: Substantial compliance is a functional rule designed to cure the inequity caused by the formalism of the law of wills. The primary purpose of formalities is to ensure that the document reflects the uncoerced intent of the testator. However, rigid rules often frustrates this purpose. The will should be admitted to probate.
Notes: See UPC 2-503: Clear and convincing standard used to show that writings are intended as wills is sufficient if proven by clear and convincing evidence. However, this rule is not adopted in most states - the substantial compliance test is used more often in most jurisdictions. This case concerned 2 clauses: an attestation clause and an affidavit of self-proved will. Know the differences. The affidavit is just another documents showing that witnesses under oath agree that they had signed the will. Many times, attorneys will get both to prevent future challenges.
*** This case is extremely important because it relaxes the formalistic requirements in most jurisdictions.
Methods of Execution of a Will (formal requirements that would satisfy a majority of jurisdictions) Look at page 225.
Holographic Will = will written by the testator but not witnesses.
- 2 basic requirements: dispositive provisions be entirely in the handwriting of the testator and signed by the testator. (no signature, the will will not be admitted to probate). Most jurisdictions say that if the person signed anywhere on the document, that will be fine. But some jurisdiction says that the signature must appear at the end of the will. A third requirement is often implied by the court as a "testamentary intent" of the testator when the document was written. (to make a will).
In re Estate of Johnson
Facts: Prior to his death, Arnold Johnson obtained a printed form to make a will and proceeded to fill in the blanks in his handwriting. When he died, the personal representative objected to the will on the grounds that it was invalid because it was not attested by any witness and that it did not qualify as a holographic will because material provisions were not in the testator’s handwriting. Under Arizona law, a will is a valid holographic will, whether or not witnessed, if the signature and the material provisions are in the handwriting of the testator. The trial court granted the personal representative’s motion of Summary Judgment.
Issue: Must the printed portions be such that if they were eliminated, the testator’s intent would be understood? YES
Holding: The statutory requirement can be fulfilled if the printed portion could be eliminated and the handwritten portion would suffice as evidence of the testator’s intent. In this case, the only words that established the requisite testamentary intent were found in the printed portion of the form.
Facts: A man wrote a letter to his sons which was mailed by him on the day of his death. The letter was poorly written, but contained a statement that if anything happened to him, the money in the 3 “liberty lones Post office stamps and my home goes to his two sons.” The letter was dated and signed “father.” The heirs protested the entry of the letter into probate.
Issue: Can an informal document evidencing intent of a conditional gift and an intent to execute serve as a testamentary document? YES
Holding: In this case, even though the language was poor, clearly shows a gift that is conditional upon the occurrence of his death. Most holographic wills are informal in character and that fact that he discusses the weather does not change its testamentary effect. The “intent to execute” is more important that Kimmel’s knowledge of the formal requirements for execution. Affirmed.
- Blake case, page 253: court admits letter to probate when person wrote in PS statement.
- Conditional holographic will: now most states will give effect to the will even though the occasion on which the will was premised did not occur (person writes will right before surgery and makes holographic will and then dies 2 years later from a car accident and the will still exists in the personal effects of the person who died).
- is permitted in one of 2 ways: page 261.
- if a person makes a new will after a will has already been made, no formal revocation must take place. (the new will is probated).
Harrison v. Bird
Facts: A year and a half after Speer executed a will which named the P as the main beneficiary of her estate, she advised her attorney that she wanted to revoke her will. Her attorney then tore the will into four pieces and he informed Speer that he had revoked her will as instructed as was sending the pieces of her will to her. When Speer died, the letter was found but not the 4 pieces of the will. The probate court granted letter of administration to the D, which was Speer’s counsin. The plaintiff, Harrison, filed for probate a duplicate of the original will which named him as the main beneficiary of the estate. The trial court ruled that there arose a presumption that Speer had revoked the will herself since the destroyed will was not found and found that Harrison had not rebutted the presumption.
Holding: Where the testator destroys the copy of the will in her possession, a presumption arises that she has revoked her will and all duplicates, even though a duplicate exists that is not in her possession. The burden of rebutting this presumption, is on the proponent of the will. Under the facts of this case, there existed a presumption that Speer destroyed her will, thus revoking it and Harrison did not present sufficient evidence to rebut this presumption.
Rule: there exists a presumption of revocation if the will cannot be found. If you find the will torn up into pieces, that will act as a revocation. However, if someone else did the ripping up, then that presumption of revocation can be rebutted and therefore the will can be admitted into probate.
- all states permit revocation of a will in one of two ways: 1) by a subsequent writing executed with testamentary formalities, or 2) by a physical act such as destroying, obliterating, or burning of the will. An oral revocation, without more, is inoperative in all states.
- a subsequent will that does not expressly revoke the prior will but makes a complete disposition of the testator’s estate is presumed to replace the prior will and revoke it by inconsistency. If the subsequent will does not make a complete disposition of the testator’s estate, it is not presumed to revoke the prior will but is viewed as a codicil.
- If a will is lost or destroyed without the consent of the testator or is destroyed with the consent of the testator but not in compliance with the revocation statute, can be admitted into probate if its contents are proved by clear and convincing evidence. This evidence may be in the form of a copy of the will, by the secretary who typed the will, or by other evidence, which included oral proof, that shows the contents of the will itself.
Thompson v. Royall
Facts: Mrs. Kroll executed an attested will which she gave to her executor for safekeeping. She then executed a codicil, which she signed in the presence of 2 witnesses and gave it to the attorney who prepared both documents. She later instructed the attorney to destroy both documents, but was persuaded by the lawyer to retain the documents for her use in case she decided to execute a new will. She signed a statement written on the back of the will by the attorney which read, “This will null and void and to be only held by H.P. Brittain, instead of being destroyed, as a memorandum for another will if I decided to make same.” A similar statement was also signed on the back of the codicil. Upon her death, Mrs. Kroll left an estate and the will and codicil were offered for probate and contested by various nieces and nephews who were not mentioned in the will. The jury found the documents to be the will of Mrs. Kroll the judge sustained the verdict. P appeals.
Issues: May a memorandum written in another person’s handwriting on the reverse side of a testamentary instrument and signed by the testator, effect a revocation? NO
Holding: Although the testator intended to revoke the will, she did not revoke it by cancellation. In addition, the memorandum did not constitute a valid writing indicating an intention to revoke under the appropriate statute since it was not in the testator’s own handwriting or attested to by witnesses. Therefore, the will and the codicil were not revoked and the order admitting them to probate must be admitted.
Rule: Revocation of a will by cancellation is not accomplished unless the written words of the document are mutilated or otherwise impaired.
Doctrine of Dependent Relative Revocation (Conditional revocation) DRR
- If the testator purports to revoke his will upon a mistaken assumption of law or fact, the revocation is ineffective if the testator would not have revoked his will had he known the truth.
- Example: The testator destroys his will under a belief that a new will is valid but for some reason the new will is invalid. If the court finds that the testator would not have destroyed his will had he known the new will was ineffective, the court, applying the doctrine will cancel the revocation and probate the destroyed will. The doctrine usually is applied to carry out the testator’s presumed intent.
1) Testator revokes a will
2) Upon the condition (assumption) that another disposition is valid
3) The other disposition fails
4) Revocation is canceled if probating it would carry out the testator's intent more closely than intestacy.
Carter v. First United Methodist Church
Facts: The testator here had a will which was executed in 1963 and was found among her personal papers after she died. The will was folded together with another piece of paper which was captioned as her will, but it was unsigned and not witnessed by anyone and was dated in 1978. The new will also established a different scheme of distribution of her property and pencil marks had been made through the property provisions of the 1963 will and through the name of one of the co-executors.
Procedural Posture: The P opposed probate of the 1963 will, contending that the testator would have preferred intestacy. The Church argued that Tipton would have preferred the property disposition clauses of the 1963 will over intestacy. The trial admitted the 1963 will to probate.
Issue: Under the Doctrine of Dependent Relative Revocation, does the earlier will survive the later invalid document that tries to revoke some material provisions of the earlier will? YES
Holding: The evidence was sufficient to give rise to an unrebutted presumption in favor of the Church under the doctrine of dependent relative revocation and the trial court did not err in admitting the 1963 will to probate.
Estate of Alburn
(click for case summary)
Revival of Wills
- laws that determine whether a previous will can be revived, will determine greatly upon state law. However, a large majority of jurisdictions assume that will #2 revokes will #1 at the time #2 will is executed. Then, one group of states hold that upon revocation of will #2, will #1 is revived if the testator intended it to be revived. The other group of states take the view that a revoked will cannot be revived unless re-executed with testamentary formalities or being republished by being referred to in a later duly executed testamentary writing.
Revocation by Operation of Law
- A divorce revokes any provision in the decedent’s will for the divorced spouse according to most state statutes. However, these revocation statutes ordinarily apply only to wills, not to life insurance policies, pension plans, or other non-probate transfers.
Components of a Will
- despite the formal requirements of transfer, it is possible for documents and acts not executed with testamentary formalities to have the effect of determining who takes what property belonging to the testator. Two doctrines can have this effect and permit extrinsic evidence to resolve the identity of persons or property and they include:
1) Doctrine of Incorporation by Reference: UPC: 2-510: 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. The UPC requires that a will may refer to a separate memo or list disposing of personal property, but such a list must be signed by the testator and must describe the items and the devisees with reasonable certainty in order to be valid. The writing may be prepared before or after the execution of the will and it may be altered by the testator after its preparation. However, the writing must have no significance apart from its effect on the dispositions made by the will. UPC 2-513. (page 296) (look at exclusion that doesn't allow for money to be disposed of this way and MN's interpretation that doesn't allow anything but little tangible personal property.) (hypo: person puts tags on their property. Courts will not allow this section to apply because the stickers do not consist of a "list" as specified by the statute).
2) Doctrine of Acts of Independent Significance: (see below)***
- Integration of wills: can be a problem if the will consists of more than 1 page, usually under the doctrine, all papers present at the time of execution which are intended to be part of the will, are considered integrated into the will.
