Gifts Wills and Trusts Outline

AA, GWATS, Cafferata, Fall 2014
Gifts,Wills,&Trusts
TableofContents
INTRODUCTION.............................................................................................. 2
PolicyandPreliminary........................................................................................................................... 2
TestamentaryFreedomandItsLimitations.................................................................................................. 3
INTESTATESUCCESSION(novalidwill)...................................................................5
3WaystoDistributePropertyperstirpes,percapita,representation,etc............................................................5
2systemsforNonIssueInheritance:Parentelicv.GradualDiagram..................................................................6
WaysforSpousetoInherit...................................................................................................................... 8
Children............................................................................................................................................. 9
DisqualificationforMisconduct,Divorce.................................................................................................. 10
Advancement,Assignment,&Disclaimer................................................................................................. 11
PROTECTIONOFTHEFAMILY..........................................................................12
MARITALPROPERTYLAW............................................................................... 13
HistoryandPolicy.............................................................................................................................. 13
IllusoryTransferDoctrine..................................................................................................................... 15
MaritalPropertyStates........................................................................................................................ 15
CommunityPropertyStates................................................................................................................... 16
MaritalPropertyAgreements................................................................................................................. 18
OmittedSpouse/Children...................................................................................................................... 19
GROUNDSFORCONTEST:Incapacity,UndueInfluence,Fraud&Mistake...........................19
TestamentaryCapacity......................................................................................................................... 19
Delusion.......................................................................................................................................... 20
UndueInfluence................................................................................................................................. 21
NoContestClause.............................................................................................................................. 22
Fraud&Duress(TortiousInterference).................................................................................................... 22
WILLS......................................................................................................... 23
FormalitiesofExecution...................................................................................................................... 24
Signatures.................................................................................................................................... 24
CourtsPowertoSalvageWills.............................................................................................................. 25
PowerofAttorney........................................................................................................................... 26
BurialInstructions.......................................................................................................................... 27
HolographicWills[MAJ/CA]................................................................................................................ 27
WhatConstitutesaWill?...................................................................................................................... 28
Codicils....................................................................................................................................... 28
IncorporationbyReference............................................................................................................... 29
Revocation&Amendment.................................................................................................................... 30
Amendment................................................................................................................................... 30
Revival........................................................................................................................................ 30
ContractualRestrictions:Joint&Mutualwills....................................................................................... 31
InterpretationofWills.......................................................................................................................... 32
ExtrinsicEvidence.......................................................................................................................... 33
ChangesinPropertyHoldings........................................................................................................... 34
Lapse&AntiLapse......................................................................................................................... 36
GIFTS......................................................................................................... 38
RealProperty.................................................................................................................................... 38
PersonalProperty............................................................................................................................... 39
Compare:Willsv.Trusts...................................................................................................................... 41
LIFEINSURANCE........................................................................................... 41
TRUSTS....................................................................................................... 42
Introduction...................................................................................................................................... 42
Contractual&SurvivorshipArrangements................................................................................................ 46
TottenTrusts(~POD)...................................................................................................................... 47
Alienability/AssignabilityofaBeneficiarysInterest................................................................................... 47
SpendthriftTrusts........................................................................................................................... 47
DiscretionaryTrust......................................................................................................................... 48
SelfSettledSpendthriftTrusts............................................................................................................ 49
AssetProtectionTrusts..................................................................................................................... 49
SpecialNeedsTrusts........................................................................................................................ 49
TerminationofTrusts.......................................................................................................................... 49
WaystoTerminate.......................................................................................................................... 50
Introduction.................................................................................................................................. 52
EnforcementofCharitableTrusts........................................................................................................ 53
CyPres&ChangeinCharitablePurpose............................................................................................. 53
HonoraryTrusts............................................................................................................................. 54
THEPROBATEPROCESS:AdministrationofEstates&Trusts.........................................55
Jurisdiction/LocationofProbate............................................................................................................. 56
FormalProbateProcess........................................................................................................................ 57
InformalProbate................................................................................................................................ 59
FiduciaryRoles.................................................................................................................................. 61
ExecutorDuties................................................................................................................................. 63
EnforcementMechanismsForFiduciaryDuties...................................................................................... 67
DelegationbyTrustee...................................................................................................................... 67
Liability....................................................................................................................................... 68
DistributiontoBeneficiaries.................................................................................................................. 69
3TypesofDistributionstoBeneficiaries............................................................................................... 69
DutytoBalanceIncome&RemainderBeneficiaries................................................................................ 69
AllocatingPrinciple&Income........................................................................................................... 70
PayOuts...................................................................................................................................... 71
FUTUREINTERESTS....................................................................................... 72
Introduction...................................................................................................................................... 72
RuleAgainstPerpetuities...................................................................................................................... 73
DIGITALASSETS........................................................................................... 75
TRANSFERTAXES.......................................................................................... 75
GiftTax........................................................................................................................................... 75
EstateTax........................................................................................................................................ 77
GenerationSkippingTransferTax.......................................................................................................... 79
ValuingProperty................................................................................................................................ 80
MEDIATION.................................................................................................. 83
WillDraftingExercise&AchillesWill.....................................................................84
INTRODUCTION
PolicyandPreliminary
WhytheInheritanceandtheProbateSystemisinPlace
- Crucialtothemaintenanceofsocialstatusquoforprivateindividualstopasswealthonatdeath.
- Benefits:
o preservationoffamilybusiness/farmincome(wayoflife)
o discouragingwasteneardeath
o makingthenextofkinsensitivetotheneedsoftheelderly
- Drawbacks:
o persistentinequality
o failuretopromotemerit
o failuretopromotework
o allowingtheimpositionoffoolishconditions.
- Freedomoftestation:givespeopletherighttodecidewhotakestheirpropertyafterdeath.
o Anyrestrictionsonthisarereadintheirnarrowestterms.
- Protectagainstfraud
- Needamechanismtoremovelegaltieupswhenremovingadeceasedsnamefrompropertyatdeath.
TheProbateSystemandWealthTransmissionProcess
Probateislefttostates.Federalcourtsdontreallydealwithit
Probate:Whenthereisawill.Judicialproceedingtodeterminethevalidityofoneormoreinstrumentsasthe
decedentswill(judiciallysupervisedestateadministration)
Intestate:Persondiesw/owill(80%)looktothestatesinheritancerules(usuallywifeissueotherrelatives)
Testator:Personwhodraftsawill
Difference:Executor/Administrator:Personwhofollowsthroughw/thedirectionsinthewill.
o Executorsarenamedinthewill.versus
o Administrators:appointedduringintestateprobate;statesdeterminewhocanactasexecutor
EffectiveWill:Awillisambulatory(noteffectiveuntildeath).Awilliseffectivewhenitclearstheprobatesystem
awillneedstogotoCt.tohavealegaleffect.
Eachstatehasitsownprobatestatutes.
Administrationhas3basicfunctions:
o Collectingassetsoftheestate
o Payingexpenses,creditorsclaims,taxes,andothercharges
o Distributingtheremainingassetstothesuccessors
UniformProbateCode(UPC)(1969,andamendedin1990)about1/3stateshaveadoptedthis
Estate:allpropertyownedbydecedentatdeath
whichiscapableofbeingtransferredbywill.
Howtoavoidprobate:
o Holdpropertyinnonprobateassets
ex:Trusts,lifeinsurance,pension
accounts,jointpropertyw/rightof
survivorship,PODaccounts
o Giftsoftentaxedlessduringlifetime
o Estatetaxesprettyweak;lawyerscanhelp
youavoidthese
o Impact:(1)Easyadministration&(2)Costs
lossb/cpaylessindeathtax
Note:DeathTaxasMisnomer:onlytaxed
atdeathforthingsyouown,notaxifown
nothing.
TestamentaryFreedomandItsLimitations
Limitations:Isthereaconstitutionalrighttodeviseproperty?
- [ENG]:Survivingspouse/childcanfilepetitiontohaveestateplanbeadjusted;Ct.determineswhatdecedent
OUGHTtohavedone.
- Hodelv.Irving(SC1987):ChallengedstatutesescheatprovisionthatgaveIndianstherighttotransfertheir
landduringlife,butafterdeaththelandwenttothetribeProvisiondesignedtoterminatetheendlessfracture
ofIndianland.Held:unconstitutionaltakingunderthetakingsclause.Strictscrutinynotmet.
o Eliminatingevenoneright(rt.todevise)fromthepropertyrightsbundleisstillataking.
Therighttoinheritisnotaninherentright,butonecreatedbythestates.
Individualpropertyrightsoutweighsotherbenefitsofconsolidation
o Note:statuteonlyappliedtointestate/probate;loophole=trusts.
- LimitsonWills:
o Abilitytotransferpropertyatneatisapositivelaw(notanaturalright),solegislaturemayplacelimitsonit
o MustmeetFORMALITIES.
o Cannottakert.todevisecompletely(Hodel)
o DefaultRules(canalwaysbeworkedaround)
NOTE:can(andusuallyshould)alwaysKarounddefaultrules!
Evenifhaveawill,sometimesdefaultrulesusedanyway,ifforexample
willispoorlydraftedor
certainassetsarenotincludedinthewillor
inheritorsnamedinwilldiefirstor
aconditioninthewillisnotsatisfied
o CanTax
FederalIncomeTax:Anexcisetaxonthetestatorsrighttotransferanestateat
death
StateDeathTax:Anexcisetaxonthetestatorsprivilegetotransferestateat
death
Reachesagreater#ofestatesthattanfederaltaxb.cthetaxablethresholdismuchlower
FederalEstate,Gift,&GenerationskippingTransferTax(inheritancetax)
Fed.Estate:imposedonthetransferofadecedentstaxableestat
Gift:Imposedonalltaxablegiftsmadebyalivingdonoreachyear$10Kfreeperdone
GenerationSkipping:meansoflimitinginheritedgrowth
o Passingittoaperson20yearsyoungerisnottaxed
Originaltheorywasoneofredistributionofincome(reasonwhyctswereso
hostiletoit),butnowitisaverybigrevenueraiser(whyeffortstogetridfithaventgonethatfar.)
o CanProtectfamily:
Ifsurvivingspouse/childisommitted,thencanrequireagift.
Leg.View:notalimit,justcorrectingamistake.
PensionscanONLYgotosurvivingspouse/children.
o SubjecttoDurationLimitsRuleAgainstPerpetuities
(RAP):
Rule:Anygiftmustvestw/in21yrsafterlivesinbeingatthetimegiftwasmax:
Note:SomeStatesallowupto100yrs.
Policy:Avoidsdynastyanddeadhandeffect
Olddocumentsdeterioratephysically&Legally:thingschangeovertime;hardforpplto
adjudicate.
NotSubj.toRAP:Charitablegifts/trusts;runindefinitely
o ConditionsinWills:Willscanattachalotofstringstoppl.
Heirsdonothavearighttoinherit.
USNationalBankofPortlandv.Snodgrass:Daughtercouldonlyinheritifshe
didnotmarryacatholicbeforeage32.
Characterizedastestatorsprivateaction,thencourtwillenforce.
$isFatherstogive;DaughterisnotENTITLEDtothe$.
Held:Provisionislegal,althoughrepugnant.
BUT:Ifcharacterizedasstateaction,thencourtwillrefusetoenforce.
InreLiberman:trustforadaughterforbidhertomarryw/oconsentofcousin,
whowasnextinlineifsheviolatedthecondition.Courtheld:theconditionvoidasan
unreasonablerestraintonmarriagethatwouldpromotecelibacyoradultery.
GEN:Cts.interfereifprovisionsare(a)illegal(orbecomesillegal)or(b)
unreasonableduetopublicpolicy(i.e.mustmarry1of6men)Inpractice,strikeoffensive
provision&keeptherest.
[RST3/MIN]:Cts.shouldbemuchmorewillingtoinvalidaterepugnant
provisions.Capriciousinstructionsthataredestructiveandbenefitnooneareinvalid.
Policy:worldisfortheliving,cannotcontrollivingfromthegrave.
1.
2.
3.
4.
Optionswhenthereareraciallyrestrictivecovenants
FedCtIssuesapermanentinjxnagainststatect.enforcement
ApplyCyPrestoeliminatetheraciallyrestrictivepart
CyPresIfaconditioncannotbepreformedaswritten,&thedonorhasageneral
charitableintent,ct.willapplythattrustpropertytothenextnearestofcharitablepurposes.
Onlyappliestocharitabletrusts
Substitutionofprivatetrusteesisinadequateorderdesegregationorder.
Revertbacktotheheirsofthegrantor(RARE).
INTESTATESUCCESSION(novalidwill)
Intestacyoccurs(byanadministrator)whenthepropertyisnoteffectivelydisposedofbywill(nowillorfaultywill)
o 80%ofpeoplediew/owills.Why?Noassets,dontconsiderriskofdying,hassle,nodependents,informal
agreements,nolawyer
StateIntestacyStatutes:Ifnowill,statestatutesdeterminehowpropertywillbedistributedviaintestacy
o Rare:EscheatgoesbacktostateLastcasescenario(canlooklikeaTaking)
[POLICY]ConsiderationsforIntestateSuccession:
A.Easytounderstand/apply
B.Support/protectthedeceasedsfamily;especiallyspouse/children:
Favorfamily:Why?(1)areturntofamilyb/cfamilyhelpedcreatetheestate(2)Needtocontinue
supportingfamilyb/cdecedentsupportedfamilyduringlife.
Orderofpriority:spouse>issue>otherrelatives(parents,siblings,etc.)
[UPC]IntestateShareofSpouseseebelow.
Issue:[ALLJx.]Ifissueexist,theytaketotheexclusionofotherrelatives.
Otherrelatives:onlyinheritifthereisnospouse&nochildren.
o [MAJ]Ifnospouse/children,Parents>allotherrelatives.
Linealdescendants:Grandparents,parents,kids
Collaterals:Siblings,aunts/uncles,cousins,nieces/nephews
Determiningthedegree:Countingdownthe#ofgenerationsfromonecollateraluptothenearest
commonancestorandthendowntotheothercollateral.
Doesnotconsidernonfamilialfriendsyoumaywanttoleavesomethingto(toodifficulttoproveintent)
RepresentationinIntestacy
o Permitsapredeceasedrelativesdescendantstorepresenttheirpredeceasedancestorforpurposesofinheritance.
Ex:Xdies.BeforeXdied,XsbrotherYdied.YskidscanrepresentYandinheritfromX.
3WaystoDistributePropertyperstirpes,percapita,representation,etc.
ThreeSystems
[PRACTICE]:putindoc,whichofthese3systemsyouwanttouse.
GeneralRulesthatapplytoall3systems:
1. AnyLivingancestorbetweenthedecedentandtherelativehopingtoinherit,cutsoffthatrelative.
2. Noallocationtopersonwhoisdeceasedw/olivingissue.
3. Sharesareallocatedforeachlivingpersoninagenerationandeachpersonwhoisdeceasedbuthaslivingissue.
Purerepresentation(orperstripes)
Startingattheverynextgenerationofthepersonwhopassedaway,
divideeverythingequallyWHETHERTHEYARELIVINGORNOT.
Thenmoveitdowntothenextlivinganddivideeachparentsshare
equally
Ifeverybodydiedintheordertheyweresupposedto,thisishow
themoneywouldnaturallyflow.
Generally,lawyersfavorite.
PerCapitaSystem(THENrepresentation)
[CA/TODAY]Gotothefirstgenerationwithsomeonelivingand
THENdivideequally.Ifnokidsarealive,divideequallyamongst
allgrandkids.THENitgoestoperrepresentation[seeabove].
Careful!:sometimesStatecallsthisRepresentation.
Compare:likePureRep.,butdonotdoanydivisionuntilyougetto
agenerationw/somebodyalive.
IfOwasdeceased,hewouldnotinherit,andDandEandso
forthwouldget1/5.Onceyouredeadyoudontinherit/count.
PerCapitaatEachGeneration:[MIN/UPC]1/3ofstates
Countupfirstlivinggenerationandgiveeveryoneequalamounts.
THENgodowntotheNEXTgenerationanddivideallofwhatsleft
equally.(Soifonegrandkidisdeadtheirsharegetssplitequally
withalltherestofthegreatgrandkids)
Promotesfamilydisharmony;notacompleteequalityofresult.
Steps:Takethesharesthatwouldgotodeadmembersofgen.,
combineanddivideby#ofpeopleinnextgen.
Combine3X1/6=anddivideby6
2systemsforNonIssueInheritance:Parentelicv.GradualDiagram
Parentelic:priorityisgiventoheirw/closestcommonancestor.
Grandniecetakespriorityinaparentelicsystem
Both[D]&GNrelatedtoDsParent.
Gradual:preferencetoheirw/least#ofstepstodecedent.
Aunttakespriorityinagradualsystem
Gradualcountseachgeneralasadegreeofseparaton.
Child/Grandparent:2degrees
Niece/Uncle:3degrees
1stcousin:4degrees
LimitsonInheritencevarybyJx.:
- States can limit how far removed a relative can be eligible for representation. (ex: NY allows only up to
descendants of siblings)
- [Jx. Split] Most states put no limit on distance of heir for inheritance.
- [UPC]: Limits non-issue heir to descendants of grandparents.
Chart:tellshowmanystepsafam.mem.isaway.
WhoTakesand
Onceafamilyline
[]:deceased;$:
WhoDoesnt
hasalivingperson,peoplebelowdonttake.
inheriting;others:supposedlyinheritingfromparents.
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Chart:tellsnameofcertainrelation.
[POLICY]:ReasonstoLIMITrepresentationtosiblings:
- WendellsEstate(1932):Held:Standingtheclosestrelativehasstandingtochallengeawilltothe
exclusionofeveryoneelse.
o
Ifyouallowrepresentation,decedentsmoneymaygetspreadamongstppl.w/whomhe/she
hadnorelationship.
o
Ddiesw/noknownrelativesandawillleavingpropertyto
Standing to challenge a will:
charity.
1. Ppl mentioned in the will at
o
>1600peopleclaimwillinvalidduetolackofmentalcapacity.
issue
Diagrams:Cts.requiredthesetoshow
2. Ppl mentioned in a prior will
closestrelation.
3. Intestate successors
Requiredproofofrelation,notjustdiagram.
- Laughingheirs:Remoterelatives,butgoingtotakebyintestacy
o Bystatute:inheritancecutoffafter5thdegreeofrelationship
o Better:dontcutoffinheritancerightsbutcutoffrep.beyond5 thofrelationship
WaysforSpousetoInherit
UPCIntestateShareofSurvivingSpouse
[UPC]=1/3ofstates[CA]=[UPC]hybrid
WhoSurvives:Whattheyinherit:
(1) Spouse+nosurvivingparentsorotherdescendants
Everything
(2) Spouseisparenttoallofthedecedents
descendants
Spouseandparentsbutnodescendants
Spousegets300K+ofestate
Parentsgetremainingofestate
[CAFFERATA]:UPCwrongb/cparentsdonotneed$.
Spouseanddescendantsbutspousehasotherkids
Spousegets225K+
[CONCERN]:SSwouldsplit$betweendecedentskids&her
ownkids,butdecedentmightwanttoprovidemoreforhis/her
ownchildren.
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Spouse+descendantswhoarenotspouseskids
Spousegets150K+
[POLICY]:Survivingspousemaynottreat
his/herstepkidsaskindlyasthedecedentwouldhave;needto
careforstepchildren.
SimultaneousdeathXmustoutliveYbyatleast120
If<120hours:TreatasifeachspousePREdeceased
hourstosurviveY.
theother.HsskipsWandgoesonandWspropertyskipsH
andgoeson.Effectivelypasseseverythingdowntochildren.
[Inpractice]:Karoundmostdocshave90day
If>120hours:Passtospouseaccordingtorulesabove.
survivorshiprequirement.
[POLICY]:Forpassingstraighttokids:
avoiddoubleprobatecosts
Note:usedoctorsTODondeathcertificate.
spousenotlivinglongenoughtogetuse/enjoymentout
Note:RulesstillapplyevenifH/Wdieindifferent
ofproperty.
manners.Ex.Cancer&Caraccident2dayslater.
simplifyadministrationwhenitisunclearwhodied1st.
avoiddoubletaxation.
UPCIntestate:Nospouse
NoSpouse
Estategoestodescendents
NoSpouseandNoDescendents
ParentsParentsDescendantsGPGPsdescendants
WhoisaSpouse?
- Traditional:civilorreligiousceremony
- [CommonLaw]:[notinCA]
o ingeneral,partieslivetogetherandholdthemselvesoutashusbandorwife.
o Insomejxtheymustalsospecificallyagreeorconsenttobemarried.
- PutativeSpouse
o Wentthroughthemotionsofmarrying,butforsomereasonstherewasatechnicaldefect
o Ex:marriedinMexico,mistakeinpaperwork,etc.
- PalimonyClaim:unmarriedcohabitants[CA]:closestthingtoacommonlawmarriage
o OralAgmt:Agreedforexchangeordetrimentalreliance;Ex:Illtakecareofyou,youcanquityourjob
o KAgmt:Onacontractbasis,thiscouldconstitutetherighttoreceivealivingexpenseatdeath
o Thisisnotanagreementforinheritance,butpossibleforabenefitsprogramNOTIntestateShareofSpouse
o Yougotonlywhatyouwerepromised,stillnottreatedasaspouse
o Marvincase
- SameSexCouples
o Okayinstatesthatrecognizeit
o DOMA(federal)otherstatesdonothavetorecognizeotherstatesmarriages?
o Advice:(1)writeawill,OR(2)adoptyourpartner
Children
AdoptedChildren:
- Adoptionmoveschildfrombiologicalfamilytoadoptingfamily.
o Hypo:AdoptedTwiceadoptionafteradoption=samerulesapply.
o Toavoidthis,makeawill
o StepChildException:canbeadoptedbystepparentw/oseveringtherelationshipw/naturalparent.
o InReEstatesofDonnelly(1972):Thechainofinheritanceisbrokenuponachildsadoption.An
adoptedchildmaynotinheritfromhis/hernaturalgrandparents.
Stepdadadoptedstepdaughter,whichtookheroutofhernaturalfathers
inheritanceline.
ProbateBetter:Couldhavebeenavoidedifinheritancewritteninwill&notvia
intestacy!
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[MAJ]:Better:adoptedstepchildcanstilltakefromnaturalparentsand
relativesifadoptedbyothernaturalparentsspouse.
[SomeJx.]:ONLYkeepadoptedstepchildconnectedtoitsbiologicalparents
lineifthatparentdiedbeforeadoption.
So:Oktokeepconnectedifbiologicalparentgoneb/cofdeath,butnotdivorce.
[MAJ]:Adoptionisrequiredtooccurduringminority(<18),unlessthereisalegalbarriertoadoption;suchas:
naturalparentslackofconsent.
[Jx.Split]:DoctrineofEquitableAdoption:ifyouactliketheadoptedparent;thenequitablyadoptedchildcan
inheritfromyou,butyoucannotinheritfromthem.
Adultadoptions:outcomeforinheritancepurposes:treatedthesameasadoptedchildrenforintestatedistribution.
Adultadoptedchildrenadoptbeforeparents.
o Possibleoptionforsamesexcouple
o Easierjusttoleaveittheminawill
- Classgiftsforadultadoptions:broughtintoclassif:
o Doneduringgiftorslifetime,AND
o Adoptionoccurredduringminority
Hypo:Grandparentsadoptinggrandchildren:
o GPhas2children:C1&C2.C2has2children:GC1(4yo)&GC2(18yo).C2dies&GPonlyadoptGC1.
o WhenGPdies,C1inherits1/3ofestate;GC1inherits1/3(asC3);&[C2]inherits1/3,whichpasses
directlytoGC2.
Childrenbornoutofwedlock:legal&socialattitudeshavechanged.
- [CL]:Noinheritancerights.
o [POLICY]:hardtodeterminepaternity.
o Constitution:initiallynoinheritancerights,thenrequiredtogivemotherareasonabletimetoprove
parentageastowhothefatheris.
- Ifman&womanaremarriedpresumptionthatthehusbandisthefatherofthechild(evenifnotnecessarily
true).
- [MODERNTREND]:DOWNWARDinheritance:marriageisirrelevantforinheritancefromparenttochild.
- [CA]:UPWARDinheritance:Forparenttoinheritfromchild;Requiresparentto(1)acknowledgechild&(2)
contributetosupportingchild($)
AssistedReproduction:
o Husband,notspermdonor,isparent;UNLESS:Husbandcontestsw/in2yrsofbirth.
o Womanwhocarrieschild,noteggdonorismother.
PosthumousChildrenbornafteroneoftheparentsdies
- Childconceivedbeforedeathisconsideredissue.
- [CL]:Canchildcaninheritifborn9monthsafterthefatherpassesaway
o NOW:Thereareproblemsduetoabilitytopreservesperm.
- Woodwardv.Commissioner(2002):Incertainlimitedcircumstances,achildresultingfromposthumous
reproductionmayenjoytheinheritancerightsofissue.Theselimitedcircumstancesexistwhere,asa
thresholdmatter,thecuringparentorthechildslegalrepresentativedemonstratesageneticrelationship
betweenthechild&thedecedent.
o Awomanconceiveschildthroughartificialinseminationfromdeceasedhusbandsfrozensperm.
o Determinerighttoinherit:(1)diddecedentaffirmatlivelyconsenttoposthumousconception(2)did
decedentconsenttosupportanyresultingchild?
o Note:Timelimitationsmayprecludeaclaimforsuccessionrights.
- UniformParentageAct:Requiresdecedentsconsenttobeaparentinrecord.
- UPCRules:Posthumouschildcanonlyinheritif:
1. Childmustlive120hours
2. Decedentprovidedeggorsperm
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3. Parentalrts.notterminated
4. Writtenconsenttoconception
5. Judicialprocdedingw/in3yearsofdeathANDbeforeestatedistributed.
DisqualificationforMisconduct,Divorce
BreachofParentalObligations:Deadbeatdadscenario
- BreachParentalFiduciaryDutyfailuretosupportachild
- [UPC]2114(c):Naturalparentwillnotinheritfromdeceasedchildunlessparent:
o 1)Acknowledgedthechild
o 2)Supportedthechildordidnotrefusedtosupportthechild
o Note:Therighttoinheritwillbelostifparenthasbreachedotherparental
obligations(i.e.neglect,abuse,abandonment).
Tupac: Born out of

wedlock. Mother
raised him. Father
once acknowledged
2Pac as his son,
bought him candy and
movie tix. Held:
Father did not
sufficiently support or
SpousesLosingtheRighttoInherit
Divorcelosert.toinherit.
o [UPC]:Invaliddivorce:
IfHinitiatesdivorce&wifepassesawayValiddivorceforhusband;Result:Hdoesnotinherit.
IfHinitiates&hepassesawayInvaliddivorceforwife;Result:WstillinheritsHsproperty
unlesssheremarries.
Remarriagelosert.toinherit.
Abandonment,refusetosupportormistreat/abuselosert.toinherit.
AdulteryTraditionally:loserighttoinherit;NOW:KEEPrighttoinherit.
SeparationKEEPrighttoinherit.
SlayerStatutes
- Doesnotallowsomeonewhohasmurderedanothertobenefitundertheirwillorintestatesuccession
o [MAJ]:alsobarthekillerfromtakingassetsownedjointly.
- [CA/UPC]:Feloniouslyandintentionallykillssomeoneandisprovenbypreponderanceoftheevidence
o Civil;Std.ofProof=morelikelythannot.
o Anyct,evenprobatect,canmakeaguiltydeterminationtopreventtheotherpersonfrominheriting
- [POLICY]:thoughttoreflecttestatorswishes;servesInstrumentalism:detersmurder.
- InReTarlosEstate(1934):Becausethefatherwasneverconvictedandsentencedduetohissuicide,he
cannotbebarredfromhisdaughter&wifesinheritance.
o Doublemurderofwifeanddaughterbyhusband.Husbandthencommittedsuicide.
o Statutepreventsonlythosewhowerefinallyadjudgedtohavecommittedmurder.
o Givenanarrow(unfortunate)readingofstatueb/ccourtsfavorfreedomoftestation.
- Ifyouaredisinheritedunderaslayerstatute,youaretreatedaspredeceasingdecedent.
o Ifmurderer=minorityissue(kid<18yo):Treatedasifthereisnosurvivingissue.
- SlayerstatutesusuallyAPPLYTO:intestatesuccessionandwills,butDONOTAPPLYTO:benefits,qualified
plans,ERISAfederalcodepreemptsinheritanceinstead.

-
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Lifeinsurance:usuallyincludesexclusionaryinstructionsastomurders,homicide,etc.
ConstructiveTrust:Anequitableremedyandnotreallyatrustatall
o Killerreceivespropertyw/theenforceableobligationtohanditovertoanotherbeneficiary.
AdditionalWaystoDQInheritance
- Elderabuse
- Theftfromdecedent
- Undueinfluenceorfraudulentwill
Advancement,Assignment,&Disclaimer
Advancement:
- Definition:Prepaymentofintestateshare
o Agiftofpropertymadebyaparenttoachildduringlifeinanticipationofthechildsintestateshare.
o Ifadvancement&notgift:subtractthevalueofthisgiftfromchildsintestateshare@timeof
death/distribution.
Valuinggiftvaluedattimeofgift,nottimeofdeath.
- Requirements:ContemporaneouswritingbydonorOR(written)acknowledgementbyheiratanytime.
o CommonLawPresumptionofadvancementifintervivostransfertochild
o ModernRuleModernstatutesrequirethewritingdescribedabove
o [MAJ]:Bystatute;requireawrittenformalizeddocumentdescribingthegiftbeforeitisadvanced.
o [MAJ]w/ocontemporaneouswriting;assumetransfer=gift,notadvancement.
Result:Childsintestateshareisnotaffected.Giftisjustabonusontop.
- Example:Aisadvanced$30K.Bisadvanced$20K.Cdoesnotgetanything.Xdiesw.$130,000K:
o Addestate+amountsadvancedHotchpot=$180K
o divideby#ofbeneficiaries$60Kperdecedent
o Subtractwhatwasadvanced&heirgetsthenet
A:$60K$30K=Agets$30K
B:$60K$20K=Bgets$40K
C:$600=Cgets$60K
- Iftheadvancementsoutweightheintestateshare:Overrewardedheirdoesnotinherit@death/distribution&
divvyupthedistributionamongtherestoftheheirs.Heirdoesnotneedtopaybackanyoftheextra.
o Aisadvanced$90K;Bisadvanced$20K;CisadvancednothingXdieswith$130K
o Hotchpot:$240Keachgets$80K
A:$80K$90K=$10K(takeAoutofequation)
o Redocalculations
$130K+$20K=$150Keachgets$75K;B:$75K$20K=$55K;C:$75K
o Note:timevalueofmoneyisignored
Assignment:assignyourexpectancytosomebodyelse.
- Considerationisrequiredinorderforassignmenttobeenforceable.
- Assigneebasicallystepsintoassignorsshoes&getswhatassignorwouldhavegotten.
o Ex.:Ifassignordisinherited,thenassigneeisalsodisinherited.
- Risks:ifassignor(personwhoassignstheirexpectancy)predeceasesthedecedentorhasalarger/smallershare
thanexpected
- Canalsodoitifdecedentisalreadydeadandinheritancerightsarelockedin
- Therearespecialinheritanceadvancementservicesforthis
- ContractLaw
o Ifitsagiftnotenforceable.Requiresconsideration!
o ValuethatcanbeassignedislimitedtowhatAwillget;presupposingAsurvivesX.
Acannotassignmorethanhisexpectancy.