- Republication by Codicil: a will is treated as “re-executed” or “republished” as of the date of the codicil. However, this doctrine is not applied automatically, but only where updating the will carries out the testator’s intent. In addition, republication doctrine only applies to a prior validly executed will. (Example: Testator revokes a first will by a second will and then executes a codicil to the first will. The first will is republished, and thus the second will is revoke by implication.)
Incorporation by Reference
- UPC 2-510: any writing in existence when a will is executd may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification.
Clark v. Greenhalge
Facts: The testator here executed a will which named Greenhalge as executor of her estate and also the principal beneficiary, but reserved the right to make further disposition of tangible personal property as designated by a memorandum. In addition to a memorandum list of items to be distributed, Nesmith periodically made entries into a notebook which designated certain bequests of personal property. One of those bequests gave Clark an oil painting of a farm scene. After the testator’s death, the executor Greenhalge complied with all of the testator’s bequests, except the one for the painting and Clark sued to compel Greeenhalge to deliver the painting to her. The probate court awarded the painting to Clark and the executor appealed.
Issue: May a properly executed will incorporate into its provision any document or paper which is not executed and witnesses, if it was in existence at the time of the execution of the will and is identified by clear and satisfactory proof? YES
Holding: The executor contends that the memo was not incorporated into the will. However, the statements in the notebook unquestionably reflect the testator’s exercise her right to restructure the distribution of her tangible personal property upon her death. The fact that the notebook was not entitled “memorandum” is of no consequence. Affirmed.
Rule: Intention of the testator should prevail as long as it is consistent with the rules of law. Because a codicil was made later than the notes in the memo, it was duly executed at the time and incorporated by reference.
Johnson v. Johnson (republication doctrine)
Facts: The testator here was an experienced attorney who typed a three-paragraph will, but he didn’t sign it, date it, or even have the will attested to. Sometime later, he added a paragraph at the bottom of the page which was signed and dated and written in his own handwriting, which provided in part that he wanted his brother to get only 10 dollars. Upon the testator’s death, the entire page was offered for probate and the trial court denied the petition and the appeals court affirmed.
Issue: Can a valid, holographic codicil republish and validate a prior ineffective will? YES
Holding: Any writing which is properly executed may consitute a codicil if it is so intended by the testator. In this case, Johnson’s handwritten paragraph qualifies as a valid codicil and incorporates and validates the typed paragraphs which would have failed for lack of execution and attestation. Reversed.
Dissent: Codicil was intended as an addition and not designed to serve as a codicil. The entire page should constitute one will and because it does not comply with statutory formalities, it is ineffective and not appropriate for admission to probate.
Rule: Any will, including an invalid one, is republished an if necessary validated by the execution of an effective codicil. A codicil must ordinarily comply with the same formal requirements as are necessary to create a valid will.
Notes: do not cite to this case, it is an anomly.
3 doctrines of importance
1) republication (can be through codicil) - usually there has to first be a valid will for the document to republish the 1st one.
2) incorporation (intent to incorporate?)
Acts of Independent Significance: Page 303
- Under UPC 2-512: A will may dispose of property by reference to acts and events that have independent significance apart from their effect upon the dispositions made by the will, whether they occur before or after the execution of the will or before or after the testator’s death. The execution or revocation of another individual’s will is such an event. (Example: Testator leaves a will that says that she wants her car to go to her nephew at death. At the time she executes the will, the testator owns a POS. However, 1 week before her death, she buys a new Ferrari. The gift still remains valid).
- However, if the person leaves a provision in the will that says that "A takes everything in a dresser drawer." The courts will likely not find that the items themselves have "independent significance," and therefore not allow the moving of property this way. However, if the person refers to a "safety deposit box," the courts will likely uphold the deposit of items in there for these purposes because the reduced likelyhood of fraud and changing of someone other than the testator.
Contracts to Make a Will
- a person may enter a contract to make a will. The contract beneficiary must sue under contract law and prove a valid contract. Most states require contract to be in writing.
- courts hate these contracts.
- example: A person writes a will saying that B gets all of his stuff. At the same time, the testator executes a contract that B gets all of her stuff only if B takes care of C. However, after the documents are executed, B reneges and the testator revokes the contract, but then died before revising the will. Is the will still valid? (probably so, the contract breach does not void the will - the will still stands as an independent document. On the basis, that the testator could have went back and changed the will.
Contracts Not to Revoke a Will
- typically arise in situations where a husband and wife have executed a joint will or mutual wills. There are no legal consequences peculiar to joint or mutual wills unless they are executed pursuant to a contract between the testators not to revoke their wills. Most courts hold that a contract not to revoke is unenforceable unless it is proved by clear and convincing evidence and that the mere execution of a joint or mutual will does not give rise to a presumption of a contract.
- Look at page 305: problems 1 to 3.
- contracts between parties where there is no will will have a different affect depending on whether the parties are married.
Shrimp v. Huff
Facts: Two people made an irrevocable joint will in which the wife later died. The husband then remarried and then died, leaving a spouse. When she was denied her elective share, she sued. The trial court found that the rights of the contract beneficiaries had priority over the claims of the second wife, and the second wife appeals.
Issue: Is the second wife entitled to receive an elective share even though her husband had previously contracted through a joint will, to will his estate to others? YES
Holding: The rights of beneficiaries under a joint will are limited by the possibility that the survivor might remarry and that the subsequent spouse might elect against the will. There is a strong public policy in favor of protecting the surviving spouse’s elective share from the unilateral acts of a deceased spouse.
- NOTES: Debts that a testator accrues during their life time will get paid before the beneficiaries are paid. However, this is not the case when the testator gives a gift (say 100% to a church) the wife will still get her 1/3 statutory share of the estate before the gift to the church will be given based on public policy.
Wilhoit v. Peoples Life Insurance Company
- life insurance situation where policy proceeds were to go to someone who already died. The owner of the insurance policy had a will that had the proceeds from the insurance to go to someone other than the person who died.
- The rule is that : a will is ineffective to change the designation of an insurance contract.
Cook v. Equitable Life Assurance Society
Facts: Mr. Cook had a life insurance policy that name the P, who was his wife at the time, as the beneficiary. He then got a divorce and remarried. Before his death, he executed a holographic will in which he left his insurance policy to his new wife, Margaret, and his son Daniel. When the holographic will was admitted to probate, his new wife tried to get the insurance proceeds.
Issue: May the beneficiary of a life insurance police be changed by a will? NO
Holding: There is no indication here that Douglas took any action in the 14 years between his divorce from his first wife other than the making of his will to change the beneficiary. Surely, if Douglas had wanted to change the beneficiary, he had ample time and opportunity to comply with the policy requirements.
- Notes: IRA plans and Keogh plans and employee pension plan - the beneficiary need not comply with the Wills Act because they are governed by contract or trust principles. Here, the fact that an IRA gives a certain beneficiary the amount, will be upheld by the courts. Deeds and declarations of trust are problematic as the cases shows below.
Estate of Hillowitz
Facts: A man was a partner in an investment club in which the partnership agreement stated that in the event of the death of any partner, his interest would pass to his wife without any termination of the partnership arrangement. When he died, the partnership paid his wife $2,800 which was his share of the partnership. The executors then sued contending that the provision was invalid because it constituted an attempted testamentary disposition, and did not comply with the requisites of the statute of wills. In other words, the money should have been lumped into his estates assets.
Issue: Is a partnership agreement provision invalid? NO
Holding: This is a third party beneficiary contract and is enforceable. Since the clause involves in not testamentary in nature, it does not need to comply with the formalities of the statute of wills.
3 types of situations
a) does the person left have the power to draw out of the account?
- if so, this is a true joint tenancy.
b) does the person left have the power to take at death?
- if so, this is like a POD and the person can only get the money at death. (This is testamentary in character, and many courts use to look at this to see if there is a problem with the testamentary transfer that would not comply with the Statute of Wills.)
c) Agency account? (where one takes care of the account only during life)
- if so, the person life manages the account during the life of the dead person, but the person does not intend for the person to take it at death.
- bank account and joint tenancies in land are different - the court will look at the factors and intent of the parties in when the open joint accounts.
Franklin v. Anna National Bank of Anna
Facts: 2 years before he died, the testator changed the joint tenancy status on his bank account from his deceased wife to his roommate, Cora Goodard. Later that same year, the Plaintiff Enola Franklin began to care for the testator and in January of the next year the testator sent the plaintiff to deliver a letter to the bank which expressed his intent to have his bank account to be change to the plaintiff in joint tenancy. The bank representative said she would take care of it but at trial the bank president testified that he didn’t remember receiving the letters and that the bank would not remove a signature from a signature card on the basis of a letter. The trial court found Goodard was the sole owner of the funds in the joint bank account by right of survivorship. The plaintiff appeals.
Issue: Is a person who claims to destroy an agreement creating a joint tenancy have the burden to establish by clear and convincing evidence that the donor lacked of donative intent and thus the agreement is invalid? YES
Holding: The form of the agreement that set up a joint tenancy is not conclusive regarding the intention of the testator. Therefore, it is proper to consider events occurring after its creation in determining whether the donor actually intended to transfer his interest in the account at his death to the surviving joint tenant. Here, just 9 months after he added Goodard’s name to the signature card, the testator attempted to remove her name and substitute the plaintiffs. The second letter showed that the P was made a signatory for his own convenience in case he could not get his money and that he did not intent to effect a present gift. The money, therefore, should be found to be the property of the estate.
- multi-party accounts have their own separate UPC provisions (page 338).
- with safety deposit boxes, when two people sign as rights to the box, if one person only puts things into the box, the courts will not allow the other person to claim everything at death of the other person in the box. The courts are likely to see the singing card as merely a "grant of access." Example, say if there is a car title in the safety deposit box.
- joint tenants have equal interest upon its creation. A person who transfers land into a joint tenancy cannot, during life, revoke the transfer and cancel the interest given the other joint tenant. A joint tenant cannot devise his or her share by will. In order to do this, the co-tenant must sever the joint tenancy during life and convert it into a tenancy in common. Joint tenancies are often selected because of the high degree of assurance of no entanglement with probate since the transfer of rights is automatic at death of one of the parties. In addition, creditors must seize the joint tenant’s interest during the person’s life because at death the joint tenant’s interest vanishes and there is nothing for the creditor to reach because it is too late.
Wright v. Huskey
Facts: Sallie Wright made a revocable deed to her daughter and her son-in-law Ernest Turnbow as equal tenants in common with the restriction that she would have a life estate in the property and would also have the right to sell the entire property if she chooses. When the son-in-law remarried and then died leaving an only child, Sharon, the parties did not get along well after the remarriage as they did prior to that time. When Sharon learned that the Sallie was planning to sell the farm they tried to block the sell and Sallie also filed a lawsuit in order to clear the title to the property.
Issue: Is an instrument by which a grantor reserved a life estate with unlimited power to sell testamentary in character? YES
Holding: The instrument at issue was not a deed by a testamentary document that was void for its failure to comply with the requirements for a valid will. The conveyance had no effect and the court avoid it.
- most flexible of will substitutes because the donor can draft the provisions to the donor’s liking.
- all jurisdictions now recognize the validity of a trust where property is transferred to another person as trustee and the settlor reserves the power to revoke the trust during life. The settlor may also reserve an income interest and a testamentary power of appointment.
Farkas v. Williams
Facts: Farkas executed an inter vivos revocable trust for 4 separate stocks and named Williams as beneficiary. However, Farkas retained the power to revoke the trust and the power to vote, sell, redeem, exchange, or otherwise deal with the stock. He also appointed himself trustee. In addition, as long as Farkas didn’t revoke the trust, Williams was required to be alive when Farkas died or the trust would be automatically revoked. When Farkas died, the administrators of his estate brought this action to obtain a declaration of rights to the stocks. They claimed that the trust was testamentary and not valid because Farkas had not complied with the Statute of Wills in making his revocable trust. In addition, the estate claimed that Farkas had retained so much control over the trust that it didn’t qualify as an inter vivos trust. The trial court found that the trust was invalid and the appeals court affirmed.
Issue: Did the trust here created a valid inter vivos trust effective to give Williams title to the stocks after the death of Farkas? YES
Holding: Although Farkas retained a great deal of control over the trust, Williams did have an interest in the trust before Farkas died. Because Farkas had to administer the trust in accordance with the declaration of trust, which limited his control over the stock, Williams obtained an interest. Trial court is reversed.
What was conveyed in each case?
- In Wright case, it was land. (grantor kept life estate w/ power to control)
- In Farkas case, it was stocks. (grantor kept ability to manage it and sell the stocks at will in his life time)
- the question in these cases is whether any interest actually passed during the life of the grantor in order to create a present interest in the grantee.
- the only way for these gifts to show as not valid is if there was not delivery or no present interest was given when the inter vivos transfer was made. Courts usually uphold such transfers as long as it is recorded correctly (even if there was a deed) as long as there is delivery and a present interest was given during the person's life.
Revocable inter vivos trust
- most flexible of will substitutes.
- of all the ways to hold property, this is the most flexible.
- splits the bundle of rights: who has legal right to the property and who can actually use the property. legal v. benefical ownership. The trust needs some "corpus" or "res," which are actual "things" in the property.
- settlor = someone who sets up the trust.
- the person who has the legal right = trustee
- the person who has the beneficial right = beneficiary
- keep in mind, that a person can hold many of these positions or even all three.
- inter vivos - set up during life
- testamentary trust - set up after life (like in a will)
In re Estate and Trust of Pilafas
Facts: Testator executed a trust agreement which required that any changes or revocations of the trust be in writing. There is evidence that the testator amended the trust two times, once to delete his x-wife and the second to add all of his children who had been left out in the previous trust. The testator also executed a will that specifically excluded his previous wife and the rest of his property went into the residue of his estate to be given back to the trust. When the testator died, however, no one could find the original will or trust documents. Therefore, one of his children petitioned for adjudication of intestacy and determination of heirs. At trial, the court found that the testator had revoked both his trust agreement and will and thus died intestate which gave the property to his five children. The non-profit beneficiaries appeal this ruling in this case because they stood to gain if the trust agreement was upheld since they were listed as some of the beneficiaries of his trust.
1) Was there enough evidence to show that decedent revoked his will? YES
2) Did trial court erred when it determined that the decedent effectively revoked his inter vivos trust? YES
Holding: The trial court correctly determined that the decedent revoked his will and died intestate because appellants offered no evidence which undermines the presumption that when the will cannot be found at death, the testator revoked the will. However, because no evidence was presented showing that the decedent complied with the required method of revocation of the inter vivos trust, the trust was not revoked and remains valid. When a settlor reserves a power to revoke his trust in a particular manner or under particular circumstances, he can revoke it only in that manner or under those circumstances. Here, the settlor had to revoke in writing which no revocation was found.
Notes: because the will could not be found, the trial court applied the common law presumption that the will was revoked and destroyed by the testator.
- 2 ways of handling a trust : 1) we can apply the law of wills and apply revocation situations similarly, 2) we can develop a common law of trusts that we can apply in every situation, 3) we can look at the trust instrument (in this case, this is the one that is used - here, he had to revoke the trust in writing which he did not do and deliver the writing to himself. This requirement seems silly, but the court decided to apply it anyway. )
State Street Bank v. Reiser
Facts: This case concerns a man by the name of Wilfred Dunnebier who created an inter vivos trust which in it held the stock of 5 companies. He had held the power to amend and revoke the trust during his lifetime and in addition, had a will which left his residuary estate to the trust that he had established. Four months before he died, however, he obtained a 75K loan from a bank which when he died, his estate did not have enough money in order to pay back the bank. The bank sued in order to obtain money from the stocks held in the trust account.
Issue: Do equitable principles and public policy dictate that when a person places property in trust and reserves the right to amend and revoke or to direct disposition of principal and income, the settlor’s creditors may, following his death, reach in to satisfy their debts to the extent not satisfied by his estate by those assets held in trust which he had control at the time of his death as would have enabled him to use the trust assets for his own benefit? YES
Holding: Here the bank can get the money because the man had access to the money during his life time and public policy and equitable principles apply to allow for this. However, assets which “pour over” into the trust as a consequence of the death of the settlor which the settlor did not have control of during his lifetime, is not subject to the reach of creditors since the equitable principles do not apply which place the assets subject to the creditor’s disposal. (often this includes life insurance proceeds).
- Look at page 363 for exceptions to where creditors cannot reach.
Pour over Will
- Where a person sets up a revocable inter vivos trust which names a party as a trustee and transfers to the trustee some sort of property like stocks and bonds. After setting up the trust, then, the person makes a pour-over will which devises the residue of the estate to the trustee of the inter vivos trust in order so that the wishes are carried out as part of the trust itself. In order to be “incorporated by reference,” the trust must be existence at the time the will is executed. So, if the trust is amended after the will is executed, the probate assets will likely be disposed of in accordance with the terms of the trust as it stood at the time of execution of the will and not as subsequently amended or if this would result in something that the testator did not intent, then the proceeds would pass by intestacy as if the trust and will were not even created.
- inter vivos trust v. testamentary trust = the difference is that in a testamentary trust has been incorporated by a will.
- the doctrine of independent significance also applies here and under this doctrine, it requires that the trust be in existence at the time of the testator’s death. (this is unlike the incorporation by reference which requires that the trust be in existence at the time the will is executed.
- now- it is the case that a trust established at death by the pour-over is treated as an inter vivos trust - that is, as having come into existence before the testator’s death. The purpose of the magical transformation is to give pour-over trusts the advantages of inter vivos trusts. In 1990, the uniform pour-over act deleted the requirement in the original act that the trust instrument be executed before or concurrently with the will and allows execution after the will.
Clymer v. Mayo
Facts: This case concerned a woman who was married who made both a will and revocable inter vivos trust. The will was a pour over will in which the residue of her estate at death would pour over into the revocable trust. The trust itself had 2 parts: the first part went to her husband for tax purposes and the second part went to her husband for life and then at his death the assets would then move to their nieces and nephews. When the trust was created, however, it was completely unfunded. When the woman divorced her husband, she changed the beneficiary to a life insurance policy, but did not revoke the trust in writing as required. When the woman died, her only heirs were her parents. The administrator of the woman’s estate then petitioned the court to determine the impact of the divorce on the estate’s administration. The trial court held that : 1) the trust was valid even though it was unfunded, 2) that Part A of the trust was not valid because the transfer was intended for the marital deduction for estate tax purposes and that objective became impossible after the divorce, 3) under part B, the x-husband was able to take his life income interest because his wife failed to revoke the trust provisions in writing as required by the trust. On appeal, it was argued that the x-husband should not take under the trust because of a Mass. Statute which revoked any dispositions made by will to a former spouse. In addition, it was argued that under the Trust that at the time the decedent had created it, she actually had no nephews and nieces by blood at that at her death, her marital ties to her x-husband’s nephews and niece has been severed by divorce.
Holding: We agree with trial court except that the x-husband cannot take under Trust B because divorce eliminates his interest and that because the decedent had intended to provide for her nieces and nephews and had never revoked this gift, that they are entitled to their interests under the trusts.
- divorce changes things and will effectuate an automatic revocation of the will the x-spouse is considered as "predeceased" the person.
Health Care Directives
- MN Handout: both living will and durable power of attorney which is limited to health care directive while in the state.
Cruzan v. Director of Missouri Dept of Health
Facts: Nancy Cruzan was rendered incompetent as a result of sever injuries caused by a car accident and was hospitalized in a persistent vegetative state. Her parents, as co-guardians, sought a court order directing the withdrawal of Nancy’s artificial feeding and hydration equipment after it became apparent that she had virtually no chance of recovering her brain functions. The trial court gave the parents authorization to terminate and the Supreme Court of Missouri reversed finding that statement to her roommate regarding her desire to live or die under certain conditions did not constitute clear proof of her intent as required by state law. The parents appeal here.