o
14
IfApredeceasedXinheritanceexpectancyextinguishes.
Disclaimer:
- Declinetoacceptgiftorbequest.
- [UPC]requirements:
cannotaccept,exertcontrolover,assign,or
useproperty
inwriting
who(describesyou)
describesinterestcandisclaimallor
part
Signedbydisclaimant
deliveredtotrusteeorpersonalrep.
(executor)
within9monthsofinterestsvesting
becareful,mightvestbeforeyou
think
minors:have9monthsafter18y.o.
regardlessofvestingdate)
- Entiregenerationscandisclaim,so$easily
movestominors.
- [UPC]:Disclaimedshareofpropertytravelsvia
purerepresentation.
Reasons to disclaim:
1. Bypass personal creditors when liabilities >
assets. [Jx. Split]:
a. Involuntary Creditor (hit someone with
car): disclaimer not permitted.
b. Voluntary creditor (Visa): disclaimer
permitted.
c. Federal tax lien: disclaimer not permitted.
d. [MIN]: allow ANY creditor to defeat a
discliamer (Why? Moral grounds.)
2. Avoid a gift tax/tax reasons
a. Aunt to me (estate tax), me to child (gift
tax)
b. Aunt to me (estate tax), I disclaim, given
to child instead (no tax!)
3. Eligibility for public assistance- need-based
systems.
a. Medicaid: Move assets to kids in order to
still qualify.
b. Risk: may treat as if you accepted & base
eligibility off of inheritance anyway.
4. Environmental issues/ problems with the
property
5. Don't need the money (follow will/law to see
PROTECTIONOFTHEFAMILY
thegreatestlimitationonthefreedomoftestation
INTRODUCTION
ProtectionofSurvivingSpouse
- CommonLawProperty:Treatseachspouseasowningwhateverpropertyistitledintheirnamew/fullpowerof
testation.
o SeeStatutoryallowances
- CommunityProperty:Reflectstheconceptofmarriageasapartnership,givingbothspousesequalconcurrent
interestinallpropertyearnedduringmarriage(~9statesincludingCAhavethis)
15
Transfersduringmarriage:Thereisnothingthatreallyprotectsagainsttransfersmadeduringlife
ProtectionofChildren:thereisnorealprotectionforchildrenasthereisforsurvivingspouses.
Exception:Louisianahasforcedheirship,civillawstatebasedonFrenchlaw.
STATUTORYALLOWANCES
-
Allowancespaidtofamilyduringadministrationoftheestate.
Don'tcountagainstgifts
Evenifestateisinsolvent(havemoneybutowecreditorsmore)
HomesteadAllowance
- Preventsconveyanceofhomesteadtoanyonebutthesurvivingspouse.
- Statutoryamountforspouseorminordependantchildrenoverandaboveanythingelsetheyreentitledto
o Default=$22.5K
- Priority:Aheadofallotherclaimsaheadofcreditors
FamilyAllowance:
- Areasonableallowanceforthefamilysmaintenanceduringthecourseoftheadministration
o Notimelimitperseuptothejudge
o BUT:IFTHEESTATEISINSOVLENT:cappedat1year
Ifnot,thenitcangoaslongastheadministrationoftheestatecontinues
o Doesnotcountagainsttestate/intestateshareforspouseorminor/supportedchildren.
- Priority:Aheadofallotherclaimsexcepthomestead!
ExemptProperty:
- tangiblepersonalpropertyinexcessofsecuredinteresttheretosurvivingspouseor,ifnone,tochildren.
o Default=$15K
o Ifthereisnotenoughpersonalpropertytohit$15K,youcangetitfromotherproperty,butthenyoucut
intootherallowances.
- Priority:Claimcedestofamilyandhomestead.Thisclaimcomeslastintermsofprioty.
SocialSecurity
- Mostfamilieshavelittletonoaccumulatewealth.
- Statutoryallowancesarethusmeaninglessandsocialsecuritydoesthemost.
MARITALPROPERTYLAW
HistoryandPolicy
1.Whymaritalpropertysystem?
- Goodifspouseisbringingtalent,notinheritance.
- Ifmarriedforjustashortperiodoftime,willreflectthatinhowmuch$youshouldget.
2.Whycommunitypropertysystem?

-
16
Morefair,separatepropertyremainsyourown
Whatyoubuildtogetheriswhatyoushare,nomatterhowlongyouvebeenmarried.
Betterforinheritedwealthb/cspousecantreachthatinheritance.
*Olddower&courtesyelectiveshareaugmentedestate(attempttoimproveelectiveshare)
[OLD]DowerandCourtesy
DonotmentionDOWERorCURTESYnotusedinUS
Dower:wifegets1/3lifeestateinhusbandsland.
Courtesy:husbandgetslifeestateinallofwifeslandifchildrenbornofmarriage.
Problems?
1.onlydealswithrealproperty
2.LE=cloudontitle;hardtoconveyland
3.Forwife:1/3ofHsestatemaynotbeenoughtosupporther
4.Doesnotlookatsurvivingspousesseparateproperty
5.Forcesmultipleownershipsofpropertyuntilbotharedead
6.Notfairb/cdependentongender.[TODAY/MAJ]:ELECTIVESHARE[seebelow]
[MAJ]ElectiveSharePrincipalprotectionforthesurvivingspouse
-
MaritalPropertyJx.ONLY!NOTCommunityProperty.
ATDEATH:Survivingspousewhodoesnotlikewhattheyweregivenbydecedentmayelecttoreceivetheir
statutoryshare,oftenontheconditionofrenouncingthewill.
o Nokids:spousegetsoftheestate.
o Withkids:spousegets1/3oftheestate.
o [UPC]:Expandedelectivesharetocoversomenonprobateassets(augmentedesate)
Howitworks:
o Within6monthsofthedeath,thespousemustgivenoticeofintenttotakeelectiveshare.Mustfirst
renouncewill.
o Theshare,intheoriginalform,appliestotheNETestate.
o Lumpsumpaid,usuallyaftersaleofassets
o Doesnotconsiderpropertyofsurvivingspouse,lifeinsurance,jointtenancy,trusts,payondeathaccounts
Doesnotdistinguishbetweenseparateandmaritalproperty
AugmentedEstate
-
MaritalPropertyJx.ONLY!NOTCommunityProperty.
UsedATDEATH.
[UPC]:ADDStoestate:PODaccounts,lifeinsurance,living/revocabletrusts,retainedpossessionor
property/income,jointtenancy,giftsof$3K+w/in2yearsofdeath.
o But,doesntincludesurvivingspousesproperty.
Revised[UPC]:Survivingspouseisentitledtoa%ofBOTHspousespropertybasedonyearsofmarriage.
o Basically:deductwhatthewifehasalreadyreceivedfromthispropertyandthendivideprorataamongst
theotherbeneficiariesuntilwifereceivesherelectiveshare.
Policy:EncouragescommunityideaofmarriagelookatALLH&Wspropertyinonepot,thendeterminewhat
survivingspouseisentitledto.
SPOUSE:gets50%ofMaritalProperty(whichisa%ofestatebasedon#yrsmarried15yrs=100%)
Howto:Calculate
1. CalculateAugmentedEstate
o HProbateAssets
$120,000
o HPODAccount
$30,000
H: probate estate: 120K

To wife: 20K
To Charity: 100K
H: POD account: 30K
To wife: 30K
H: Revocable Trust: 300K
To Nephew: 300K
W: assets: 150K
100% of the wifes
assets goes into the
augmented estate
15 years of marriage

$300,000
$150,000
$600,000
Calculateshare%basedonyearsofmarriage
o Seetableonpg.15657.
o Wifesshare15yearmarriage50%=$300,000
o 1year3%;2years6%
Fundshare%
o Giftsfromdeceasedspouse
GiftstoSpouse
Will
$20,000
PODAccount
$30,000
o 2xshare%ofsurvivingspousesproperty
50%Wife'sownassetsx2=$150,000
(50%of150Kx2)
$200,000
Tobemadeup=
$100,000
(toreachher300K)
o Othertransfersproportionally
Nephew
$300,000
Charity
$100,000
$400,000
Nephewx$100,000= $75,000towife
300,000/400,000=3/4
Charityx$100,000= $25,000towife
100,000/400,000=1/4
$100,000towife
Nephew(300,00075,000)=$225,000
Charity(100,00025,000)=$75,000
o
o
2.
3.
HRevocableTrust
WAssets
IllusoryTransferDoctrine
-
17
But do 50% of this

%
Years
%
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
3
6
12
18
24
30
36
42
48
54
60
68
76
84
92
100
Tests:(1)whetherHtransferredhispropertybeforehediedingoodfaithor(2)whetherHtransferredinbadfaith
togetoutofgivingwifeselectiveshare.
Newmanv.Dore(1937):Held:transferwasillusory&allpropertystillsubjecttowifeselectiveshare
rights.Thedeceasedneverintendedtodivesthimselfofthepropertyandtheevidenceillustratedthatwas
hewasunwillingtodivesthimselfofhispropertyevenwhendeathwasnear.
o YoungWifefillingfordivorce,oldrichHusbandcreatesatrustandconveyedallofhisassetssotheestate
hasnothing.Thus,WsstatutorysharewouldbenothingHsintentwastodisinheritwife.Competing
petitionsfordivorcebeforeHdies.
o HretainedtoomuchcontrolHreceivesincome,controls,andhaspowertorevoke/amend.
[Today]:RevocablelivingtrustsarestandardandNOTconsideredillusory.
o Davisv.KB&T(1983):Held:trustwasvalid&notillusory.
Married,signreciprocalwillsleavingassetstoeachother.Wifeisincapacitated.
Husbandcreatedatrustinwhichhereceivesincome,itsrevocable,amendable,bankistrustee
Ct.lookedatoutsidefacts:Wifewasincapacitated&Husbandwasclearlytryingtotakecareofwife.
Sheisleftinterestintrustincome,nottryingtodefeatherpropertyrights.
Bythistime,livingtrustsweremorecommonandaccepted
BoilsdowntoMotivation:goodfaithversusbadfaith.
o Mostcourtssaytheyarentlookingatmotivationb/cthattestisjudiciallyhardtoadminister.
BUT:Ineffect,stilllookingatmotivationanyway.
o Problem:thesetrustsarecompletelyvalidbylaw,soHAVETOlookatintent.
18
MaritalPropertyStates
[CL]MaritalPropertyStates
Propertyheldbyamarriedcoupleischaracterizedaseitherseparateormaritalproperty
Death&Divorcehavedifferentresults.
@Death:titlecontrols;Seedivorcebelow.
Eligibleforelectiveshare&augmentedestate.[seeabove]
SeparateProperty
MaritalProperty
Propertyheldbeforethemarriage+gifts/inheritances
Allpropertyacquiredduringthemarriage(otherthan
receivedbythespouseduringmarriage
gifts/inheritance)
Mostlyintheeast;Englishbasis
Divorce
EquitableDivisionsDivorce:maritalpropertyisequitablydividedbasedonfacts(seebelow).
Notethatequitableisnotalwaysequal.
SeparatepropertyofeachspouseisNOTsubjecttodivision;onlymaritalpropertyisdivided
Factorsforequitabledivision@divorce:
(1) Thelengthofthemarriage.
(2) Anypriormarriageofeitherparty.
(3) Health
(4) Income
(5) Skills
(6) Education
(7) Increasedearningpowers.
(8) Futureassets.
(9) Contributiontopropertyduringmarriage.
(10) Valueofseparateproperty.
(11) Taxramifications.
(12) Children.
(13) Spousalmaintenanceoralimonyobligations.
(14) Premaritalagreements
(15) Liquidityofmaritalproperty
(16) Futurefinancialneedandliabilities
Death
Titlecontrolsownership
StatutoryMinimumInheritance
EquitableDivision:notequaldivisionandwillvaryamongthepiecesofpropertybeingdivided.
- Aboutfairness:ifH&Whavesignificantwealthdisparitiesinseparateproperty;maritalpropertylikelywillbe
allocatedinagreaterproportiontothelesswealthyspouse.
Divorce:doesnotaffectanirrevocabletrust
CommunityPropertyStates
CommunityPropertyStates
Death&Divorcehavesameresult.
NOTeligibleforelectiveshare&augmentedestate.
SeparateProperty
CommunityProperty
(1)Propertyownedbeforemarriage
Spousescoownpropertyacquiredduringmarriage.
(2)Earningsonseparateproperty
Titledoesntmatter.
(3)Giftsandinheritance,duringmarriage
50/50divide,butbothspouseshavearightin100%of
property.
Note:SomeJx.willputearningsofseparateproperty
QuasiCP:H&WliveinCPstate,butalsoownpropertyin
backintothecommunitybucket,especiallyif
communitypropertyisinvested(income,labor).
nonCPstate.ThatpropertywillbetreatedasCPanyway.
ItemTheory:Eachspouseownsofeachcommunity
asset
Divorce:
eachspousekeepsseparateproperty
eachspousegetshalfofcommunityproperty.Oncejudgedecidespropertyiscommunityproperty,thereis
nodiscretionw/regardtoitsdivision:straight50/50.
Death:whenonespousedies,oftheCPpassesbywillorintestacytothebeneficiary(whichmayormaynotbethe
survivingspouse)andtheotherbelongstothesurvivingspouse.
Retainseparateproperty
Deathanddivorceusuallyhavethesameresult!
NoelectiveshareinCPstates
Allowedtodisinheritsurvivingspouse.
CommunityPropertyJX
o OriginfromSpanishLaw;usedinEurope,SouthAmerica,alotofplaces
o 9states(mostlywestern):Arizona,CA,Idaho,Louisiana,NV,NewMexico,TX,WashingtonandWisconsin
(+Alaskacanoptin)
o CACommunityPropertystate,survivingspousesregulations
o Anypropertyacquiredduringthemarriageisownedbyeachofthespouseswiththeexceptionofproperty
acquiredthroughgiftorinheritance
o Basicdistributionrule:Whenspousedies,oftheestateisthesurvivingspouses
o [POLICY]:Upholdsexpectations;predictable;youknowwhatsgoingtohappen.
o Greatwhenyoumarrysomeonewhowillearnahighsalarywhilemarried
CommunityPropertyExample
- UnlikeMaritalProperty,nofactorstolookat.
- OnDateofMarriage
o HStocks $200,000
o WHouse $500,000
- OnDateofWsDeath
o HStocks $400,000
o WsHouse $800,000
o JointSavings
$200,000
o VacationHome
$300,000
- Calculations
19

o
o
o
o
o
20
WsSP=House$800,000
HsSP=Stock$400,000
CommunityProperty:JointAccount $200,000
VacationHome$300,000
$500,000
Hs=$250,000
Ws=$250,000
BusinessInterests:
AdequateCompensation:CPisentitledtothevalueofworkeitherinsalaryorreturnofbusinessduring
marriage
o Howdoyoucomputetheinterestofthecommunityinthebusiness?
Dependsonthenatureofthebusiness
Ifcapitalisthedrivingforce,thecommunityreceivestheequivalentofthesalary.Ifthespouse
didntgetasalary,figureoutwhatthatsalaryshouldhavebeen+interestandgivethattothe
community.
Ifworkofspouseorspecialskilldrivesthebusiness,thenlook@valuebeforethemarriage
andatthetimeofdivorce,andthatincreasegoestothecommunity.
FamilyBusiness:Ifthespouseworksinthebusinessbutdoesntreceiveanypay,buttherearedividendshares,
thenthecommunitywillreceivesomeshareofthebusiness.
o BUT:ifyoudoreceiveasalaryandthatsalarymatchesthemarketthenthecommunityhasalreadybeen
compensatedanddoesnotgetextra
Divorce:Iftheresadivorce,theylllookattherelationshipandtrytoallocateaportiontothecommunity.
Texas:earningsofseparatepropertyispartofcommunity;mostotherstateskeepitseparate
EstateofBray(1946):survivingspousecanrecoverofnonconsentedgiftafterdeathofgiftingspouse.
- Decedentsjointtenancyaccounts,purchasedw/communityfunds,weredistributedtoson.2ndWifewants.
Rightto50%attachesatthetimethemoneyisearned.
Whilesonwasworkingandreceivingasalary(nodisputehedidthework),Communitywasreceivingbenefitof
hiswork=adequateconsideration.
o Buttheaccountsthatgotsetupandtransferredlookedalotmorelikegiftsthansalary(whoagreestobonus
systemswhereyougetpaidwhenyourbossdies?)
B/cthiscamefromcommunityfunds,wifeentitledtohalf
Better:putgiftinawill.
HorWcannotUNILATERALLYdivideanaccountintoSPBUTtheycanTOGETHERdivideitupintoSP
StatuteofLimitations:challengetheunauthorizedgiftw/ineither:
1. oneyearafterspouselearnsofgiftOR
2. threeyearsafterthegiftwasactuallymade.
RemediesforunauthorizedgiftofCP:
1. Ifbotharestillalivevoidgift&recoverallofit.
2. IfonespousepassedawaysurvivingspousecanrecoverhalfanditcomesbackasCP.
MaritalPropertyAgreements
Kbeforemarriagethatdeterminestherightsthespousewillhaveupondissolutionofmarriage
o WaytoKoutofmaritalv.communitypropertydesignationinJx.
o Canwaiveallrightsincluding:electiveshare,allowances,intestateshare,giftsunderpriorwills,CPrights,
spousalsupport(onlysomeJx)
Cannotwaive:childsupport
21
OptOutRules
[UPC]:Waiverofrightsisvalidunless:(1)involuntary,or(2)wasunconscionablewhensigned
- Unconscionability:
o Somestatesalsolookattimeofenforcement,especiallyforwaiverofsupport
o Nofairandreasonabledisclosureofassets
o Nowrittenwaiverofdisclosureofassets
o Partydidnotorcouldnothavereasonableknowledgeofassets
o Basically:didnotorcouldnotknowalltheinformation
- Problem=MovingStatesafterMarriage:Partiestotheagreementmayberesidentofonestatewhenthe
agreementissigned,butresidentofanotherstatewhenthereisadivorce.
o ChoiceofLaw:Undergeneralprinciplesofcontractlaw,thepartiescanincludeachoiceoflawprovision
requiringthattheagreementbegovernedunderthelawsofthestateinwhichitissigned,butthecourtof
anotherstateundersomecircumstancesmaydisregardthatprovision.
o BestPractice:Thepartiesshouldberepresentedbycounsellicensedinthestateinwhichtheyresideatthe
timeofthemarriageaswellasthestateinwhichtheyintendtoresideafterthemarriageifdifferent.
o Ingeneral,however,anagreementdraftedandexecutedinaccordancewiththerulesaboveshouldbe
enforceableinallofthestates.
-
PRENUPTIALAGREEMENT(SigningitBEFOREMarriage):
o Hookv.Hook:Anantenuptialagreementdivestingofanyinterestinthedecedentsestatewasvalid
andbinding.Anagreementisvalidifvoluntarilyenteredinto,isfair&reasonable.
Prenuptmorningofwedding,eachspousesignedsayinghadnointerestinotherspropertyand
signedreciprocalwillssayinggivespouseeverything.Hdiedwhilefilingfordivorceandleftwife
nothing.
Here:Ct.looksonlytooneissue:whetherspousesrevealedtoeachothertheextentoftheirresources.
Thus,renderingtheCArequirementsunnecessary.
Court:Ifshedidntreadtheagreement,thatwasherfault.ThehusbandsaidWhatsmineismine
andyoursisyours.Sheknewwhattheagreementmeant.Furtheritwasjust26kmoresoitwasnt
substantialenoughofadifference;fairenoughatthetime.
o Tip:Ifyouarelookingforhiddenmoney,askforaprenup
o Note:Somerts.cannotbewaivedBEFOREmarriage&insteadspousesneedtosignanagmtthatsayswill
waivetheserts.aftermarriage.
o Limitedtofourcorners:Cannotlooktoextrinsicevidencetoseewhatdocisdoing.
o [CA]PrenuptialAdditionalRequirements:
1. 7daywaitingperiod(betweenshowingspousethecompleteagreementandsigningit)
2. Disclosureofassets(getanappraisal!)orwaiverofdisclosure(wemightbewrong!)
3. Separaterepresentationorplainexplanationofagreement
OmittedSpouse/Children
OmittedSpouse
Problemariseswhenspouseifnotincludedinawillthatwaswrittenbeforemarriageevenhappened
[CL]marriagerevokespriorwill.
[EarlyUPC]:Spousegetsintestateshareunlessomissionwasintentionalorthereisaprovisionsomewhere
outsidethescopeofthewillforthespousetobetakencareof.
[RevisedUPC]:Spousesshareisrelativetotheassets,whicharenotgoingtodecedentschildrenfrombefore
themarriage.
o BUT:Spousegetsnoshareif:
willalreadycontemplatedmarriage
willwasexpresslyeffectiveinthecaseofmarriage
spouseprovidedforoutsideofwill.

Ifanyofthese3isthecase,thenwillstandsasisw/spouseomitted.
Ifspouseisqualifiedasomitted,canchooseelectiveshareoromittedspouserules
OmittedChildren
- [UPC]:Achildborn/adoptedafterthewillisdraftedgetsashareif:(1)theomissiondoesnotappear
intentionaland(2)thechildisnototherwiseprovidedfor.
o Thechildgetstheintestateshareunlesssubstantiallyalloftheestategoestothechildsparentwho
survives.
o Ifdecedenthadotherchildren,thentheomittedchildgetsexactlythesameshareasotherchildren.
Providesforequaldistributionw/sametermsfordistributionforeachchild.Omittedchildsshareabates
fromotherchildrenproportionally.
GROUNDSFORCONTEST:Incapacity,UndueInfluence,Fraud&Mistake
AlloftheseapplytobothtrustsANDwills
TestamentaryCapacity
Testatormustknow:3requirements
1.knowthenature/extentofhisproperty
2.knownaturalobjectsofhisbounty(heirs)
3.Understandthetestamentaryact
Abletorelatetheseelementstoformanorderlydispositionofproperty
Lowerthancapacityrequiredformakingcontracts
[CA]Capacity:
Abilitytocommunicate(verballyorbyanyothermeans)thedecision,andtounderstandandappreciate,to
theextentrelevant,allofthefollowing:
o Rights,duties,responsibilitiescreated/affectedbythedecision
o Probablyconsequencesfordecisionmakerandpersonsaffectedbydecision
o Significantrisks,benefits,andreasonablealternativesinvolvedinthedecision
WaystoestablishTestamentaryCapacity:
Experts:doctors
Testimonyofotherwitnesses
Psychiatrist
MedicalRecords
Rationalbasisforexcludingheirabsentdelusion:
o Barnesv.Marshall:fatherexcludedworthydaughter.Held:fatherofunsoundmind,lacked
testamentarycapacity;andwillinvalid.[seebelow]
willdrafter
spouse
willwitnesses2pplwhosignedthinkingtestatorwasofsoundmind
askopenendedQs:easytofigureoutwhetheraQshouldbeansweredyes/no.
BurdenofProof
Ifwilliswitnessedpresumedcapacity.
[MAJ]allowaselfprovingwill:Wsaysunderpenaltiesofperjurythatthedeceasedhadcapacity&will
consideredvalid.
22
23
- But:ifthecontestantcanshowenoughevidencethattherewasincapacityBoPshiftstoproponenttoputon
evidenceofcapacity.
Barnesv.Marshall(1971):Basedupontheevidencegiven,thejurycouldhavefoundthetestatorwasof
unsoundmindandlackedthementalcapacitytomakeawill.Capacityisaquestionoffact.
- Thechallengerpresentedantidotalevidenceofisolatedeventstoproveinsanity
o Lettersandstatementsshowinghisviewswentbeyondeccentricity.
- Twodoctorsalsogavetheiraopinionthatthetestatorwascrazy
o Nospecialweightisgiventothepsychiatriststestimonynotbindingonct.
Delusion
beliefoffactsthathavenorealexistencethatcausesdispositiontestatorwouldnototherwisemake
distinctfromamistakeninference
InReHonigmansWill(1960):Thedecedent,attimeofmakinghiswill,wassufferingfroman
unwarrantedandinsanedelusionthathiswifewasunfaithfultohim,whichconditionaffectedthe
dispositionmadeinthewill.Thismadethewillinvalid.
o Husbandbelievedwifeofmanyyearswascheatingonhim.Leftheronlyelectiveshareinthewill.
o Ct.saidthisbeliefhadnorationalbasismakingitadelusionthatimpactedthedisposition.
o Dissent:Unsoundreasoningdoesnotequaldelusion.Testatorhasarighttodisposeofproperty
accordingtohisbeliefs.
Problem:delusioncanbeaselffufillingprophecy
o Testatorreachesdelusionalbelief&thenlooksforthingstoconfirmthatbeliefanddiscount
contraryinformation.
So:lookatthemomentthedelusionalbeliefbeginsistherearationalbasistoconfirmthatbelief?
o Takeaway:Needarationalbasistosupportdisposition;doesnotmatterifunderlyingfactsarenottrue:
o MatterofEstateofBonjean(1980):Siblingshadtheburdenofproofthattestatrixsdisinheritance
ofthemwasaresultofanirrationalbelief.Thefactsthatfosteredthehostilitytowardhersiblings
hadarationalbasisandhostilitywasnottheproductofimagination.
Bonjeandisinheritedhersiblingsbecausetheytriedtohavehercommittedagainstherwill.
Resentmenttowardsthefamilyformsarationalbasisfordisposition
InPractice:InordertoensuresomeoneisnotincapacitatedHavehimstaterationalreasonsforthe
dispositionhewants
o Necessarycapacitytomakeawillisaprettylowthreshold
o MakeaWill<MakeaGift<MakeaK
POLICY:Thisstd.allowsolderpeopletosuccessfullymakewills
UndueInfluence
EXAM:Alwaysarguediminishedtestamentarycapacitywithundueinfluence
ELEMENTS
2waystoproveUI:presumedortraditional
PresumedUndueInfluence
TraditionalUndueInfluencereq.provingall4elements
1. ConfidentialRelationship:caregiver,clergy,
1. Susceptibility:ageorignorance,usuallydiminished
doc/patient,spouse,FD:conservator/guardian/trustee
capacity
2. Opportunitytoinfluence:personhastobepresentor
2. ParticipationinDraftingorsuspicious
circumstances
havesomeproximitytodrafting(ex:livingtogether)
a. Doesnotnecessarilyhavetophysicallybein
3. UndueBenefitfromdocument:termsofthewill

reflectinfluence.Perhapsapeculiardispositive
pattern
24
theroomwhenthedocumentisdrafted.
3. BeneficiaryInclinedtoinfluence:lotsof$(often
presumed)
4. Termsofdocumentreflectinfluence
InvalidatingWillb/cofUndueInfluence:
Cts.caninvalidateawillonwholeormerelythepartthatdisplaysundueinfluence/taintedprovision.
- InreWillofMoses(1969):Arebuttablepresumptionexistswhenthereisaconfidentialrelationshipbtwn
thedecedentandtheinfluencer/beneficiary.Therewasnotenoughevidencetoovercomepresumptionof
undueinfluence.Held:attydidnotconductanadequateindependentreview;willwasresultofundue
influence.
o Oldlady,youngattylover.
o Loverattyrecommendedindependentattorneytodraftwill.
o Independentattydidntdoindepthinquiryastowhytheolderwomanwasleaving$toatty.
- Doughertyv.Rubenstein
o CantlersPersonalCareHomeNurse???
o Sonandfatherwereestranged.
o Sisterremovedfatherfromnursinghomeandtookhimbackhome.
o Fatherhaddementia,accusedsonofstealingfromhimandremovedhimfromwill.
o Sonchallengednewwillbecauseproductofinsanedelusion.
o Held:Fathercouldtakecareofhimselffor6yearsbeforedeath.Hisdelusionsofsonstealingmoneywere
notfrominsanitybuteccentricity,andpersonalbeliefsofbetrayalfrombeingputinnursinghome.
Attorneys&UndueInfluence:
- LeavingmoneytoanAtty:
o Foranattytobeleftmoney,he/shewouldhavetoadviseclienttoconsultanotherattyforindependent
adviceandassistanceindraftingthewill
o Attyastrusteeorexecutor
o Notasunnaturalorunreasonabletrustedwithknowledgeoftheestate
InCA:burdenonattytoprovewhyheshouldbeatrustee
- ConflictsofInterestinRepresentingTestator/Bens:
o Haynesv.FirstNationalStateBankofNJ(1981):Whereapresumptionofundueinfluencearisesas
aresultofaprofessionalconflictofinterestonthepartoftheattorney,coupledwiththepresenceofa
confidentialrelationshipbtwnthebeneficiaryandthedecedent,clearandconvincingevidenceis
requiredtorebutthepresumption.
Daughterspersonalattorneyhadaconflictofinterestthathedidnotcurebeforedraftingthe
motherswill(multipletimes).Thus,willishighlysuspectduetoconfidentialrelationship(btw.
mother/daughter;daughterisbeneficiary)thatcreatedapresumptionofundueinfluence.
Motherwenttogolivewithdaughter,daughtertoldmothersheneededtohaveherwillchanged,&
tookmothertoherpersonalattorneyother2grandchildrenreceived$10K&daughtergottherest
insteadofprior5050splitwillwrittenbyherownlongtimeattorney.
o Note:anattorneyCANrepresentmanygenerations,butneedstobeCAREFUL!
[CA]factors:
Victimsvulnerability:incapacity,illness,disability,injury,age,education,impairedcognitivefunction,
emotionaldistress,isolation,dependency,didinfluencerknowofthevictimsvulnerability?
Influencersapparentauthority:evidencemayincludestatusasfiduciary,familymember,careprovider,
healthcareprofessional,legalprofessional,spiritualadvisor,expert,etc.
Influencersconduct:controllingnecessariesoflife,medication,interactionswithothers,accesstoinfo,sleep,
affection,intimidation,coercion,useofhasteorsecrecy,initiationofchangesinpersonal/propertyrights,etc.
25
Equityofchallengedresult:economicconsequencestovictim,divergingfromvictimspriorintentorconduct,
relationshipofvaluereceivedvs.valuefoservices,appropriatenessofchangeinlightoflength/natureof
relationship
CAVoidTransfers
Draftingattorney,partnerorrelative
Ifappointedfiduciary,burdenofproofonfiduciaryinremovalpetition
Certificateofindependentreviewbyattorneycures
NoContestClause
-
[Oldrule]:anyonewhoconteststhewill,forfeitstheirsharehereunder
o Itispossibletoputoneinawillwhereyouanticipateacontest
o Tip:givesomeonemoneyinthewillsotheywillhavesomethingtolosebycontestingthewill
Willtheyrisk$10,000(inwill)for$2million(intestacy)?For$50,000?
Newprocedure:askcourttodetermineifwhatyoufiledwasacontestornotcreatedmoreworkforcourts
Replacedby:([MAJ]&[CA]):ifyouhaveprobablecause&contestingoodfaith,thenyouwillNOTloseyour
giftevenifyoulosethecontest.
Fraud&Duress(TortiousInterference)
Fraud:
Requirements:(1)Falserepresentationwith(2)intenttoleadtestatortomakedepositionthatisnothistrueintent.
Ex:sontellsdadsisterisnotcomingtodadsbdaypartybecauseshedoesntcarewhenheknowsshe
isreallyonherway.
NOTfraud:atruestatementthatleadstoanincorrectinference.
Ex:sononlytellsdadthatsisterisnotthere,dadconcludesonhisownthatshedoesntcare
DoNOTneedtoprovevulnerabilityofthetestator.
2RemediesforFraud:
1.Iffraudpermeatestheentiredocument,probablyinvalidatethewill/trust.
2.Iffraudonlyeffectsonegiftandcanimposeconstructivetrustthatforceswrongdoertotransfer$to
victimoffraud.
Useconstructivetrust,especiallyifvictimoffraudwouldnotinheritunderintestacy.
Duressis3rdpartytortiousinterferencew/inheritanceorexpectancy.
4Requirements:
1.existenceofexpectancycanexpectunderresidual,intestacy,unsigneddoc
2.intentionalinterferencew/expectancy:
FatherDivinedidnotconvincesomeoneNOTtomakethegift,heonlypreventedherfromgetting
totheattytomakethegift.Noundueinfluence,butstillatort
3.tortiousconduct&causation:expectancywouldhavebeenrealizedabsentinterference;fraud/duress/UI
4.damages(valueofexpectancy)
5.notavailableifotherremediesavailable
usuallythosewithstandingtocontestwill(probateremediesavailable)cannotclaimthistort
tortishardtoprovesoyouwouldpreferotherremediesanyways
Lathamv.FatherDivine(1949):Wheredeviseeorlegateeunderawillalreadyexecutedpreventsthe
testatorbyfraud,duress,orundueinfluencefromrevokingthewill&executinganewwillinfavorof
another,thedeviseeorlegateeholdsthepropertyinaconstructivetrustfortheintendeddeviseeorlegatee.
o Womangaveestatetocultleader,associatesandbusinesses.Shethenexpressedadesiretodraftanewwill
toleavesomemoneytohercousins.Thecultpreventedherfromexecutingwillandhadherkilled.
26
Cousinscouldnotchallengethewillinotherwaysbecausetheydidnothavestanding(someonewasheir
atlawaheadofthem)
o Court:recognizedthetortofintentionalinterference.Thisrequiresshowingcausation:Acontest
allegingfraudmustprovethefraudaffectedthedispositionofthewill
[CA]Beckwithv.Dahl:
o MacGinniswasill,hadhiswilloncomputer,leavingpropertytoloverBeckwith.
o MacGinnisssisterDahlknewofillnessanddelayedestateplanningsohewoulddieintestate.
o DahlfurtherhidprobateprocessfromBeckwithsincehedidnotneedtobenotifiedasfamilymemberor
assomeonementionedinolderwill.
o Beckwithsuedfortortiousinterference.
o Held:BrenthadnotproperlyallegedthefactsforIIEIbutreversedtoallowBrenttoamendhis
complaint.
o Intentionalinterferencewithanexpectedinheritance(IIEI)shouldbeavalidcauseofaction,
requiringallegationof:
expectancyofinheritance
prooftoareasonabledegreeofcertaintythatbutforthirdparty,Pwouldhavereceived
inheritance
thirdpartyhadknowledgeofPsinheritanceandinterferedwithit
interferencewasbyindependentlytortiousmeans
Psustaineddamages
- AnnaNicoleSmith
case:
o stepsonPiercewinsbillion$inheritanceinTX
o AnnawassuedinCAforsexualharassment,filesforbankruptcy
o Pierceoftestatorsuesforlibelandwantsmoneyfrombankruptcyproceedingtooopensthedoor
o Annaclaimstortiousinterferencewithherinheritanceandarguesitallagaininfrontofbankruptcycourt
andwins$100sofmillions
o 9thcircuitreverses(doesntfitwithinprobateexception)
o SCOTUSreverses(bankruptcycourtshouldnotbelitigatingthetort)
o 9thcircuitdealswithanotherbankruptcyrule
EXAM:UsetortiousinterferencetorecoveragiftifyouhaveaworthybeneficiarywhoisNOTanheiratlaw,
suchthatinvalidatingthewillwouldnotgivetheworthybeneficiarythegiftthroughintestacy.
o
WILLS
WillBasics:
1. Doesformsatisfyformalities?[seebelow]
2. Doesitdisposeofallproperty?
3. Doesitaddressallpotentialcircumstances?
4. Arethereanyambiguities?
FormalitiesofExecution
Policybehindformalities
- Ceremonial/Ritualfunction:maketestatorunderstandthegravityoftheaction.Finalitynotjusta
preliminarydraft.
- Evidentiaryfunction:Evidenceofwhatthetestatorwantsdone.Increasethereliabilityoftheproofpresented.
- Protectivefunction:Safeguardingatthetimeofmakingthewillfromundueinfluenceorotherformsof
imposition;witnessestoprotectagainstinfluence.Verifyingcapacityoftestator.
- Channelingfunction:Tendtoreducethecostsofroutineprobateadministration.
- Preventforgery