Issue: May a state require clear and convincing evidence of an incompetent’s desire to have food and water withheld if she is a vegetable? YES
Holding: The state may require this burden to show clear and convincing evidence of the person’s desire not to live under certain medical situations. The is no automatic assurance that the view of close family members will necessarily be the same as Nancy’s would have been had she been confronted with these circumstances while competent.
Admission of Extrinsic Evidence: in construing wills, a majority of jurisdiction 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.”
Mahoney v. Grainger
? in this case, a lawyer drafted a will in which contained a residuary clause which gave property to the decedent’s heirs at law. However, the testator intended that the property actually go to some cousins. At trial, the cousins offered the testator’s statement as extrinsic evidence that the testator intended that the property actually go to them, instead of the aunt which was not named other than by reference through the lawyer’s drafting. The court held that the evidence could not come in and denied the cousins claim based on the plain meaning of the will which cannot be disturbed by the extrinsic evidence of another intent by the dead testator. The rule in this case is that when a will has been proved, oral testimony as to the meaning and purpose of the testator cannot be used to disturb the plain meaning of the will. The fact that a will does not conform tot he instructions given to the drafter lawyer, by reason of mistake or otherwise, does not authorize a court to reform or alter the will or remold it by amendments.
Fleming v. Morrison
- the testator here had a will drawn up and executed, but was only witnessed by one person rather than the required three witnesses. He did this, in order to induce a woman to sleep with him. However, later the testator changed his mind and sought to validate the will by having two more witnesses sign it to meet the statutory requirement of three witnesses. However, the court still found the will to be invalid, because each witness must believe that the testator fully believes that the testator intends that the document witnesses is to be his will at the time each witness signs the will. Since the first witness knew that the document was intended to be fake, the first witness cannot be counted. Without three witnesses, the will cannot be probated.
Conn. Junior Republic v. Sharon Hospital
Facts: Testator executed a will in 1960 in which he designated the defendant who was Sharon Hospital and six other charities as remainder beneficiaries of his will. In 1969, the testator instructed his attorney to delete 6 charities and to substitute Connecticut Junior Republic and 10 other charities as beneficiaries under his will. Then in 1975, the testator instructed the attorney to structure the gifts for tax purposes, but keep the same beneficiaries. However, in doing so, the attorney screwed up by making Sharon Hospital and the original 6 charities instead of the changed beneficiaries the testator made in 1969. After the testator died, the will was admitted to probate and the court held that extrinsic evidence of the attorney’s error was inadmissible to alter the stated beneficiaries.
Holding: Parol evidence is inadmissible to show an attorney’s error in drafting a will or codicil. Such evidence cannot be used, also, to alter the provisions of a facially unambiguous will. Affirmed.
ambiguity: evidentiary function
1) patent: appears on face of the will that makes the will ambiguous (extrinsic evidence is not allowed to prove it under common law - the will fails)
2) latent: ambiguity does not appear on the face of the will but once someone makes a claim that there is an ambiguity, you can use extrinsic evidence to determine what the testator intended.
Estate of Russell (dogs cannot own property)
Facts: This case concerned a testator who left a $10 gold piece and diamonds to her sister who was her only heir at law, with the residue of her estate to Charles Quinn and Roxy Russell. Charles was a longtime friend and Roxy was the testator’s dog. However, at the time of the testator’s death, Roxy the dog, had already died. When the will went to probate, the trial court found that it was the testator’s intention that Charles was to receive the entire residue and that the gift to Roxy was merely only a recommendation, and not a complete directive finding that the gift to the dog was in order to maintain the dog. The sister appeals in this case on the basis that the gift of to the dog was clear and unambiguous and that it was void and passed to here under the laws of intestate succession and that the admission of extrinsic evidence cannot be used to cure the invalidity of the gift.
Holding: This court held that the trial court conclusion was unreasonable because there were no words in the will that gave the dog’s share to Charles or that the devise was only a recommendation in nature. This court found that no extrinsic evidence should have been admitted here under California Probate code. The gift to the dog clearly fails because the dog predeceased the testator and therefore the dog’s share must pass to the heirs at law which is here sister.
Rules: Extrinsic evidence is admissible to explain any ambiguity arising on the face of the will ro to resolve a latent ambiguity which does not appear on the face of the will. However, when a will is clear on its face, no extrinsic evidence can be admitted and it cannot be shown that something not expressed in the will was intended by the testator. Extrinsic evidence can, however, be used to show the meaning of the words in the will even though there is no ambiguity.
- court could have made a "constructive trust" in which the dog was taken care of.
- MN: now MN has a different rule under the UPC on page 446.
- if there is predecession, the person named in will (if they predecease the testator) a strong bias of the common law lapses or is void under common law. However, the application of an anti-lapse statute allows the predeceases bequest to pass to their heirs.
- jurisdictions in every states have very elaborate statutes that work and operate differently - be aware of the state in which you practice.
- these statutes only apply when the testator is silent about what will happen if the person who is designated to take under the will died before the testator does - if the testator says what to do in the case if a person dies before him, then the courts will use what they say.
In re Estate of Ulrikson
Facts: This case concerns an appeal of the application of an antilapse statute in Minnesota. The testator here in her will gave $1,000 each to various nieces and nephews (both living and dead at the time of the testator’s death) with the residue going to her brother and sister. The will also stated that if either her brother or sister predeceased her, that their share would then pass to the other sister or brother. However, when the testator died, both her sister and brother died. However, her brother, left two surviving children who are the respondents in this case. The testator also had two other siblings who had predeceased her and who left among them 3 children. The three children of the predeceased siblings challenged the probate court’s determination that the MN antilapse statute applied to allow Eickson and Barth to take the entire residuary estate. They contended that by providing for providership, Ulrikson provided a condition of survivorship for the then-living siblings to take the residuary estate. Because the testator had provided equal shares for all of the remaining nephews and nieces, it was argued by the children that the testator did not intend that antilapse statue to apply. The probate court however decided that it did apply.
Holding: The antilapse statute applies unless a contrary intention is indicated by the will. It appears clear that the testator intended for her then-living siblings to take more than the other remaining nephews and nieces. She did not clearly evidence an intent to defeat the antiplapse statute and therefore, the children of the testator’s brother, Hovland must take the residue of the estate.
- anti-lapse statutes: each state has their own version over whom the gifts will apply. (lineal decedents or whether to go back thru the generations). None of them include spouses so if an antilapse question comes in on the exam, remember that they do not apply to spouses unless you are in a handful of states.
Jackson v. Schultz
Facts: This case concerned a lawsuit brought by step-children of the testator when he left a will giving them property of a home. In his will, it had a clause which stated that all of his property should go to his wife and her heirs and assigns forever. At the time of the testator’s death, however, his wife had already predeceased him. When the step-children of the testator tried to sell the home given to them under the will, the Defendant refused to buy the home contending that the children had no property interest in the home itself because the will’s clause made the bequest die when the word “and” was used instead of “or.”
Holding: The court may substitute the word “or” for “and” when there is sufficient intent of the testator shown that this effects their intent and when the court can avoid intestacy and escheat. The fact that the will specified that the property not go to his only living blood relative, is enough justification for the court to conclude that “or” is a proper substitution for “and” in the devise.
See page 452: problem 2. (may be a question on exam)
- look at MN statute: 524.2-604 (handout)
Dawson v. Yucus
Facts: The testator here left a will which contained 10 clauses, the second clause of which is being contested here. The second clause gave the testator’s 1/5th interest in farm lands to her husband’s two nephews: Stewart Wilson and Gene Burtle. Under the clause, each was to receive one-half of the 1/5th interest in the land. However, when the testator died, Gene Burtle had already died when the will was admitted to probate. Stewart Wilson, one of the husband’s nephews, then filed suit against the administrator alleging that the devise was a class gift and as the only survivor of the class, he was entitled to the entire 1/5 interest in the farm. In addition, the dead nephew’s two children were subsequently substituted as plaintiffs here. The trial court held that the second clause did not create a class gift and therefore the gift lapsed and passed into the residue of the estate upon the testator’s death.
Holding: This court upheld the trial court’s view that the 2nd clause failed because of the death of one of the nephews and rejected P’s point that the gift was a class gift with right of survivorship. In this will, the number of beneficiaries were certain, the share that each person was to receive was also certain, the gift was not dependent upon the number of people who were to survive, and there was no intent shown by the testator that she intended to create a class or survivorship gift because by creating a residue clause, she indicated that she knew how to manifest an intent to create a class gift which she did not do in the second clause. Furthermore, no generic class labels were used in devising her property. In addition, 3 counsins were not named.
In re Moss
Facts: The testator here gave his interest to his wife and his niece in trust. The income from this asset was to be paid to his wife for life and then the rest was to be held in trust for his niece and all children of his sister who obtained the age of 21. At the time of the testator’s death, however, his niece already had died, but his wife survived him. His wife then gave her interest to George Kingsbury. When the testator’s wife then died, George Kingsbury then filed sued to argue that the original gift was not a class gift but a gift that had lapsed when the niece died before the testator.
Holding: The court found a class gift through the testator’s intent that his wife’s share should go to the niece upon her death and no one else. She the niece died before the testator, the niece’s children still are entitled their share through the class gift.
Rule: The intent of the testator will determine whether a class gift was made or a gift that fails and then passes to others if a condition is not met (ie person dies before the testator.)
Ademption by Extinction
- if specific gifts are laid out in a will and when the testator dies that particular piece of property was already sold before he died, the bequest through the will fails. (ie. Will says that Joe will get diamond ring. However, testator sells ring before he dies and does not change will. When the testator dies, the gift of the ring fails and Joe is out of luck). However, if the gift is not specific (like a ring) and is instead general (like money), other assets may be sold to satisfy the gift after the testator dies.
- the main issue in these types of cases is whether the gift was general or specific. (more specific gifts fail if they are sold before death while general gifts are usually given substitutions after the testator dies)
- this is not abatement: what happens of what we do to the estate to make sure that the assets are distributed. KNOW WHAT ABATEMENT IS.
Wasserman v. Cohen
Facts: The testator created a revocable inter vivos trust in which she names herself both settlor and trustee. She funded the trust with certain property delivered on the date of execution and she also retained the right to add property by inter vivos transfer and by will. She also retained the right to amend or revoke the trust and to withdraw property from the trust. When she executed the trust, the testator held title to an apartment building but then sold the property before she died and she never put the money from the sale into the trust. Wasserman brought this lawsuit asking for a declaratory judgment asking that the proceeds from the sale of the building be given to her. The trial court dismissed the action and Wasserman appealed
Holding: The gift here is adeemed by extinction. A trust is construed the same way as wills and therefore the doctrine of addemption applies.
Is it specific? (if gone, we say it is adeemed and it is gone)
Is it general? (if gone, we sell other assets to abate the estate so the gift is given)
Is it demonstrative?
INTENT DOES NOT MATTER WITH ADEMPTION CASES: INSTEAD WHETHER THE GIFT IS SPECIFIC AND GENERAL IS CONTROLLING.
The key, is how to label the gift. Make sure to argue both ways. Court have accepted arguments that say that stocks are general enough to be avoided to be adempted.
look at exception on page 467. : insane person cannot change and adeem a gift after the person has been declared insane.
RIGHTS OF THE SURVIVING SPOUSE
1) separate property system: husband and wife own separately all property each acquires (there is no sharing of earnings or property). Under this system, the spouse would get an statutory elective share (usually 1/3) but none of the non-probate assets like life insurance proceeds.
2) community property system: husband and wife own all acquisitions from earnings after marriage in equal undivided shares (each spouse is the owner of an undivided one-half interest in the community property.) Under this system, either spouse gets one-half of the entire share, but not the entire property.
-This actually includes any insurance proceeds, etc (which you may think that is not a probateable asset.
Identity Theory: we take seriously that at marriage, both parties become one person and husband and wife becomes 1 person.
Partnership Theory: marriage creates a contract includes a partnership understanding that things are held in common. (unspoken marital bargain)
Desserts Theory: contribution of the marriage. quantum merit claim. How much does one deserve to share. (UPC follows this approach) See page 486.
Look at page 478. (Problem 3)
Homestead exception: generally gives the surviving spouse the right to occupy the family home for his or her lifetime.
Personal property set aside. Look at page 479. Limit of 10K for personal property to be set aside from creditor's clams.
Family allowance: authorization by statute to give the probate court the power to award a family allowance for maintenance and support of the surviving spouse and surviving children. (Usually the amount is fixed by statute but sometimes amount is based on the spouse's standing of living.)
Dower: extends to the widow to a life estate in 1/3 of her husband's qualifying land.
- however, a majority of jurisdictions have abolished the use of Dower. (Courtesy goes to the husband)
Right to elect against the will.
1) How much is a spouse's elective share?
minority: some states only give a life estate to the spouse
majority: stated amount: 1/4 or 1/3 usually
UPC: a graduated share depending on length of marriage (sliding scale that gives people more of a share depending on the length of the marriage)
split: if you don't like what the will states, you can elect for the property to pass through intestacy.
2) Share of what?
probate estate: common law rule: anything that passes through the probated estate.
augmented estate: includes other things outside probated material, can include inter vivos trusts, etc. (UPC follows this approach as well as MN)
3) Where shall we get the money to obtain the elective share? (Who is prevented from taking their appropriate share under the will) This is not a determinative question and has no real effect on case other than for a policy argument in close cases.
King v. King
Facts: This case concerns a situation where a husband gave his wife some property before he died. In doing so, he told her that he did not want that property to go through his probate estate. His will gave all of his property to his wife with a remainder of his personal property going to his children from a previous marriage. After the testator died, the wife filed an inventory of the assets of the estate and she did not include the previously transferred piece of property. The wife also elected to take against the will, by filing for the statutory share which would increase her share of the estate assets. The testator’s children then filed a lawsuit which asked the previous court to find that the inter vivos gift of property to the wife was an advancement, however the trial court did not find that the gift was an advancement. The children appeal in this case.
Holding: This court held that an advancement against the will can only be found if there is a contemporaneous writing by the decedent or some acknowledgment in writing by the heir to be an advancement. Here, there was no such writing. The deed executed did not state that the testator intended the conveyance to be an advancement against his wife’s share of the estate. Affirmed.
- you need to have the advancement in writing for it to be valid.
- equitable advancement theory: makes the spouse put back into the probateable assets that she received before death so that the 1/3 share would be taken out of the whole estate, not just the part after the wife takes a huge gift.
In re Estate of Cooper
Facts: This case concerns a situation where the testator was a homosexual in which by will he left 80% of the value of his estate to a former homosexual lover and gave only 20% of the value of his estate to his current lover who was Chin. After the testator died, Chin then petitioned the court to elect to take a statutory share of Cooper’s estate as a surviving spouse rather than take his share under the will. At trial, Chin submitted evidence of a spousal relationship and alleged that the only reason that the two were not married was that the state unconstitutionally made it impossible for two people of the same sex to obtain a marriage license. He argued further that interpreting the term “surviving spouse” to exclude homosexual life partners violated the equal protection clause of the state constitution. The trial court, held, however that persons of the same sex have no constitutional rights to enter into a marriage with each other and that the survivor of such a relationship had no right to elect against the decedent’s will.
Holding: This court affirmed. The term surviving spouse does not include homosexual life partners. Here, any equal protection clause analysis must be measured by the rational basis standard. Here, no constitutional rights have been abrogated or violated.
Seifert v. Southern National Bank of South Carolina "illusory trust"
Facts: This case concerns a situation where the testator created a revocable trust that named his two daughters from a previous marriage as beneficiaries under the will. The value of the trust was approximately 800K and was made so that the testator had power to control the trust during his lifetime. His will left a half-interest of the house and life interest in the income of a smaller trust to his current wife. After the testator died, the wife challenged the validity of the trust and sought to have the trust added to the husband’s estate in order to assert her elective share over it. The trial court found the trust valid and therefore out of reach from the wife.
Holding: This court found that a trust created with the purpose of defeating a spouse’s elective share will be voided if the testator retained substantial control over the trust assets. A trust which is created that leaves the testator with the same control as he had before is an illusory trust and therefore the surviving spouse can take the elective share out of it.
- an illusory trust is made when the testator has the same amount of power as before they created the trust. The trust does not fail, it just does not allow the property to become separate from the probate property that a spouse may take an elective share out of. See next case.
Look at question a on page 504.
- is a separate life insurance policy part of the estate in order for a spouse to take an elective share? Probably not.
HYPO: 1 million life insurance policy going to kids of testator, and not wife. It takes 100,000 to buy policy. How does the elective share work? Most courts will not treat the life insurance policies as illusory and therefore the spouse cannot take an elective share out of the insurance policy.
stock? No. bank account? No. Keep this in mind for exam. No = court will not find that the transfer of money in these ways is illusory and thus void and it brings back the money for the spouse.
Sullivan v. Burkin
Facts: The testator here executed during his life a deed of trust in which he transferred real estate to a trust with himself named as the sole trustee. The net income of the trust was payable to him during his life. Upon his death, the trust indicated that the trustee was to pay the principal amount and any undistributed income to two people, George Cronin and Harold Cronin. After the testator died, the wife made a claim against the estate contending that the property in the trust should be considered part of the estate from which she can elect her statutory share. The probate court held that a valid inter vivos trust was created and that the property of the trust will not be considered as part of the estate. The wife appeals.
Holding: Here, there was a valid inter vivos trust. Just because the testator retained a broad power to modify or revoke the trust, the law of the state is quite clear in upholding inter vivos trusts which become testamentary in nature. The wife here has no special interest which should be recognized in breaking the trust. However, in the future any inter vivos trust created or amended after the date of this opinion shall no longer follow this rule. In the future, if the testator retains the same type of substantial rights that the decedent did in this case, then the assets of the trust will be considered part of the estate for purposes of a statutory elective share.
RULE: A life estate disclaimed by the surviving spouse is not credited against her elective share.
Notes: A revocable trust is now held to be part of the spouse's elective share!
In re Estate of Clarkson
Facts: This case concerns a situation in which the testator left a will which left his incompetent wife ¼ of his estate in trust which was a life estate. However, even though the state statute specified the same percentage of elective share, the difference would be that she would have the ¼ of her husband’s estate in fee simple, rather than a life estate. The county court appointed a guardian to make a recommendation and it told the court that she should take her elective share, rather than take under the will. However, the court disagreed and ordered the incompetent wife to take under the will in order to give preference for the testator’s plan and to protect the interest of the remaindermen.
Holding: This court rejected the county court’s view and found that the only controlling test is to determine which election is in the best interest of the incompetent. Here, fee interest is better than a life estate and the court decides that the incompetent widow should take her statutory share rather than take under the will.
UPC Waiver: Page 534 (look at waiver statute)
Briggs v. Wyoming National Bank
Facts: This case concerns a situation in which a married couple kept all of their accounts, income, and assets separate from one another. The testator, Mrs. Briggs, transferred the major portion of her assets into a living trust agreement drawn up by her attorney. The agreement included a waiver of her husband’s right to contest the establishment of the trust even though the trust specified that he was only to get a 1/17 of the share of her assets. Before signing the agreement, her husband was advised to review the trust contents with another attorney but he declined to do so. However, after his wife’s death, the testator’s husband sought to declare the trust invalid and petitioned to take his elective share of her estate instead. The beneficiaries counter-claimed and said that because her husband violated the no-contest clause under the Trust, that the husband should take nothing from the trust. The trial court found the trust agreement to be valid, but dismissed the notion that the husband could not take anything at all.