-
27
Normalcontractpartiesareusuallystillaliveifitislitigated,buttestatorisnot
Criticisms:Mostwillsdonotneedtheseelaboratesafeguardsanditmaylosesightofthetestatorsintent
WillFormalities:
Traditional
Required: 1.signedattheendormark
Optional:
2.2witnesses
3.Witnesses&testatorsignin
eachother'spresence
Date(goodidea)
[UPC]:relaxedformalities
1.Testatorcansignanywhere
2.Testatorcansigninpresenceofwitnessorjust
acknowledge(testatorgoestowitnesses&
acknowledgesthatthisishiswill&sign).
3.Witnessescansignw/inareasonabletime,even
afterdeathoftestator.
2setsoflawstocheckformalities:
1.StateofResidency
2.StateofSigning
3.Usuallyifyoumetformalitiesinstatewheresigned,itwillbevalidelsewhere,unlessthereisstrongpublic
policyforhavingdifferentrules.
Signatures
-
[Traditional]:Testatormustsignwillattheendtoexecuteit.
Longhandsignaturenotnecessary,testatorsmarkissufficient.
o Alsook:markofa3Patthedirectionofthetestatoriftestatorcannotsignhimself.
o Alsook:Conservatorship
conservatorcanmakewillorcodicilonbehalfofconservatee
MUSTexplainWHYthisisthewilltheconservateewouldmake.
[Jx.Split]Remedy:Eitherinvalidateentirewillorjustmaterialafterthesignature.
[UPC]:Testatorcansignanywheretoexecuteit.
[Nevada]:permitselectronicsignature.
TimingofSignatures
[Traditional]:TestatorHASTosignfirst.Witnessesattestthatthetestatorsignedthedocumentwiththe
testatorsownsignature.Witnesssignaturesarewhatisnecessaryforprovingprobate.Witnesssignatures
provestestatorssignature.
[BestPractice]:Besurethatyouhaveasecondexampleoftheirhandwritingtoprovewitnessessignature.
Burnsv.Adamson(1993):Willfailedwhenitdidnotadheretoformalitiesrequiredbylaw.Failed
presencetest:thesubscribingwitness(es)signedtheirname(s)tothewillbeforeandafterthetestator
signed,notatthesametime.Thewillwasnotexecutedincompliancewiththelawsoitwasinvalid.
[Today]:Cts.morelax,andsomedoawaywiththenecessityoftiming.
UPC:Possibletosignafterdeath,butmustbew/inreasonabletimeaftersigningordeath
WitnessRequirements(usuallyneed2,sometimes3)
-
Witnessmustbe:
intestatorspresence(see/hear),
beabletorecall/narratetheevents,
knowitisthetestatorslastwill&testament.
18y.o.
Criminalrecordisnoproblem.
ExecutionCeremony
BringWintosameroomastestator.Explainthedocument,confirmw/testator(soWcanhear)thatthisis
hisintent.
Dontletanyoneleavetheroomuntileveryonehassignedthedocumentintheproperpart
28
Canintroducehabitasevidencethatformalitieswereadheredtoincasethereisaquestionre:formalities
BestPractice:keepwillsigningceremoniesveryroutine,sothatrecallishigh.Donothavetoremember
specificdetailsofasigningiftheyrealldonethesame.
PresenceRequirement:
Takeaway:iftestatorcannotreachfingertofingerw/witness,thenprobablyfailspresencetest.
o Problem:bigbanklobbies.
AcknowledgementRule(somejx):Wdoesnothavetoactuallyseethetestatorsign,aslongasthe
testatoracknowledgesthesignatureishis.
SelfProvingWills:
WitnessessignselfprovingaffidavitattimeofsigningthewillthatsaysWitnessdeclaresunderpenalty
ofperjurythattestatorsignedwill&wasofsoundmind.
Therefore,witnesseswontbecalledintoCt.totestifyb/crecollectionisrecordedatmomentofsigning.
Affidavitisevidenceinandofitselfthatwillwasvalid.
[MIN]req.witnesses&notary.
[CA]:requiresignedaffidavit,cantjustgotoprobatect.andswearunderperjury.
Note:ifactuallyneedtobringwitnessesintoprobatetotestify:
STonly1canbesufficient,ifcanonlyfind1.
IfbothWsaredead,thenneedtouseothersourcesofproof.
InreEstateofWeber(1963):NeedtobeinactualviewoftheSIGNATURE.
Testatorwassick,drivestobanktomakewill,waitsincarforthebankmanager,signswillinthecarwith
employeeswatchingfrombank,managergoesinside,employeessign,butbankwindowisnotlowenough
fortestatortoseeactualsignature.
Note:goesbothways!Testatorneedstoseewitnesssign&witnessneedstoseetestatorsign.
InterestedWitnesses(awitnesswhotakesabenefitunderthewill)
-
Benefitmaybedirectorindirect
[CL]:willisvoidforlackofacompetentwitness
[TODAY]:donotneedtoinvalidateENTIREwill.
Purgingstatute:justeliminatethewitnesssgift,thennolongerhaveaconflictofinterest.
ModernStatuteslimitaninterestedwitnessgifttolesserofwillgiftorintestateshare.
[UPC]:allowsinterestedwitnessestosign&reliesonothersafeguardstoprotectwillsintegrity.
[CA]interestedwitnesscreatesapresumptionofundueinfluence
o Issuesw/caregiverswhobecomepartoftheestate.(Ex.lawyerinLeisureWorld.)
Either:
1. voidlawyersgift
2. lawyercankeepgiftifgetsacertificateofindependentreviewfromanoninterestedlawyer.
3. Whatiflawyerjustdisclaimedgift?NO!Analysisisdoneatthetimewillwassigned,soalater
disclaimerwillnotfixthewill.Stillneedtovoidoutthatgift.
InPractice:Thisiswhyhaving3witnessesissometimesbetterthan2
ifyouonlyhave2witnessesand1ofthemisinterested,thenyouhaveaproblem.
Ifthereare3Wandonly1isinterested,theinterestedWneednotforfeitshareb/cthewillcanbe
supportedbyother2.
InreEstateofWatts(1979):
3interestedwitnessessignedeachotherswills.
Held:Roundrobinstyleofwitnessingisnotvalid.WILLVOID.
Note:Spousecanbeconsideredaninterestedwitnessifspouseactsaswitness.
CourtsPowertoSalvageWills
-
Courtshavelimitedpowertofixawill
SubstantialCompliancejudiciallycreateddoctrine;focusonattemptedcompliancewithformalities
29
Ifthedocumentmetthepurposeoftheformalities,acourtmayallowittomoveforwardevenifnotevery
formalityismet.
Ex:didntsignonthelastpageofawill.
Qstoask:
o Purposeofformality?
o Whatdidpartiesactuallydo?
o Wasthatactioncloseenoughtoservethepurpose?
DispensingPower[CA]statutorypower,broaderthansubstantialcompliance;focusonINTENT;determine
whethertestatorintendeddocumenttobeawill
Isthewritingintendedtobepartofthewill?Ifyes,letthewillmoveforward
Requiresclear&convincingevidencetoshowintent(heightenedburden)
Ex:Whatifsomeonefoundawillonline,printeditout,signeditonlythemselves,keptwith(withoutother
formalities)?Usedispensingpowertogetthewillin.Substantialcompliancewillnothelpbecausenoreal
efforttocomply,letalonesubstantially
PolicyforExcusingHarmlessErrors
Withtheriseofthenonprobatesystem,ctsalreadydoitintrusts,etc.
Itisembarrassinghowfailuretocorrectharmlesserrorsleadstounjustenrichment
Sparesattorneyfromneedlessmalpracticeliability.
InreWillofRanney(1991):Althoughthesignaturesontheselfprovingaffidavitdidnotcomplywiththe
req.oflaw,probatewasproper,whereaninstrumentsubstantiallycompliedwithrequirementsoflaw.
Witnessesdidnotsignthewill,butratherjusttheselfprovingaffidavit
[UPC&CA]:Combinewill&affidavitintosinglelanguagesothatwitnessonlyneedstosign1place.
MatterofEstateofEhrlich:
50yearestateplanningattorneywrotehisownwill
foundonlyunsignedcopyofwillinmessyhomeoffice
notesaidadeceasedfriendhadoriginal
Held:upheldprobateofunsignedwill.Tobeadmittedtoprobate,theproponentofthewillmustestablish
byclearandconvincingevidencethatthedeceasedintendeditashisorherwill.
Mistake
MatterofSnide(1981):H&Wmistakenlysignedeachotherswill.Thehusband'swillshouldhavebeen
admittedforprobatebecause:(1)althoughthehusbandmistakenlysignedthewillpreparedforthewife,
thedispositiveprovisionsinbothwillswereidentical;(2)thesignificanceoftheonlyvariancebetweenthe
twoinstrumentswasfullyexplained;(3)thewillwasundoubtedlygenuine;and(4)thewillwasexecutedin
themannerrequiredbylaw.Willadmittedtoprobate.
o Husbandandwifeweretryingtoexecutereciprocalwills,buttheyeachsignedthewrongwill.
o Takeaway:typenameundersignatureline.
ExtrinsicEvidence:STusedtointerpretambiguouslanguageinawill
o Theprocessinvolvesdiscoveringthemeaningoftheterms,notalteringorsupplementingthem
InternationalWills
- Notaryequivalentisdonebyalawyer.(signature)
- Req.2witnesses.
- Canbeprobatedanywhere.
Conditionalwillsusuallywrittenbypplafraidofdyingwhileabroadmilitary,travelingparents
- Ifthewillappearsconditionedonaparticulareventthatdoesnotactuallyoccur(returnhomesafeinsteadof
dying)ctsusuallyviewthepossibilityofdeathduringthejourneyastheoccasionandinducementformaking
thewillratherthanasaspecificconditionprecedent.
o Willstandsasvalidevenifconditionnotmet.Theconditionisjustignored.
o Goingofftowar,ifIdontmakeit,doXYZ.IfheDOEScomebackbutdieslater,theconditionisignored.
30
PowerofAttorney
-
Generally:revocableatanytime
o Cangiveattypowerforspecifiedlimitedtime(requires2witnesses)
o Iftestatorisincapacitated,thenattyspowerisrevoked.
Compareto:DurablePowerofAtty
o Powerremainseffectiveevenifthepersonbecomesincapacitated/incompetent
Springingpower:activatedbyincapacity
Mustexpresslysaysustainedpowerifthatswhatyouwant.
o Requirements
Mustspecificallyauthorizethepersontomakedecisions
Containdateofitsexecution
Bewitnessedoracknowledgedinfrontofanotary
o 2kindsofpower
1. AssetManagement:Dealingw/personal,tangibleandrealproperty,bankaccts.,etc.
2. HealthCareProvisions:Decisionsbasedonhowfaryouwanthealthcaretogo
Usuallyaddress:
o whoshouldmakedecisionifyoucant
o whatspecificwishesyouhaveaboutcare
o whataboutorgandonation/autopsies
BestPractice:UsestatesMed.Assoc.spreapprovedform:easierforofficialsandlesschance
ofitbeingchallenged
BurialInstructions
-
Generalrule:BurialInstructionsinwillareenforceable
Problem:Burialusuallyoccursbeforeopeningofthewill
o FuneralHomewillusuallydowhatthefamilywantsovertheinstructions.
o Deceasedisnotaroundtocontesttheprocedure.
HolographicWills[MAJ/CA]
Requirements
Writtenentirelyinthetestatorshandwriting
Signedbytestator
Datingmayormaynotberequired:
o w/oDate:prioritymaygotoformalwillunlessholographiccanbeprovedtobedatedlater.
Nowitness/attestationisnecessary
o Policy:ideathatitishardtoforgeanentirewill
o Evidentiaryfunction:intentissatisfiedb/cthetestatorwroteit
o Aslongasthereisanindicationoftestamentaryintentonwillsface,Cts.readilyconsiderextrinsic
evidence
Why?Goodforpeoplewhodontwanttogotoanattorney
Safeguardisthatitrequireshandwriting
[Jx.Split]:HOWMUCHHANDWRITINGREQUIRED?
- [MAJ/CA]doctrineitselfisconcentratedintheWest