Holding: Here there was a written waiver and one that was manifested in some unequivocal manner. Here, Mr. Briggs stated that he consented to whatever his wife desired to do. He cannot now complain that he did not understand what he was doing because he did not read the agreement or have the advice of an attorney. Moreover, the waiver contained in the trust agreement did not violate the state’s elective share statute. In addition, because Mr. Briggs challenged the trust, he must lose his share under the no-contest clause and the counterclaim from the court below should not have been dismissed.
Dissent: By his own admission, Briggs did not fully understand the legal documents he signed. It is not clear that even if he had carefully read what he signed he would have understood that his signature effectively waived his elective share. Furthermore, Briggs had a good-faith and valid argument that the trust violated the elective share statute. He should not be penalized for seeking an answer to this question.
: person can waive their right in writing
Estate of Shannon
Facts: This case concerns a situation where the testator died with a will than named his daughter as sole beneficiary, even though two years earlier he married another women, named Lila, after his wife had died. Lila filed a petition in probate court in order to be considered as an “omitted surviving spouse,” but the probate court denied her petition. Under the statute, an omitted spouse receives a share of the estate as if the deceased had died intestate - which amounts to a 50% share. The exceptions to the rule is when the testator omitted the spouse from the will intentionally, when the testator provided for the spouse by a transfer outside the will, or if the spouse made a valid waiver of the right to share in the estate. She then appealed, but while the appeal was pending, she then died and her son replaced her as the appellant.
Rule: If the testator fails to provide by will for a surviving spouse who married the testator after the execution of the will, the omitted spouse shall receive a statutorily prescribed share of the estate. There is a strong presumption of revocation of a will in these types of cases based on public policy.
Holding: Because the testator failed to provide for Lila in his will, she is an omitted spouse. The will does not on its face manifest any intent by the testator to disinherit Lila. Also, a general disinheritance clause in a will is insufficient to avoid the statutory presumption. Reversed and remanded.
Ommitted Spouse Rule: a spouse can intentionally leave someone out, and there is no application of this statute.
Azcunce v. Estate of Azcunce
Facts: The testator here executed a will which established a trust for his surviving spouse and his then-born children. The will contained no provision for after-born children. Between executing two codicils to the will, the testator’s fourth child, Patricia was born. After the testator died shortly after executing the second codicil, the will and the two codicils were admitted to probate and Patricia filed a petition in order to seek a statutory share of her father’s estate as a pretermitted child. The trial court, however, denied her petition. At trial, Patricia tried to introduce parol evidence that her father intended to provide for her, but since the court found no ambiguity in the will, they did not let the evidence in. In addition, she tried to bring in evidence that the will should be voided because the draftsman made a mistake in failing to provide for Patricia in the second codicil.
Holding: The lower court’s decision is affirmed on the basis that even though Patricia was a pretermitted child both at the time her father’s will was executed and at the first time the first codicil was executed, but when the second codicil republished the original will and the first codicil, Patricia’s prior status as a pretermitted child was destroyed. Presumably, if her father had wished to provide for Patricia, he would have done so in the second codicil. Because he did not, Patricia was in effect disinherited.
Rule: When a testator fails to provide in his will for any of his children born after making the will, the child shall receive a share of the estate equal in value to that she would have received if the testator had died intestate, unless it appears the omission was intentional.
Espinosa v. Sparber
Facts: The case concerns a legal malpractice lawsuit brought by the wife of the testator against the testator’s attorney. In appears that the testator contacted his attorney in order to include his latest child, Patricia, in his will. The attorney then drafted a new will that provided for Patricia and restructured the trust for her. However, due to a disagreement between the testator and his wife regarding the amount of available assets, the testator never actually signed the will. Instead, he executed a second codicil drafted by the attorney which did not provide for Patricia. After the testator died, the wife brought this malpractice action on behalf of Patricia and the estate. The trial court dismissed the complaint with prejudice for lack of privity and the court of appeals reversed the dismissal with regard tot he estate, but affirmed it with regard to Patricia and certified the question of standing to the state supreme court.
Holding: In order to bring a legal malpractice action, the plaintiff must either be in privity with the attorney or must be an intended third party beneficiary. Because Patricia cannot be described as one in privity with the attorney or as an intended third party beneficiary, the lawsuit alleging malpractice cannot be brought on her behalf. Rene’s estate, however, standing in the shoes of the testator and clearly satisfying the privity requirement, may maintain a legal malpractice action against the attorney.
- there must be privity in order to bring a malpractice action
- did the grantor manifest an intention to create a trust relationship?
- was there property in the trust when it was created? ( a res ? ) (needs to be something in mind to be transferred - there is a requirement of a res and a settlor who is the creator of the trust. Trustee holds a legal interest and the beneficiarly hold an equitable interest.
- Did the settlor hand over power to the trust to the trustee so that a switch of power has been completed?
- trusts are much more flexible and less formalistic requirements control over the execution of trusts.
- all that is necessary to create a trust is an intention to create one and a res (body) of the trust itself
- when dealing with trust issues, always consider whether a gift was made instead of a trust. A majority of courts require clear and convicing evidence that a trust was intended. In addition, for a gift to be valid, a gift actually requires "delivery" (which may be actual, constructive, or sybolic) of the subject matter. A promise to make a future gift is unenforceable unless the promise to give is backed by some consideration. (consideration must be more than love and admiration).
- look over precatory language at page 582.
Jimenez v. Lee
Facts: Plantiff sues her father regarding two gifts that created a trust that was created in order to provide for her educational expenses. The trust was created when her grandmother gave her a $1,000 savings bond and $500 was given to her from one of her father’s clients. However, her father, subsequently cashed the bonds in and invested the proceeds into stock, in which he held the stock as a custodian for the plaintiff under the Uniform Gift to Minors Act. When she sought an accounting, her father alleged that no trust existed and that all of the funds had already been used for her benefit.
Holding: The court found that a trustee could only use trust funds in a manner authorized by the trust. Her father clearly expanded his powers by cashing in the bonds and then purchasing stocks and since the stocks are clearly traceable to the bonds, a trust is imposed on the stock as well. As trustee, the father was obligated to keep exact records of all expenditures made for her education. This failure to keep accurate records, can result in a surcharge to the trustee for the unaccounted sums. The trustee is also liable for expenditures no related to the purpose of the trust. For example, the use of the trust funds for gifts, medical expenses, clothing, etc., is no related to her educational expenses. Therefore, the father is liable for all such expenditures. This case is remanded to determine exactly how much of the trust was used for her educational expenses.
look at problem on 569
Unthank v. Rippstein
Facts: The testator sent the plaintiff a letter a few days before his death which promised to give her $200 per month. Also on the letter, language that said that this payment would only extend if he lived that long was stricken and in its place there was additional writing which stated that the testator wanted his estate to make the $200 payments if he died. After the testator died 3 days later, the plaintiff first sought to have the writing introduced as a codicil to the will, but the trial court found that the writing was not sufficient as a testamentary instrument and therefore was denied probate. Then the plaintiff sued alleging that the letter created an enforceable trust. However, the executor argued that the letter created an unenforceable gift.
Holding: This court found that there was not a sufficient certainty in the language of the letter on which a court could declare a trust to exist. It appears that there was no intention by the testator to give up his control over the property and in fact, the testator did not expressly declare that all of his property, or any specific portion of the assets which he owned at the time, would constitute the corpus or res of the trust. The most that the testator did was to express an intention to make monthly gifts to the plaintiff. As such, the writing is no more than a promise to make a future gift which is unenforceable.
Notes: here no trust was created because the trust had no res (something in the trust - there needed - here the person did not give or separate anything off for the trust itself).
TEST HINT: you do not need words to create a trust and you can have oral trusts. You need a settlor, beneficiaries, = but you do not need a trustee!
See resulting trust: page 587.
Brainard v. Commision of Internal Revenue
Facts: In December of 1972, Brainard, who was considering trading stocks on the stock market, consulted an attorney and was advised that he could create a trust in favor of his family members. Under the trust, Brainard would assume all losses, but than any profits would go to the trust. After a year of successful trading, the profits after he paid himself 10,000 from the profits, the money went into the trust. The tax board then came after Brainard declaring that all of the income from the transactions was considered his income and therefore was taxable to Brainard. After the trial court sided with the IRS, Brainard appeals.
Holding: An interest not yet in existence cannot constitute the property of a trust unless there is an agreement supported by consideration that binds the person to create property for the trust. No trust was created at the time of Brainard’s declaration. Although a trust would have arisen at the time that the property came into existence if, at that time, Brainard had manifested an intention that it be held in trust, it is generally held that silence does not consitute conduct form which he intent to impress a trust may be inferred. Since the trust did not come into existence until the time of the taxpayer’s bookkeeping entries, the profits, at the time of their acquisition, constituted property of the taxpayer and not of the trust. Therefore, the profits from the stock sell was properly taxed as part of Brainard’s income.
Rule: An attempt to establish a trust not yet in existence is ineffective unless supported by independent consideration. In this case, because the trust was voluntary, it was unenforceable because there was no consideration between family members.
Speelman v. Pascal
Facts: This case concerns a situation where a producer, who owned a license to create a stage and film version of My Fair Lady, sent a letter to the owner of the rights to My Fair Lady in which he promised her shares of the profits from his anticipated productions. However, he died several months later, but his estate arranged for the production of the play anyway. Speelman then sought to enforce the promise which was in the letter which gave her a share of the production’s profits, but the producer’s widow claimed that the gift was not enforceable because it had referred to profits which were not yet in existence at the time the promise was made. However, the trial court disagreed, and found in favor of Speelman.
Issue: Did the delivery of the letter constitute a valid, complete, present gift to the plaintiff by way of assignment of a share of future royalties? YES
Holding: A gift of property to be acquired in the future is valid and effective if the donor manifests an irrevocable intention to make a present transfer of his interest. In this case, delivery of the letter constituted an adequate expression of his intention to make a present gift of future profits from his anticipated production. Accordingly, the gift is enforceable and the judgment of the lower court is affirmed.