-
31
[MIN/UPC]Materialtermsmustbehandwritten
[CL]:anyprintingwhatsoeverinvalidatedwill;evenletterhead
Surplusage:ignoreprinting,lookonlyatwriting,admitifstillintelligible.
Materialterms:maygoasfarastoallowcompletetheblanksforms.
[MIN]InreEstateofMuder(1988):Held:avalidholographicwillwascreatedbecausethesignature
&thematerialprovisionswereinthehandwritingofthetestator.
HandwrittensectionsandsignatureonapreprintedWollcottswillform,notarized,onewitness
Pertinent,materialpartswereintestatorshandwriting
Intentoftestatorwasclear
HandwrittenLetters
Lettersmaygettreatedlikewillifitmeetstheserequirements:
o 1.Musthaveoperativetransferlanguage:WhenIdie,IwantyoutohaveX.orIfIdontsurvive
o 2.Musthavenotationofthespecialimportanceofthedocument:Putthisinasafeplace.;Makesureyou
keepthis.
o 3.Referencedeath
o *4.INTENTbeawillCts.willSTlookforextrinsicevidence.
o Wasitawillorjustinstructions?
- WarLetters:Regardlessofcircumstancesofdeath,aletter/willfromwarstandsunlessitisclearthatitonly
appliedtoifdiedinwar.
InreEstateofKuralt(2000):Theletterwasacodiciltothedeceased'sformalwill,asamatteroflaw,
becauseitmadeaspecificbequestofpropertyanditdidnotpurporttobequeaththeentiretyoftheestate.
o Decedenttiredtogivepartofhisestateto30yrmistressthroughaletterdiscussingintenttospeaktoatty
o Evidenceofatransparentsalestransaction
o Argumentagainst:letterisnotmeanttobeawill,justlettingherknowhewillgoseelawyer
o Courtfocusesonhisintenttolegallybequeathlandtomistress,referencedbyhisspeakingtoatty
o Courtgivesherlandbasedondispensingpowerandholographicwilltheorieskindofgetsitwrong.
OralWills:
[Jx.50/50Split]:Okif2witnesses;personalpropertyonly;testatorunabletowriteoutwill.
Generallyrecordingsandvideosarenotconsideredvalid.
EmailedWills/Letters:
IfKuralthademailedhismistress,itwouldntevenqualifyasholographic
Toughforsubstantialcompliance
Dispensingpowerisabetterchance(testatorsintent),butstillnotstrong
32
WhatConstitutesaWill?
Integration
- Integrateseveraldocuments,thendocumentstakentogetheraremeanttoconstitutethewholewill.
- Extrinsicevidenceprovesintenttointegrate.
Codicils
-
Amendmentstoapriorwill;notacompletenewwillinandofitself.
Republishespriorwill(=newexecutiondateforwill)
o BECAREFUL:thiscanaffectpossibleomittedspouse/childclaimsforchildbornbetweenwillandcodicil
But:theNEWWILListhecombinationofthereferencedwill+thetermsofthecodicil
o MUSTmeetformalitiesofformal/originalwillorholographicwill:
canmix&match:holographic/formalwill/codicil
o cancurepriordefectsifitmeetsformalities;codicilsdonotneedtorefertowhichdefectitiscuring
execution
interestedwitnesses:curedw/properwitnesses
omittedspouse:executedaftermarriage
omittedheirs:executedafterbirthofpreviouslyunbornchild
ademption:namesreplacementproperty
o createsnewexecutiondate;thedateofthecodicil(cancauseproblemsforomittedchildren/spouses)
Differencebtw.codicils&revocationbywritteninstrument:
o Gilbertv.Gilbert:Testatorhadaformalwill,butalsowroteaholographicwillonthebackofabusiness
cardandaholographicwillonthebackofapaystub.All3docswereplacedtogetherinanenvelope.
Held:HWsarecodicilsandamendtheformalwill.ThealternativewouldbefortheHWstoconstitutethe
entirewillandrevoketheformalwill,butherenoevidenceofintenttorevoke.
o IfnoINTENTtorevoke,thencodicilandNOTrevocationbywritteninstrument.
IncorporationbyReference
o
o
o
o
o
Writingoutsideofwillthatisreferencedbywill
usuallyisalistofgifts
NOTE:notallowedinallstatesb/cescapeswillformalities(nowitnessesrequired)(NYdoesnotallowthis)
Requirements:
1.writingmustexistwhenwillissigned(notlater)
2.writingmustbeclearlyidentified
3.INTENTtoincorporatemustbeclear
Weird:evenholographicwillscanutilizeincorporationbyreference,eventhoughitkindofdefeatsthepurpose.
Clarkev.Greenhalge(1991):Paintingnamedinnotebook,butexecutorrefusestodistribute.
Womanhada72/76memo,a77will,anda79memo/notebook,whichidentifiedalistoftangible
personalpropertygifts.79memo/notebookwouldhavebeeninadmissiblebutfora1980codicil.80
codicilrepublished77will&79memo.Memonowincorporatedunderconventionalruleandcorrect
partygetsthepaintingthatexecutortriedtokeep.
Takeaway:Ifacodicilrecognizingoutsidedocumentissignedaftertheexistenceofadocumentoutside
thewill,thentheoutsidedocumentistreatedasinexistenceatthetimethewillwassigned.CURED!
[UPC]TangiblePersonalPropertyMemo:
TangiblePropertymemoscanbecreatedorchangedbeforeORafterawillissigned.
Requirements:
LimitedtotangiblepersonalpropertyONLY.
MemoMUSTbereferredtoinwill.
33
Effect:MakesClarkedistributionjustalittleeasier;memoitself(ifnamedinwill)wouldhavemade
notebookbinding.
FactsofIndependentSignificance
- Referenceinwilltofactsoutsideofwilltodeterminepropertythatisgivenoridentityofrecipient.
Changingfacts/circumstancesdeterminethedistribution.
Ex:GiftofmyresidenceorGifttoeachofmyEmployeescanchange,butbedetermineatTOD
- Youarebasicallychangingyourwillwithoutsatisfyingformalities(youjustmovetoanewresidence,etc.)
- ALLOWABLEIFfacthassignificanceindependentoftestamentarydispositionoftheproperty.
Generally:naminganythingotherthanplaceofstoragecansatisfythisrequirement.
Ex:Contentsofmysafetydepositboxhasnosignificanceindep.oftestamentarydispositionofproperty.
Whendealingwithcontents,contentscanbetooeasilyshuffled.
Changingresidentisokaybecausethereisalotofothersignificance.
Revocation&Amendment
MethodsandEffectsofRevocationrevocationcanbeCOMPLETEORPARTIAL;3ways
Revocationby
Revocationby
WrittenInstrument
PhysicalAct
A)Express:"I
A)TearorBurn
revoke"
B)Writecancelledacross
B)Laterdocument's will
Inconsistency
C)Crossoutpartoftext
C)Revocationmay
becompleteorjust
D)REQUIREMENTS:
partialforminimal
originalwill;donebyor
inconsistencies.
infrontoftestator;does
notrequirewitnesses.
SeeHarrisonv.Birdcase
below.
[Jx.Split]:Revocationby
OperationofLaw
Includes:Marriage,divorce,preterrmitedheirs,deathofbeneficiary;
alienation.
Doesnotinclude:Separation
Marriage:[CL/MIN]revokeswill;[MAJ/TODAY]doesnotrevoke
willb/cofotherprotectivemeasures(omittedspouse,electiveshare)
Divorce:[MAJ]Divorcerevokeswillprovisionsforformerspouse;
[TRAD]limitedtowillgifts,notlifeinsurance,jointtenancy,etc.
[UPC]Divorcerevokes:giftstospouseinwill,giftstospouseinnon
probatetransfers,andanygiftstospousesrelatives;Spousefiling
divorcehasadvantageb/ccanchangebeneficiaryprovisionspriorto
filingdivorceunlessinJx.thatrequiresspousalconsenttochange.
Ifremarrysameperson,willcomesbacktolife.
Note:ERISA&retirementplanswifemaystillgetthisifyou
haventchangedit.Courtmaytrytohelpbutstillunknown.
SeeClymerv.Mayocasebelow.
PhysicalAct
o Note:avoidmakingduplicateoriginalsofwill
o Harrisonv.Bird:Iforiginalwillwasintestatorspossession,butatdeaththewillcannotbelocated,then
presumedtoberevokedbyphysicalact.
- Attyrevokedwillattestatorsrequestwhileonthephonebyrippingup,butnotinfrontoftestator.
(Notrevokedatthispoint.)
- Attysentpiecesoftornwilltotestator,butatdeathcouldnotfindpieces.
- Held:revoked.
OperationofLaw
34
Clymerv.Mayo:WcreatetrustforH,theydivorce,wifedies3yearslater,exHtriestoclaimtrust.Wife
changedinsurancepoliciesandannuitiesbutnotthelivingtrustcreatedtogetmaritaldeduction.Secondtrust
wasforHandallniecesandnephews(includingHs)withremaindertoBostonU.
IfUPC,exHabsolutelydoesNOTtake.
Here,CL,courttreatedtrustasifcreatedbywill&usedstatutetorevokewill&trust.
Courtwaslookingforwaystokeepexawayfromformerspousesproperty!Anexcannotbe
beneficiaryofanythingattachedtoawillthathasbeenterminatedupondivorce.
Hsniecesandnephewskeeptheirgiftsbecausestatutedoesntmentionthem.
Amendment
-
Dotheyhavepowertoamend?
o Willyoucanalwaysamendyourwill,assumingyoustillhavetestamentarycapacity.
o Trustdotheyretainpower?Firstlookattrustinstrumentifyoucan.Then,lookatstaterules.
Whatformalitiesrequiredtobeeffective:
o WillWill,Codicil,orHolographicformalities?
o Trustlookattrustinstrumentforimposedformalities.Ifnot,lookatstatestatutes.
Revival
-
RevokingaRevocation:Isarevokedwillrevivediftheinstrumentthatrevokedthewillisrevoked?
[CL]:Yes;automaticrevivalwhenrevocationisrevoked.
[Ecclesiasticalcourts]:No,unlessevidenceoftestatorsintenttorevive.
[WillsAct]:revivalonlybyreexecutionorcodicilthatshowsINTENTtorevive.
[UPC]RevivalifsubsequentDocumentisrevokedbyPHYSICALACT:
Defaultrulesdifferentdependingonwhetherpriorwillwasentirelyorpartiallyrevoked.
EntirelyRevoked:No,unlessevidenceofINTENTtorevoke.
o RevocationofwillthatcompletelyrevokedpriorwilldoesnotrevivepriorwillUNLESS
circumstancesindicateanintenttorevive.
PartiallyRevoked:Yes,unlessevidenceofINTENTNOTtorevoke.
o Revocationofawillthatonlypartlyrevokedapriorwillrevivespriorprovisionsunless
circumstancesindicateintentnottorevive.
EXAM:
WrittenRevocation:default=doesnotrevive;unlessexpressrevival.
BestPractice:writeinwhetherornotyouwantpriorwillrevived
PhysicalRevocation:
RevokeAll:default=notrevived,unlessev.ofintenttorevive
RevokeSome(codicil):default=revived,unlessev.ofintentNOTtorevive.
DependentRelativeRevocation:Isrevocationdependentonthevalidityofthenewwillorcodicil?
o revocationofawillisdependentupontheeffectivenessofanewwillorcodicilthatisdraftedatthesametime???
Lowstandardtorevoke(candoalone,ripitup,etc.)buthighstandardfornewwill/codicil,somightnot
haveareplacement
o Ifthechangeddispositionisineffective,norevocation.
o Presumption:Testatorwouldratherhavetheoriginalgiftthannogiftatall.
o Cafferata:Notgivingeffecttotherevocationmakessenseifthechangeisprettysmall,butifthechangeisbig
thennotgivingeffecttotherevocation.probablydoesnotbestreflectthetestatorsintent.
o IncompleteHologrpahicChange:
Schneiderv.Harrington(1947):Testatorhad3sisters(ABC),eachtoinherit1/3.Intenttorevoke
dispositiontoC,soshecrossedoutCs1/3andchangedA&Btoeach.However,notavalid
holographicwillb/clackedasignature.Therefore,thechangewasineffectiveandwillwasnotrevoked,
butstoodasis.Courtassumedshewouldratherhavesistertake1/3over1/3goingtointestacy.Itwould
bedifferentiftherewasproofofherintent.MighthavecomeoutdifferentlyifJxdidntrequiresignature.

o
o
35
Change&revocationareoftendoneatthesametime&linkedifdonebyphysicalactorformalexecutedwill.
Toapply,theremustbesomeefforttowriteanewwill(notenoughtoaskattorneytodraftbutnotyetsigned;
maybeokayifsignedbutnowitnessesyet)
ContractualRestrictionsonRevocation
o Atestatormaymakeabindingpromisetoexecuteawillw/specifiedterms,andifitsgivenforconsideration,
enforcementisnotagainstpublicpolicy.
UsuallybetweenH&Wmatching/mirroredwills
o Whatifsomeoneviolates?
Ifyouaredead:Survivorcannotrevoke&isboundtodistributetheestateattheirdeathinaccordancew/
provisionssetoutinthewill.Beneficiariesofcontractcansuetoenforceprovisions.
Ifyouarealive:Partiesarefreetochangewillprovisionsorvoidmutualwillaltogether.
o Contractrequirements:
1. bemorethanjustmutualprovisions
2. bestatedinwill
3. beaseparatesignedwriting
4. referencetoaK&extrinsicevidenceofterms
5. doesnotinvalidatewilljustenforcecontract
o OralAgreement:requiresclearandconvincingevidencetoproveit
Note:CourtscandeclareaconstructivetrusttoeffectuateoralexpressagreementsthatotherwisefailSOF.
ContractualRestrictions:Joint&Mutualwills
JointWill
Jointrep:anythingyoutellyouratty,attyhastoyou're
yourspousetoo
Onedocumentexecutedbytwospouseslimitedto
spouses.
Maybeofferedforprobateasthewillofeach.
MereexistenceofaJWcontainingreciprocal
dispositiveprovisionsisnotsufficienttoest.aK
restrictiononsurivingpartyspowertorevoke
/amendwillafterothersdeath
Purporttobindthesurvivingspousetonotchangehow
theydispenseofpropertyafterthefirstspousesdeath.
Theremustbeevidenceofcontractualdisposition.
EstateofWiggins:Rarevictoryfordecedentspouse,
courtheldthatJointwillwasirrevocablewhenwifetried
toinstitutecodicilchangingjointwillsprovisions
MutualWill
Separateinstrumentswithparallelprovisions
executedatsametime.
Courtsaremuchlesswillingtoimplyacontractof
irrevocabilitywithmutualwillsasopposedtojointwills.
Ouslerv.Armstrong:Spousesexecutemutualwills
sayingWifewilldispensehusbandsmoneyafterdeathto
husbandstwokidsfrompreviousmarriage.Courtfinds
nocontractandvaluesfreedomofTestationforsurviving
spouse.
Ex:husbandandwifemakejointwill.Husbanddies.
Wifewantstogives$tocharityinsteadofniece.?
InCaliforniathereisapresumptionofrevocabilityforbothtypes.
CADivorce:thereisanautomatic6monthstaytochanginganythinginyourestateplan.Changefirstthendivorce
36
InterpretationofWills
Ambiguities
ExtrinsicEvidence[seebelow]
Patentlanguageofwillis
ambiguous,ambiguousonfaceof
Will.i.e.toJohn,toJane,
toSarah
Infothatrelatestotheinterpretationof
thedoc:
1. Usedtoresolveambiguities
2. cannottovaryplainmngofWill
Latentfactsoutsidewillshow
ambiguity.i.e.tomybrotherJohn.
BrothersareTomandJim.
Note:Lawofwillsislesslikelyto
correctmistakesthanKlaw.
Onceyouveshownanambiguity,
thencanbringinEE.But,w/oan
ambiguity,assumetheplainmeaning
isadequate.
WhenthereisAmbiguity
[Jx.Split]
SomeJX:willtrytoresolvethe
ambiguityandfollowthetestators
intent.
SomeJX:willstrikethegiftas
invalidandpropertywillpassvia
intestacy
Includes:personalusage.[See
Mahoneybelow]
ExtrinsicEvidence
evidenceotherthanwillusedtounderstandwill.
Cannotbeusedtochangetheplainmeaningofthewill,justtounderstandambiguousterms.
Mayexcludetestatorsstatements;suspiciousoftestatorsagendas.
Testatorsareoftendishonestwiththeirownfamilyregardingtheirestateplanning.
EEcanbeusedtoresolveambiguitiesSEETABLEABOVE(InterpretationofWills)
Garrettv.Read(2004):
o Held:Extrinsicevidenceisadmissibleinconnectionwiththeinstrumentsthemselvestoshowthat
separatewills,whicharemutual&reciprocalintheirbequestsanddevises,wereexecutedin
pursuanceofanagreementbtwthetestators,notwithstandingtheabsenceofrecitalsinthewills
designatingorreferringtosuchagreement.Suchevidencemayconsistofwritings,acts,&
declarationsoftheparties,testimonyofotherpersons,andevidenceofallthesurroundingfact
andcircumstances.
HandWcreatewillsleavingassetstoeachotherandequallytoeachothers3kidsand3step
kids(toprotectthem).HdiesandWinheritsHskidsandherowngrandchildren.Lawyer
testifiestotheiroriginalintent.
37
Result:stepchildrencaninherit,butpurposewasnottoprotectherownheirssoher
grandchildrendonotinherit
Willsdonothaveexpresslystatethatthereisacontractualagreementformatching/mirrored
wills.
Separatewillswithoutmentionofanagreementbtwthetestatorsmaybecontractualwillsif
thatinterpretationissupportedbyevidence.
TRUSTSaretreatedlikeKs:
mustprovemistake
willsaregenerallyineffectivetoamendtrusts
needtoexercisepowerofapptfirstforchangestobeeffective&followtechnicalities.
ASKABOUTTHIS!relistentolecture1011.
EasyAmbiguitiestoCorrect:
1.Willnamesonlytheexecutorw/nootherprovisions.Result:alltoexecutor.
2.Messupfractions.Result:Ct.setstoequalshares.
3.Misdescription:Charitablegiftsw/wrongname.ThisisambiguousandlooktoEE.
HardesttoCorrect:forgetsomebody.
Mahoneyv.Grainger(1933):Ifthereisnoambiguityastothelanguageofthewill,courtmayNOTlookto
extrinsicevidence.
o Testatrixwantedestatetogotoher25cousins,butlawyerwroteheirsatlawsoitwasgiventoherlonglost
auntastrueheiratlaw.
o Ct.looksatplainmeaningofthewordheirs,whichmeansclosestrelativeandnotcousins.
o However,courtswillapplyextrinsicevidencetowordsofpersonalusage.
EstateofRussell:[leading
CA
caseforambiguities]Intendedgifttotestatrixsdogwasinvalidb/cadog(atthe
time)couldnotbeabeneficiaryofawill.B/cwillwasclearandunambiguous,thelowercourtcouldnotallowin
EEtoestablishthetestatrixmeanttoestablishatrustforthedogandnotmakethedogabeneficiaryofthewill.
Dogssharegoestointestacy.
o Topreventabequestfromgoingtoanunintendedperson,courtsstraintofindambiguitysoitcanadmitEE.
o Here:noambiguity,hewantedittogotodogbutthatsnotallowed,butitwasstillwhatheintended.
o CourtsgenerallyrefusetoadmitEEtoestablishthetermsofomittedprovisionsorchangeawillswords.
EstateofDuke:(Cafferatascase?)
DukelivedfrugallyinHollywooddumpbuthehadwrittenlargegiftannuitycheckstocharity
Holographicwillleavingeverythingtodeadwife,$1tobrother,thenifwife&hediesatsametimeitallgoesto
charity
Apparentlyhemadeinvestmentawhileagoandnowwasworth$5million
Wifepredeceasedhim.
Charityarguedforambiguitytofixtherequirementthattheydieatsamemomenttoincludecaseofpredeceased
wife
o Presume:ifwritewill,intendtogiveawayproperty
o Arguing3theoriesnote:req.ambiguitytoengageinconstruction
PatentAmbiguity:onitsface;veryrarethatbothH/Wwoulddieatonce
LatentAmbiguity:contextofrelationw/charitableorg.
Impliedprovisionthatcharitiestake
38
Hissisterssons(nephews/Radins)arguedforintestacy
o RadinspointtoBarnescasetoarguethatitgoestointestacy(die1.5yearsapart,notatthesame
moment),soitshouldgotothem
o Nephewsdepositionswerehorrible,justinsultedtheuncle,etc.
o Barnesifhusbandsurvivesme,everythingtohim.Ifwediecloseintime,thenestatetonephew.
Nephewwasnotclosestheiratlawsohewouldnotgetitinintestacy.Husbanddiesfirst.Court
assumessheleftitthewayitisbecauseshewanteditthatwaysotheyenforcedtheprovisionand
invalidatedthewill,sonephewlosttoheirsinlawinintestacy
Hisstatementtothecharitywasthathisunderstandingofthewillwasthathewasleavingmoneytocharities
LowerCourtdidnotseetheambiguity,saiditwasboundbyBarnes(momentisnotambiguousterm,toomuch
timepassed,notlookingatanyotherevidence)
AppellateCourtBarnescontrols,butalsonodoubtwhatDukereallyintendedsoinviteCASupremeCourtto
changerule
Ifthiswasatrustorcontract,noproblem,justintroduceextrinsicevidencethatdocumentdidnotfollowhis
intentions
CASupremeCourtgrantedreviewwhetheryoushouldbeabletoshowbyclearandconvincingevidencethat
willdidnotfollowdecedentsintentionswaitingtoseeresult
Oldruleexistedsorandomrelativedidntjustcomeandsayoh,btw,thiswasactuallynottheirrealintent
ChangesinPropertyHoldings
4typesofGifts
1. SpecificBequestorDevise:identifiedpropertygift(canberealorpersonalproperty)
Ex:123MainSt.orMartinD28GuitartoJane.
Terminology:writinginwillaspecificgiftof$100,000isnottechnicallyaspecificgift.
NeedtoIDwhattypeofgiftittrulyis(general/demonstrative)andfollowrulesaccordingly.
Ademption:specificgiftfailsiftestatordoesnotownthepropertyatdeath.
Ifcourtsfeelyoujustwanttogivegiftsvalue,maytrytodefineitasdemonstrativedevise.
[UPC]EXCEPTIONS:
o Balanceofpurchasepriceowed
o Unpaidcondemnationaward
o EminentDomain:whoeverwasentitledtolandgetsvalueofgovtcheckorits
remainderifalreadypaidsomeduringlife.
o Unpaidcasualtyinsurance
o Propertyacquiredbyforeclosureonspecificallydevisedproperty
o Loans:youcaneitherendupwiththenoteortherealpropertythatsecuresthenote.
Ifthereisanotesecuredbyrealproperty&loandefaults&decedentforecloses
&getsproperty,thenyougetproperty&notthenote.
o Replacementpropertyforrealortangibleproperty
o Propertysoldbyaconservatoruptooneyearafterregainingcapacity
o ValueofpropertyifINTENToftestatorcanbeshowntobeinconsistentw/ademption.
o StockSplits:doesnotchangedistributionb/cownershipinterestisnotactuallychanged
evenif1sharegoesupto23shares,thusdecreasespricepershare.
ReplacementProperty:basically,evenifthenamedgiftisslightlydifferentthanwhatsin
decedentsestate,wasthenamedgiftintendedasareplacementgift?
First 3 are
o Ifconservatorsells,MUSTreplacegiftw/in1yrofcompetence
before debt,
o
usually taxfree.
Residue pays
debt/ taxes
39
Consider:1.issubst.usedinsamemanner?2guitars2.similarvalue?3.timingof
purchase?soldnamedguitar&purchasednewguitar
o DealsMostlyw/RealProperty:land/cars/etc.
DOESNOTAPPLYTO:stocks/bonds/accts.
Example:WhatifyougiftD35guitarbuthaveaHD28atdeath?
o Ifgiftisgeneral(Igivemyguitar),makesiteasier
o Factorstoconsider:
Anyreasondecedentwantedto/hadtogiftthisparticulargiftvs.another?
Ifnewitemisofcomparablevalue?Notalwaysdeterminative
Timeofpurchaseboughtasareplacement?Ownedatsametime?Upgrade?
Differentbodystyle?Acousticvs.electric?Doesitmatterforpurposesofgift?
o Whatiftestatorhasmanyguitarsatdeath,butnotthenamedone?
Maybehementionedhewantedyoutogethisbestguitar
Whatdoeshedowithrestofcollection?Isitspokenfor?
EstateofNakoneczny:Fatherslifetimegifttosonwas20barthathewasforcedtosellto
govtinexchangeforbonds.Heneverrevisedwillbeforedying.Courttreatslandasa
specificbequest.Ademption!?
o Possibleargumentsforson:
Conservatorshipwasawhileago
Eminentdomainalongtimebeforedeath
Dadjustwantedmetohave$valueno,youwererunningthebar,itsastretch
o Court:Beneficiarydoesnotgetreplacementpropertyb/cwasntademonstrativegift.
o TestatorintentNo,ifdadwantedsontogetbondshewouldntspecificallystatedbar
Stocksplitskeep$value,notthe#ofstocks.Getsmoredifficultiftestatorbuysmorestocklater.
2. GeneralDevise:valuefromgeneralestateassets,ex.$100,00toBob.
3.
DemonstrativeDevise:valuefromanidentifiedsource,ex.$100,000fromWellsFargoCheckingAcct.
If$runsout:emptyspecificsource&takeremainderofgiftfromgeneralestate.
Ifno$:takeallfromgeneralestate&giftisessentiallyagenerallydevisenow.
4.
Residuary:shareofwhatisleftaftergifts/debtsmaybemore/lessatdeaththanwhenwillwasdrafted
o
Satisfactionadvancementbutunderawill
Alegacyinanexistingwillmaybesatisfiedinwholeorinpart(iftestatorsointends)byanintervivosgift
Allintervivostransfersarepresumedtobegiftsunlessthereisevidenceotherwisetreatingitassatisfaction
- Requirements
Decedentwrotethattherewassatisfactionatthetimegiftwasmade
Writingcanbeinformalorevenfromthebeneficiary
Doneeacknowledgessatisfaction
ConditionalGift
Hasconditionbeensatisfied?
Aretheytrueconditions?
RuleAgainstPerpetuities
Seebelow.
PresumptionsorWait&Seerulegetyououtofit?
Abatement:orderforeliminationofgiftswhenestateassetsareinsufficienttofundallgifts.
*ExamquestionswillonlydealwithDEBTnotTAX
- Whenanestateisnotsolventforallbeneficiaries/gifts:
FIRST:executoralwayspaystaxes.Afterwards,isispossiblefornothingtobeleft&allgiftsabate.[see
EXONERATIONbelow]
OrderofAbatement:orderforeliminationofgiftswhenestateassetsareinsufficienttofundallgifts.

1.IntestateAssets(thosenotdisposedofinawill)
2.ResidualEstate
3.Generalgifts&demonstrativegiftsfromageneralsource
4.Demonstrativegiftsfromanidentifiedsource.
5.SpecificGiftsmostprotected;onlytakenawayifessentiallyentirelyinsolvent.
6.Note:occasionallycombinecategories4and5.
DefaultRules:butyoucanwriteyourownrulesifyoudontlikethese.
1.Giftsw/inthesameclassabateproportionally:
a.Ex:2GeneralDevisesof$100,000,butestateshort$100,000.Eachgets$50,000.
b.Residuedividedintothirds,but1/3isshort.Eachsharetakes1/3reduction.
2.[Jx.Split]PreferFAMILY!nonfamilygiftsabatefirstwithineachclassofgift.
Example:
o HousetoA:$100K
o GuitartoB:$5K
o FromWellsFargoAccounttoC:$50K
o CashtoD:$50K
o ResiduetoE&F
o Ifnetassets$250K,everyonegetstheirgift,residueof$95K
o Ifnetassets$150K:
Agetshouse:$100K
Bgetsguitar:$5K
Cgets$45KifthatmuchinWellsaccount
o Ifnotenoughinaccount,C&DsplitfundsnotinWellsaccount
Exoneration
- Exonerationofpropertysubjecttodebt
- [CL]:Debtpaidbyestatesgeneralassets.Specificgiftisnotsubjecttodebt.i.e.residuepaysmortgage;
deviseegetsmortgagefreeprop
- [TODAY]:Beneficiaryreceivespropertysubjecttodebt,unlesscleardirectiontopayoffdebt.
o Payalldebtsclausedoesnotexonerateencumberedproperty.
- [UPC]:Rebuttablepresumptionthatdoneereceivespropertysubjecttodebt.
Lapse&AntiLapse
Lapse
Ifthebeneficiaryofagiftpredeceasesthetestator,thegiftfailsandgoestotheresidueorintestacy.
- VoidGift:gifttopersonwhoisdeadatthesigningofthewill.
Giftfailstoresidueorintestacy
2timesatwhichbeneficiarycandisappear:before/aftersigning=void/lapse.
Differencebetweenvoid/lapsegiftsistheapplicationoftheantilapsestatute![seebelow]
- Classgift:giftstonamedindividualsorsurvivordonotlapseUNLESSallnamedpersonsaredeceased.
Shareofpredeceasedbeneficiarypassestosurvivingmembersofclass.
Note:mustbedesignatedasaCLASS,notjustagroupof[named]peoplethatlooklikeaclass.
Antilapsestatutes
Redirectslapsedgifttosurvivingissueofbeneficiary;otherwisewouldgotoresiduary.
Somedonotapplytovoidgifts(butUPCdoesapply):voidgiftspassviaintestacy
Somedonotapplytoclassgifts(butUPCdoesapply)
Limitedto
RELATIVES
[Jx.Split]DefinitionofRelatives
[CA]:kineveryoneexceptfriends/neighbor/strangers.
40
41
[UPC]:appliestograndparents&linealdescendantsofgrandparentsw/survivingissue(see
below)
[RUPC]:appliestostepchildren,butNOTspousetoavoidchildrenofothermarriages.
[UPC]AntilapseStatutes:appliesbroadly
Relatives:appliestograndparents&linealdescendantsofGPsw/survivingissue
Appliestoclassgifts:predeceasednepheww/livingchildren,hissharegoestohischildren&not
othernephews.
Membersofclass:includethosewhopredeceasedthewill!LookatwhowasEVERalive
andifprecedeasedhasissue,thenitgoestotheirissue.
Appliestovoidgifts:IfBobwasdead,goestoBobsissue
DraftingtoOvercomeAntiLapse
Naminganalternativebeneficiaryoverridesantilapsestatutes
Jx.Split[CA&someotherstates]:anyrequirementofsurvivorship(ex:90day)clausewillovercome.
[Otherstates]:requireclearalternategiftorclearstatementoflapse.
o Ex.100KtoA.IfAdoesnotsurvivegiftfailsandshallbepartofresidue
[BestPractice]:draftaroundantilapsestatutes
Example:T:tomysiblings.HassiblingsA,B,C.AisdeadattimeofwillandsurvivedbyC.Bdiesafterwill
butbeforeTandsurvivedbyY.CislivingatTsdeath.
o IfstatutedoesNOTapplytoclassgifts,onlyCtakes
o Ifstatuteappliestoclassgifts,butnotvoidgifts,YandCtake.
o UPC:X,Y,andCalltake.
AntiLapseSpecialCase:
o ToAbutifAdoesnotsurvive,toB.
o IfA&Barebothdeceased,goestoAsissueUNLESSBisAsissue,thentoBsissue.
o A=favoritechild,B=favoritegrandchild.
o TestatortriedtodisinheritAsissueotherthanB.
o IssuesofovercomingantilapsestatuterequireVERYCLEARSTATEMENT.
InreEstateofBurns(1960):Ifwehaverelatives,anddocdoesnotspecifywhattodoincasenobodysurvives,
thenantilapsestatuteapplies.
Xresiduaryto3sisters.IfonepredeceasedX,thentheothersistersdivideduptheresidue.
All3sisterspredeceasedtestator.
Onesisterhadissue.21otherheirsatlaw.
Ct.gavesistersissuetheentireestateovertheother21heirsatlawwhowantedestatetopassvia
intestacy.
Presumption:testatorwantsantilapsestatutetoapply,mustshowcontraryintent.
AntiLapseExample
T:Gifttomysiblings,A,B,C
First:resolveifthisisaclassgiftortotheindividuals
A:voidgift
B:classgift
Diesbeforewillisdrafted,
Bdiesafterwilldrafted,butbeforeTdies,
survivedbyX
survivedbyY
1.Ifvoidgiftsarecoveredby
Dependsonwhether:
anantilapsestatute:XgetsAs
a)thisisaclassgift
share.
b)Jx.appliesantilapsetoclassgifts
2.IfvoidgiftsareNOT
covered,thenpassesvia
1.IfthisisNOTaclassgift:YgetsBsshare.
intestacy.
2.IfthisISaclassgiftandinanantilapsestate,
3.UnderUPC:antilapse
whichexcludesclassgifts:Ydoesnotreceive.
applies&Xreceives.
3.IfthisISaclassgiftandinanantilapsestate,
C:living
Cwillreceivesomething.
ItdependsonwhetherX
andYssituationsare
coveredbytheantilapse
statute.