Notes: This case lays out the important distinction between gifts and trusts. Trust are ineffective without delivery. When the interests in property are not yet in existence are given, the donor or trustor must make a present and irrevocable transfer of his interest in the property to be acquired. If the donor or trustor retains any interest in the future property or maintains any control over its distribution, the gift or trust will likely be deemed ineffective.
Clark v. Campbell (you must have beneficiaries in a trust)
Facts: Decedent left her personal property to her trustees in trust. The trust was made so that the trustees selected who got what of her personal belongings as the trustees were familiar with her friends and her wishes. However, the heirs of the testator alleged that the trust was void for lack of definite beneficiaries or ascertainable standards to identify them.
Issue: Must there be a definite beneficiary of a trust or ascertainable standards for determining the identity of the beneficiaries? YES
Holding: To be valid, a trust must have an identifiable beneficiary, or there must be adequate standards provided under the trust for their identification. Friends is too indefinite a class of beneficiaries. Therefore, this trust fails and the trustee holds for the taker under the will.
- you must have a beneficiary for every trust.
In re Searight’s Estate
Facts: The testator, by will, left a $1,000 to his executor to pay Florence Hand 75 cents per day to care for his dog for the rest of the dog’s life. The probate court found that it was a valid honorary trust and that Florence could be charged inheritance tax only on the value of the dog which was $5 only. The IRS objected and said that there was no valid trust since there was no ascertainable beneficiary who could enforce the trust and it violated the rule against perpetuities. Therefore the 1,000 was taxable to Florence.
Holding: An honorary trust is valid where it is for a valid purpose and the trustee accepts the testator’s wishes, even though there is no beneficiary that can enforce the trust. There is no violation of the RAP here since there is only 1,000 plus accumulated interest involved, which, at 75 cents per day, would be exhausted within 5 years (thus vesting before 21 years).
NECESSITY OF WRITTEN INSTRUMENT
- an oral trust of personal property is enforceable, however, the statute of frauds requires that an inter vivos trust of land to be in writing. In addition, a testamentary trust has to be created by a will. However, in certain situations, a court will enforce an inter vivos oral trust of land or an oral trust arising at death. (see following cases)
Hieble v. Hieble
Facts: Mrs. Hieble conveyed real property to her son and daughter after finding out that she had cancer. There was an oral agreement that the property would be reconveyed to her if no further cancer was found five years after it had been operated on and removed. Under the oral agreement, Mrs. Hieble would continue using the property and paying taxed and upkeep on it. After 5 years, the daughter reconveyed her share of the property, but the son refused to do so. Mrs. Heible brought an action to compel the reconveyance as she argued that the son held the property in a constructive trust. The son, however, argued that there was no fiduciary or special confidential relationship and that there was insufficient evidence on which to base a trust - it was actually just a gift.
Holding: Before a constructive trust will be imposed, there must be a showing that a fiduciary or confidential relationship existed between the parties. A mere family relationship is not sufficient. However, in this case, the testimony of the parties clearly established the existence of the oral agreement and because of this, a constructive trust will be imposed because the relationship was based on another event, cancer, which caused the parties to rely upon each other.
Olliffe v. Wells
Facts: The testator left a will which named various beneficiaries, with the residue of the estate to go to the executor. The executor, per her oral wishes, was asked to distribute the residue which was best calculated to carry out her wishes. After she died, the executor claimed that prior to the testator’s death, she orally instructed him to give the residue to charities. However, the heirs at law brought this action to have the executor distribute the residue to them.
Holding: Because the purported trust favoring the charities did not appear on the face of the will, it cannot be established by extrinsic evidence. Thus, the executor here only has discretion in the manner of distribution, but he cannot choose the beneficiaries. Since the trust in this situation cannot be carried out, the bequest falls within the residue of the estate and the residue goes to the heirs and the next of kin. (via intestacy.)
- where trustee has the discretion over payment of either the income or the principal or both.
- even when there is a discretionary trust, the trustee still must act like a regular trustee with all of the normal duties. (keep and manage income) Just because a person has discretionary things, does not relax his obligation.
- one of the obligations of the trustee is to preserve the corpus for the remaindermen.
- trustee's fee is usually determined by the amount in the trust (so watch for a conflict in these types of trusts).
- if the trustee fails in his duty, the court will often make the rememdy as a constructive trust on the amounts which should have been distributed according to the trust if it were not because of the error of the trustee. (constructive trust is made against the principal of what damage the breach of the trustee made).
- trusts can have exculpatory clauses that allow the trustee to be shielded away from liability if something goes wrong with the trust. (but most courts require that the client be independently advised by another lawyer in these kinds of agreements).
Marsman v. Nasca
Facts: The testator set up a trust that provided for her husband after her death. The trust was a discretionary trust which enabled the trustee to pay out amounts of the principal as he deemed advisable. However, the trustee did not explain that power to the testator’s husband. As a result, because the testator’s husband had financial difficulties, he had to transfer his house to the testator’s daughter and her husband with a life estate left for himself. He then remarried and then died, but because the testator’s daughter had also died before he died, the house was owned completely by the testator’s daughter’s husband. As a result of his ownership, he told the testator’s husband’s second wife to vacate the premises. She then brought this action in probate court which held that the trustee had failed and breached his duty to inquire into the testator’s husband’s finances. The trial court ordered the daughter’s husband to give back the house to the testator’s husband’s second wife and the trustee was order to reimburse the second wife for upkeep expenses.
Holding: Trial court ruling upheld but vacated and remanded for a determination of the amount to be paid by the estate from the trust.
- lawyer here was the trustee and had the obligation to find out what the person needed in order to distribute the income from the trust appropriately.
- in this type of trust, the beneficiaries cannot voluntarily alienate their interests nor can their creditors reach their interests. These types of trusts are created by settlors who do not have faith in the ability of the beneficiary to manager their assets. Some states have refused to enforce these trusts on the grounds that they operate as a fraud on creditors.
- how do you make a spendthrift trust: just designate what the trustee can or cannot do with the money that is held in the trust and that beneficiaries cannot assign or give their rights to the principal away. (shield away from creditors). Trustee has more discretion in these types of trusts, over the discretionary trusts.
Shelley v. Shelley
Facts: The case concerns a spendthrift trust created by a father for his son. The trustee was a bank which was given complete control over the trust assets and they were to make payments of the principal to his son when in its discretion he was competent to manage the funds on his own and also allowed emergency payments for the benefit of his son or his children for unusual or extraordinary expenses. In addition, the trust immunized the trust from claims of any of the son’s creditors. After the father died, the son married a few times and had children, but then after awhile he ceased to make child support and alimony payments. One of his x-wife brought this lawsuit to make a claim against the trust.
Holding: Public policy requires the court to find that the wife and children of the beneficiary cannot be considered creditors and thus unable to obtain money from the trust. Because there is an emergency clause in the trust, we find that the failure of the son to provide any support at all constitutes an emergency.
- Income for alimony? YES
- Income for children? YES
- Corpus for children? If needed, the trustee may.
- Corpus for spouse? If needed, the trustee may.
In re Trust of Stuchell
Facts: This case concerns a testamentary trust which named a granddaughter as one of two surviving life-income beneficiaries. Per the trust instructions, at the time of the death of the last beneficiary, the remainder was to be distributed equally to the granddaughter’s four children. One of those children, however, was mentally retarded and unable to live independently without state assistance. However, if the remainder were distributed directly to him, he would no longer qualify for public assistance. Thus, his mother requested that the court approve of an agreement made by the other income beneficiary and the remaindermen but the court denied the petition. The granddaughter appeals.
Holding: A trust may be terminated if all of the beneficiaries agree, none of the beneficiaries is under a legal disability, and the trust’s purposes would not be frustrated by doing so. However, the court will not permit or direct the trustee to deviate from the terms of the trust merely because such deviation would be more advantageous to the beneficiaries than compliance. Here, because the person who is giving up his share is put in a legal disability, and as a result, the court here did not allow the trust to be terminated. If the termination of the trust changes the rights of the parties in some legal way into a detriment, the courts will likely not terminate the trust under the rule in this case, even though it may be "beneficial" in some way as it was in this case.
Rule: A trust may be terminated if all of the beneficiaries agree, non of the beneficiaries is under a legal disability, and the trust’s purposes would not be frustrated by doing so. Also, keep in mind, that if the attorney who drew up the trust could foresee a problem with one of the beneficiaries, he can write into the trust special powers of appointment to take care of a disabled, or otherwise, unable beneficiary like in this case.
- if the testator makes an irrevocable trust, the trustee cannot object if the settlor and the beneficiary both agree to terminate the trust because the want to. However, if the settlor is dead, the courts will look into the intent of the testator when they set up the trust to determine if the trust should continue, even though the beneficiaries agree, if a material purpose of why the trust was set up to begin with would be altered.
Hamerstrom v. Commerce Bank of Kansas City
Facts: After a life beneficiary of a trust acquired the consent of the trust’s remaindermen to a proposed deviation which increased her monthly payment from $150 to $2,000, the plaintiff filed a petition for deviation which the trial court denied on the basis of a guardian ad litem who opposed the action because the deviation did not benefit the trust’s unascertained contingent remaindermen.
Holding: The trial court was incorrect in not granting the deviation. Since this is a testamentary trust, we have to construe the will by what the will actually says and not what the testator would have said if he had further explained his intentions. Here, people were specifically named as remaindermen of the trust and made no provision for or mention of heirs or issue of the two sons. The testator’s intent, therefore, to limit the distribution of the estate to the three named beneficiaries are evident. Therefore, the trial court was wrong to adopt the guardian’s approach that unnamed remaindermen destroy the possibility for a consensual revision. Also, a big factor in the court's decision is that the trust was earning around 26K per year so it was reasonable to allow this modification because of a change of circumstances that are reasonable to allow such a modification.
Rule: A trust cannot be terminated prior to the time fixed for terminated, even though all of the beneficiaries consent if termination would be contrary to a material purpose of the settlor. (Claflin Doctrine) Example: son is named as beneficiary of trust. He must be 21 to get money, however, he is only 18 and sues to change the date because he is the only beneficiary. The court denied this claim on the basis that it would be contrary to the material purpose of the date made by the settlor.
In re Estate of Brown
Facts: Case concerns a testamentary trust which set up a scheme in order to both provide for the education of a nephew’s children and also to make sure that the nephew and his wife would be taken care of so that they could live in the style they were accustomed. At their death, the remainder was to pass to the nephew’s children. After the trustee complied with the terms of the trust, the nephew and his wife petitioned the probate court to terminate the trust on the basis that the sole remaining purpose of the trust was to maintain their lifestyle and that the rest of the assets was necessary to accomplish this purpose. The remaindermen, who were the nephew’s children, also consented to the termination. However, the probate court denied the petition and the appeals court reversed holding that since the only material trust purpose had been accomplished, the trust could be terminated. However, then the trustee appealed.
Holding: The trust cannot be terminated even with the consent of all of the beneficiaries if a material purpose remains to be accomplished. Here, even though the purpose of providing for the nephew’s children’s education was achieved, the second purpose was the assurance of lifelong income for the beneficiaries through the discretion of the trustee. This is a material purpose that would be defeated if the termination of the trust were allowed.
- support trust vs. spendthrift trust: know the difference.
DUTIES OF THE TRUSTEE
- must be loyal to the beneficiaries of the trust (absolute duty to loyality)
- fiduciary duties are imposed upon trustees
Hartman v. Hartle
Facts: The trustees did not sell a piece of real estate and divide it up equally among the testator’s children, but instead, sold a part of the real estate to a son of the testator who then resold the property for profit. A sister challenged the sale on the basis of fraud and illegality.
Issue: Does a trustee breach his duty of loyality to the beneficiaries if he engages in self-dealing? YES
Holding: A trustee cannot purchase from himself at his own sale and that his wife is under the same disability, unless to do so has been approved by the court. The trustee here is liable for any profit realized and it does not matter if the trustee acted in good faith or if the transaction was reasonable. No inquiry will be made, this is a strict liability issue.
- a court will find a trust anytime when a person has left a legal ownership in someone but the proprietary ownership by another individual.
- where there is self dealing, (can't hide behind straw persons), there is no further inquiry about the matter - a breach a fiduciary duty will be found. The penalty is 1/5 of the profit in this case. If there was a loss,
- when there has been no self-dealing, but just a conflict of interest, you can make an inquiry.
- willingness to trust assets: whenever a good faith purchaser comes in a purchases property, you cannot negate that even though the trustees acted wrongfully and in breach.
In re Rothko
Facts: Here, the 3 executors were named over 798 paintings left to the estate of a painter. Following the testator’s death, each of the trustees developed conflicts of interest because of their control over the paintings. For example, Reis was able to benefit under the contract to sell that painting because he was the director of the gallery in which the paintings were sold. Stamos accepted a beneficial position with the gallery after the contract. And, Levine knew or should have known that his co-exectors were breaching their fiduciary duty and that this can be sufficient to hold him also liable for negligence for failing to act in a reasonable manner. In addition, the gallery can be held liable since it had a constructive notice of breach of the fiduciary duty. The daughter brought this lawsuit to remove the executors and to deem any contract made to sell the paintings as void.
Issue: Where a conflict of interest exists, will the executors be liable for any bad faith or unfairness? YES
Holding: An executor is not generally liable merely because he has a conflict of interest with respect to estate property which is sold. However, the executor is under the burden of establishing that he has acted in good faith and the plan was fair to the estate. The evidence in this case is sufficient to show that a conflict of interest existed and that the plan was unfair to the estate. In order to measure damages, an executor who is authorized to sell estate assets is not liable in damages for increases in value of the property if the executors were only guilty of selling at too low of a price. An executor is only liable for the appreciated value where he had a duty to retain the assets. Judgment against the executors is affirmed.
- how does daughter get standing to sue? she was not named in the will and the residue is suppose to go to charity. However, in this case, there was a statute that allowed her to challenge it under a charity statute that allowed her to challenge because the gift exceeds 50% of the testator's estate.
- this case is about conflict of interest, not self dealing, and therefore you can make an inquiry into the situation.
- look at problems on page 921.
- when there is a conflict of interest: there are a variety of remedies: 1) can hold trustees personally liable, 2) you can make a constructive trust. 3) make trustees liable under an accelerated value rule that allows the trust to recover the amount that would have been earned if there was no interruption.
Duties of Trustees
- most trustees are banks and are highly skilled in these duties.
- if trustee named does not want to do it, the trust does not fail, the court will just find another trustee.
- duty not to self-deal
- when conflicts of interests are present, the trustee has the duty to make sure to act fairly and to eliminate any conflicts that may come up.
- duty to collect and protect trust property: very often, the property is ill defined, but may be something hard to ascertain. Often the residuary goes into trust from a will. Very difficult to deal with. For example, a trustee is liable to beneficiaries for not objecting to executor's overpayment of an inheritance tax.
- duty to earmark trust property: under the Restatement, a trustee is liable from the failure to earmark and is not liable for such loss as results from general economic conditions: by earmarking, all you have to do is name that the trust is being used for a certain asset, etc. Trust is named as beneficiary. The general rule, is that the trustee is liable under srict liability.
- duty not to mingle trust funds with the trustee's own: must keep property separate. (strict liability remedy). Single savings deposit box is enough to find that the trustee commingled the trust funds.
- duty not to delegate: as in Gerdiner case below.
- duty of impartiality: as in Dennis case.
- duty to keep and render accounts: as in National Academy case.
In re Heidenreich
Facts: The testator died owning 1,309 shares of bank stock. The bank was subsequently taken over by another bank, Franklin National Bank, which also was the trustee of the testator’s trust. The new bank retained its stock in the trust until trading in it was suspended. Beneficiaries under the trust, sought an accounting and to surcharge Franklin National Bank for self-dealing in its stock, for depositing the trust funds in its savings account, and for leaving trust funds in a checking account for more than one year. In response, the Bank said that it was authorized to retain the stock under the will and had exercised sound business judgment in retaining the stock. As for the savings account, it was being used for short-term deposits in order to have liquid assets available for investments.
Issue: Will a trustee who is authorized to retain its own stock in trust and who exercises sound business judgment be liable for its decrease in value? No
Holding: Here, the bank exercised reasonable business judgment in its decision to retain the stock, and it may not be surcharged for its sound discretion. There was no breach of fiduciary duties with respect to either tof the bank accounts.
- where the trustee is an institution, they can still hold their own stocks, and the trust can set forth restrictions or waivers regarding self-dealing.
- self-dealing rules can be waived by the settlor and even set forth certain situations where no violation would occur in certain circumstances.
Shriner’s Hospital v. Gardiner
Facts: Testator established a trust which was made in order to provide income to her daughter, Mary, and her two grandchildren, Charles and Robert, and a daughter in law for life. After all of the beneficiaries died, the remainder of the estate was to pass to Shriner’s Hospital. The testator appointed Mary as the trustee and Charles and Robert as alternate trustees. Because Mary was not an experienced investor, she placed the trust assets with a brokerage house, allowing Charles an investment broker to make all of the trust’s decisions. After Charles embezzled a large sum from the trust, Shriners Hospitals brought a petition to surcharge Mary for the full amount of the embezzlement. The trial court denied the hospital’s claim but the appeals court reversed. Mary now appeals.
Holding; A trustee is under a duty to not delegate to others the doing of acts that the trustee can reasonably be required to personally perform. Although an inexperienced trustee can seek advice, they cannot rely on it solely but rather they should use their best judgment. Because Mary was not exercising any control over the selection of investments, she clearly breached her duties as a trustee. However, due to the nature of Charles’ embezzlement, we remand to find out if Mary should be found liable for his misdeeds and whether she should have known of his problems and failed to do something about it.
Rule: A trustee has a duty to personally perform the responsibilities of the trusteeship except as a prudent person might delegate those responsibilities to others.
1) breach of duty? YES
2) causation? NO. they remand to see whether she failed to do something that would have prevented result.
Dennis v. Rhode Island Hospital
Facts: This case concerned a testamentary trust which was composed of really three commercial buildings which during the life of the trust, the income was to the testator’s living issue and upon its termination, the principal was to go to the testators then living issue. However, during the life of the trust, the buildings declined in value although the rents remained fairly high. The buildings were then sold over a period of many years and the two remaindermen sued against the Hospital who managed the trust as a trustee alleging that the trustee had improperly favored the income beneficiaries over the remaindermen by failing to unload income producing but depreciating assets. The trial court awarded them $365K.
Holding: A trustee who fails to unload trust assets that are declining in value may be liable to the trust remaindermen. A trustee is obligated to treat all beneficiaries the same and may not favor one class over another. The trustees should be held liable.
National Academy of Sciences v. Cambridge Trust Co.
Facts: This case concerned a trust that testator made for his wife in which the trust was to pay the income to the wife after he died as long as she did not marry. Upon her remarriage or death, the money was then going to go to the National Academy of Sciences. After the testator died, the bank paid income from the trust to the widow until her death in 1967. However, the widow remarried without the Bank’s knowledge and in 1968 the Bank brought a lawsuit in order to recover the payments paid to the widow after she was married. The Bank recovered 41K with 14K in atty fees. However, the total amount that the widow got was 106K. The Academy then sued to revoke the prior accounting and asked for full restoration of the account and the court ordered it so. The court of appeals affirmed and now the Supreme Court must decide.
Holding: Because the Bank made no effort at all to ascertain if she had remarried which they could have done by annually requesting a statement or certificate from her to that affect, they are liable for the full difference. The probate court is affirmed.
- the trustee has an absolute duty to make sure the terms of the trust are fulfilled.
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