whichincludesclassgifts:Yreceives.
4.UnderUPC:antilapseapplies&Yreceives
Thegiftwillbesplitevenlybetweenwhoeverlegitreceives.
Ifallreceive(1/31/31/3).IfonlyCreceives,Cgetsitall.
GIFTS
RealProperty
RealPropertyGiftRequirements
1. DonativeIntent:
a. Presenttransfer
b. Noconsideration:notexpectingtoreceivinganythingofvalueback
2. Delivery:visibleevidenceofintent
a. Requiresphysical/constructive/symbolicdeliveryofdeed
b. mustbeinwritingb/csubjecttoSoF
i. SomeExceptionstoSoF:
1. PreventUnjustEnrichment:
42
43
Mertzv.Arendt(1997):Evidencewasclearandconvincingthatthesonhad
receivedlandasaparolgift.SoFdidnotdefeataparolgiftofrealproperty
whenthedoneetookpossessionoftherealprop.andmadeimprovementsin
relianceofthegift.
o Sonbeganfarmingplotoflandownedbyparents,claimedthatthey
madeanoralpromisetogivehimtheland.Hefarmeditandpaidthe
propertytaxesonit,siblingstriedtogettheland.
o JudgemadetheexceptiontotheSoFbasedontheequitabledoctrineof
partperformance.
o AninformalwritingmaybeenoughtosatisfytheSoFsolongasitis
signed.
c. Agentsaremostlikelytobeinvolvedindeliveryofrealproperty.
3. Acceptance:
a.presumedb/cforvalue
b.unless:affirmativerejection
4.Recordings:notrequired,butrecommended.
a.Recordingagiftensuresthatitsyours.Requiresnotary.
b.Youcouldmakeoutadeedandhandittotheotherperson.Buttheriskyouhaveifyourethe
recipientanddontrecordthedeedthefirstpersoncouldsellittoa3 rdparty.Youcouldsuefor
fraud,butthethirdpartywillownthatproperty.
Timingisimportanttomakesureitisagiftanddoesntbecomepartoftheestate.
Lenhartv.Desmond(1985):Acceptingtheevidenceofthetransferorastrue,andrejectingconflicting
evidenceputonthetransferee,therewas sufficient evidence to rebut the presumption of delivery of the deed,
noting that there was testimony that transferor did not intend a present transfer of ownership of property. The
failure of intent also defeated the transferees claim of constructive delivery.
Fatherputdeedinasafedepositboxandgavekeytodaughterandsaidhewantedhertohaveitwhen
hedied.
Daughterrecordeddeedinhernamewhilefatherwasstillalive.
Invalidgiftduetothelackofdelivery:eventhoughdaughterhadaccesstothedeed,fatherstill
retainedfullcontrolandproperty
Intentisessentialandcontrollingelementofdeliveryofthedeed
Note:iffatherhaddied,thedeedwouldnothavebeenvalidanywayb/citwouldbeactingasawill
withoutsatisfyingthewillformalities.
PersonalProperty
INTERVIVOSgiftrequirements
1. DonativeIntent
a. Presentintenttomakeatransferw/oconsideration.
b. Inferredfromcircumstances.
i. Focusonactions.Deliveryisanaction.
c. Goodwillisnotrequired.
2. Delivery
a. Manual:actualphysicaldelivery
44
b. Constructive:accesstoitem;likeakey
c. Symbolic:titledocument
d. RealpropertyissubjecttoStatuteofFrauds.
e.SocialGraces:takenintoacctEx.toldtotakeabottleofwinefrombasement/kitchenwhen
youleave,thereisagoodarg.forcompleteddelivery,buttherestillmightbeissues.
f. SpecialDeliveryCases
i. Checks:deliverynotcompleteduntilcashed.(ex:soifgrandpagivesyouacheckon
deathbed,hurrytocashitbeforehedies)
1. [UPC]10daycushionafterdeathtoclear/processchecks.
2. Checkcanbevoided,cancelled,etc.beforeyoucashit
ii. Stock:Mustsign(1)stockcertificateand(2)stockpowerinorderforittobecomplete
gift.Usingabrokerageaccount(schwabschwab)canmakeitsamedaytransfer,
otherwise,ittakesabout3days
iii. Agents:AgentsunderpowerofattorneyorconservatorshipdoNOThavepowertogive
yourgifts.
a. Exception:Courtapprovedofsubstitutedjudgment,especiallyifit
followsdesiresandinterests
b. GiftisdeliveredonceitisnolongerunderAgentscontrol.
3. Acceptance
a. presumedifgifthasvalue
b. clearrejectionwillpreventacceptance
i. AffirmativeRejection:Ohno,Icouldnt
ii. Hostrejectsyourrejection:youstaysilent=acceptance.
iii. Simplynotpickinggiftup=rejection.
Gruenv.Gruen:Astodonativeintent,alifeestateandremaindercouldbecreatedinachattel.Deliveryneed
notbephysicalandacceptancewaspresumedwherethesubjectofthegiftissomethingofvalue.
Throughaletter,fathergavesonanexpensivepaintingforhisbirthday.Fatherstipulatedthathewanted
tokeepthepaintinguntilhepassedaway(lifeestateforhimselffirst),buttherewasdonativeintentto
bequeathtoson.
Whengrantorconveyspropertysubjecttoareservedlifeestatew/theremainderinthegrantee,although
theywonttakepossessionuntildeath,theconveyancecreatesanimmediateinterestinthegrantee
upondeliveryofthedeed.
GiftsCausaMortislimitedtogiftsofPERSONALPROPERTY!
Giftmadeincontemplationofdeathforthepurposesofmakingafinaldispositionofthesubjectmatterifdeath
actuallyoccurs.
Legalthytodealw/transferthatdoesntquitefitthewill/giftrequirements:
o Donoristerminallyill
o giftisrevocable
o giftfailsifdonorrecovers
o giftfailsifdoneepredeceasesdonor
o giftissubjecttoclaimsofcreditorsordonor
o giftislimitedtopersonalproperty
o giftmustbedelivered
o Schererv.Hyland:Thenoteandcheckwasnottestamentary,butwasgiftcausamortisb/cevid
ofdonativeintentwasapparent&undisputed.Everyindicationdecedentintendedtomakea
presenttransferofcheck.Givenavalidconstructivedelivery,Ct.heldacceptancewasimplied
b/cthegiftwasunconditionalandtherewasnoaffirmativerejection.
o Womenleftanoteandendorsedsettlementcheckwhereitcouldbefoundbyherboyfriend
beforecommittingsuicide.

o
o
o
45
Moreevidenceofdonativeintentmaybeneededifintentwasnotclear,butcheck
endorsementwassufficient.
CheckwasheldtobeDELIVEREDbasedonthecircumstances.
Note:committingsuicidedoesntmeanshedidnthavecapacitytomakeawill.
GiftsinContemplationofMarriage:
[PAST]:partytounjustlycalloffmarriagedidnotgetring,unlessyoucanshowfaultbyotherparty
[TODAY]:nofaultdivorce;mangetsringback;UNLESS:manisalreadymarriedtoanotherwoman.
GiftstoMinors:
Minorscanownproperty,buttheycannotenterintoKs,whichmeansthattheycanttransferproperty.
UniformTransferstoMinorsActnameanadult,referenceactandminorsnamecreatesacustodial
relationshiplikeatrust
Oftengiftstominorsdonethroughtrustsw/adulttrustee(owesminorfiduciarydutiesatleastuntil18y.o.)
NonProbateTransfer:[seePROBATEbelow]
Transfersbymeansotherthanawillthatareeffectiveatdeathandrevocableuntiltransferdies.
o Ifnotavalidnonprobatetransfer,writingmaybetreatedasawillthatwasnotexecutedwith
formalitiesofawillandisvoid.Limitstoprotectintegrityofwillsstatute.
Fastermechanismtoprovideaccesstoproperty.Cansetupw/oalawyer&somepassoutofcreditorsreach.
Commonnonprobatetransfers:
o Revocabletrusts
o Lifeinsurance
o Retirementsplans
o PODaccounts
o Jointtenancy
Compare:Willsv.Trusts
Wereq.formalitilesforwillsbutletppldisposeofpropertythroughjointaccounts,giftsandtrusts
TestatmentaryGifts:transfers@death
MustfollowWillsStatuteoranexception
Tryingtopassanentireestate
Butlerv.Sherwood:Deliveryofproperty,whether
actualorconstructive,wasacriticalelementofa
completedgift,andthedecedentintheinstant
actionretaineddominionandcontroloverallthe
propertyuntilshedied,sotherewasnointervivos
gift.Thecourtfoundthatitwasclearthatthe
decedentattemptedtodobydeedwhatthelaw
requiredtobedonebywill,andthatshefailed.
- EllamarriedtoEd,nochildren.
- Beforecancersurgery,shequitclaimdeeds
propertytoEd(conditionthathesurvivesher,but
landishersnowandgiftisrevocableuntilshe
dies)
- BrotherButlercontestsforundueinfluenceand
invalidwill.
Completedlifetimetransfers
Tryingtopassasingletrust
Farkasv.Williams:Intervivostrustwasvalid.
Beneficiaryacquiredimmediate,although
undefined,interestinthetrustatitscreation.
Settlorsretainedpowerswerenotenoughto
invalidatethetrustbecausesettler/trusteewasreq
toactinbeneficiary'sbestinterestsnothisown.The
powertorevokedidnotrenderittestamentary
- FheldstocksintrustforWbuthadpowerto
revokeandWhadtosurvive.Ct.founddocuments
tobeatrust,findinganequitableinterestinthe
stocks,subjecttodivestment.
- NovestinguntilDeathinterestwascreatedat
purchase,butwouldnotbeenjoyeduntildeath.
- Survivorshipconditionsubsequentthatdivests
doneeoftheobligationthatwasestablishedatthe
timeheboughtthestock
46
LIFEINSURANCE
Parties
o Insuredpersonwhosedeathtriggerspaymentofdeathbenefit.
o Ownercontrolspolicyandbeneficiary,andmayborrowagainstpolicyorcancelit.
o Beneficiarypersonwhoreceivesdeathbenefitasnamedinbeneficiarydesignationwhichoperatesoutside
ofwill.
Incometaxfreecashtobeneficiary.
CreditorsofdecedentCANNOTreachhislifeinsurancepayout.
Types:
o Term
Annualpremiumforpaymentofdeathbenefitifinsured
diesinthatyear/term.
25yearoldwillpayabout$400/yearfor$1Mdeathbenefit.
60yearoldpays$3K/yearfor$1Mdeathbenefit.70year
oldpays$10K/yearfor$1Mdeathbenefit.
Goodforincomereplacementprotectionduringworking
years.
Cangetleveltermfor10,20or30years.Premiumshigher
inearlieryearsandlowerinlateryears.Betterdealifyou
keeppolicyforfullterm.
o WholeLife
Deathbenefitguaranteeduntildeath
Insurancecompanychargesfortermpolicyplus
takesmoneyandinveststobuildfundtopayat
death.
Premiumscanbe10timesasmuchasterm.
o Variable
Dependsonhowinvestmentsbyinsurance
companydoitaffectshowlongyouhaveto
you'reyourpremiums.(stillataxfree
investment)
Ownerdirectsinvestmentallocation.
Ownercanchangepremiumamount.
Premiumfirstbuysterminsurancefordeath
benefitfortheyear,balanceisinvested.
Earningsinpolicycanbeappliedtopremium.
47
TRUSTS
Introduction
Definition:Atrusteeholdslegaltitletoassetforabeneficiary.
Createsanownershiprelationshipw/2separateownerships:legaltitle&benefitsofproperty.
o Trusteeislegalownerofasset&hasburdensofownership.
o Beneficiarysinterest&remediesareequitable.Beneficiarygetsbenefitsoftheproperty.
Benefitscanbedistributedimmediatelyoraccumulateforlaterdistribution.(currentand
futureinterests)
o Rolescanbedifferentpeopleorsameperson.
Trusteeisnotentitledtoanybenefitsoftheproperty,unlesstrustee/benissameperson.
RequiresProperty:Therehastoactuallybeassets/propertyinatrustforittobevalid.
POLICY:Whyseparatelegal&beneficialownership?
1. Especiallyw/gratuitoustransfers,weareconcernedabouttheabilityofabeneficiarytomanageproperty.
o Ben.ifoftenaminororhasothercapacityissues.
2. Canbenefitfromtrustw/olosingbenefitofpublicfunds.LikeMedicaid.
3. Differentbeneficiarieshavedifferentinterests.Besttohaveneutralpartymanage.
4. Trusteehasobligationtotaxesfollowthedocument&bestserveallinterests.
Trustsareusedinavarietyofcircumstances:
o Wefocusontheuseoftruststofacilitategratuitoustransfers.
o HouseDeed:EscrowCo.holdsonto$&deedandactsastrusteeforpartiestoescrow.
o BusinessSale:Duediligenceprocessallowsbuyertofigureoutclaims/problemsw/co.Someclaims
cannotbediscoveredduringduediligence(likesexualharassment).Therefore,%ofpurchasepriceis
heldinescrowtoenablebuyertodiscoveranundisclosedproblem.Escrowisusedtocover
unforeseenclaims.
Trustsprotectbeneficiariesfromcreditorsandprovidetaxprotection.
Trusts101
Parties
Rolescanbedifferentorthesame
person
Trustor/settlor/grantor
creates&placespropertyin
trust
Trusteeholdslegaltitlefora
beneficiary
Carriesburdenof
ownership
Haslegalcontrolto
withdraw/investormake
decisionsre:theprop
Beneficiarytheonlyonethat
canbenefitfromtheproperty
andhasequitabletitle.
Classifications
ActiveTrust:Wherethe
trusteehasotherdutiesthanto
simplyholdtheproperty
Prohibitionagainstinactive
trusts(trustswithno
duties)
PassiveTrust:Onlydutyof
thetrusteeistoholdthelegal
titleoftheproperty
Types
Express/Declaration:declaredtrust
agreementoftrustee,usuallyinwriting,
butcanbeoral.
Constructive:remedy!Equitabledeviceto
preventunjustenrichment.Personwho
improperlyendedupw/legaltitlehasa
dutytoconveypropertytoitsrightful
owner.Holderhadahandinwrongdoing,
thiefgetstitlebyfraud.
ResultingTrust:Remedyforasettleror
settlersheirswhentrustfailsorpurpose
complete.ReceivedpropertyW/O
wrongdoing.
ApaysBforlandBconveyedtoC.C
48
holdsresultingtrustforA.
BeneficiarysInterests
1.Mandatorypayments:
a.Trusteehastopaybeneficiaryregularly
2.Discretionsubjecttoastandard:
a.Trusteedeterminesstandard,followssomeconsiderations
b.Inpractice,Cts.tendtogivetrusteesgreatlatitude,solookslikebroaddiscretionanyway.
3. BroadDiscretion:servebensbestinterestsordowhatsreasonable
4. Forefeitureprovisions:
a. ifthereisanyattempt/attachmentbycreditor,thenbeneficiarysinterestisforfeited&assetsgooffto
remaindermen.
b. Goodifespeciallyconcernedaboutremaindermengettingsomeassets.
c. Risky:beneficiarycouldusetrustearlyonw/omanypayouts.
d. Temporaryforfeit=suspensionofpaymentstoben.onlytoberesumedatalaterdate.
RevocableTrustscenterpieceofmostestateplans!
1. [UPC]:Trustsarevalidandnottreatedaswillsubstitutes.Cancreatetrustsw/basicallynoassetsorproperty.
2.Initiallysupportedbyfictionofpresenttransfer(SeeFarkascaseabove)
3.
Welllikedb/c:
a.Moreprivatethanwills:
i.[CA]limitsprivacy:statutereq.noticetobeneficiariesoftrustandheirsoflaw@thetimeof
deaththattherewasatrust.Trustbecomesirrevocable.Givespartiestheabilitytogetacopyofthe
entiretrustinstrument.
1.Policy:discover&protectagainstundueinfluence.
ii.OtherJx.sayifyourenotthebeneficiaryofthetrust,thenyoucannotseetrustterms.More
easilysubjecttoabuse.
b.Incapacity:Iftrustorisincapacitated,thentrusteecantapinandstartmanagingassets.
i.Ifallassetsareintrust,donotevenneedtoappointconservator.
ii.Note:ifbeneficiarieswanttochallengetheactionsofatrustee,buttrustorisincapacitated,you
needtoappointconservatorandhaveconservatorchallengetrusteesactions.
c.Easiertoadministeratrustthanaprobateorconservatorship:
i.donothavetogotoCt.foranyapprovalorfileanyformalaccountingsorhaveexecutor/attyfees
approvedormeetfeeschedule.
ii.V.Conservator:needtohaveaccountingreviewedevery2yearsandallpurchasesneedtobe
approvedbyCt.
d.Convenience:instantcontrolofassetsbysuccessortrustee.
i.Justneedtoshowfinancialinstitutiontrustinstrument&deathcertificatetohavetitlechanged.
e.Flexiblechoiceoflaw:
i.Canuse[DE]oranotherstateslawtoavoidRAPproblems.
ii.TrusteeshouldliveintheJx.,inwhichyouwanttobesubjectedto.
HistoryofTrusts:LawofUsesONLYappliestoRealProperty!!
[CL]:Forcedheirshiptofirstsonforrealproperty.
49
StatuteofUses:Vestedlegaltitleinthebeneficiary.
a. Onlyappliedtotrustsw/noduties,didnotapplytoactivetrusts(wheretrusteehasduties).
b. Rarelyseenanymoreb/cmosttrusts(evenTitleHoldingtrusts)haveduties.
ActiveTrusts:Trusteemusthavesomedutytothebeneficiary.
[Today]:SoUarguablystillappliesinUSunlessabolishedbystatuteorcaselaw.
a. TitleholdingtrustistheclosestUShasw/noduties
b. EXAM:Ifeverdealingw/trustdraftingsituationandsomebodyisdraftingreallybroadexculpatory
languageonbehalfofthetrustee,thenmayviolatetheStatuteofUses.
ExpressTrustRequirements:
Intenttocreatetrust
o Intendtoseparatelegal&beneficialtitle.
o Giftsubjecttononbindingguidance
o Equitablechargealternativeduty
Definiteproperty
o Iftherearenotrustassets,thennotrust.
Acceptanceofpropertybytrustee
o Cannotforcesomebodytobeatrusteeb/cinvolvestakingonahighlegalstandard.
o Wouldbetrusteeisfreetorefusew/noobligations.
o Needtodocumentacceptance:akasigningtrustinstrument.Needtosignalassent.
Note:doesnotneedtobeinwriting,canbeoral,unlessthereislandinvolved
TrustFunding
Trusteemustholdlegaltitle.
Iftrustoristrustee,thentrustorthentrusteealreadyhaslegaltitle.
o Taliferrov.Taliferro(1996):Wherethesettlerofatrustexercisesadeclarationoftrustmaking
himselftrustee,butdoesnottransferoflegaltitletothetrustproperty,thetruststillexists.
Thetrustclearlydeclaredthesettlorastrusteeofpropdescribedinthetrust.Nofurtherdoc
transferringtitlewasreq.
Whenintentisclear,donotbringinextrinsicevidence
Bysigningdeclarationoftrustevidenceofacceptanceastrustee.
Note:thisoutcomeistypical.Clientsshouldgotobank&changetitleofthebankacctto
reflecttheirlivingtrust,butoftenclientsdontdothis.
o [CA]Hegstead:followsTaliferroifyoucanIDascheduleofassetsonthetrusttoshowwhat
shouldbeheldintrustwhenthesettlor/trusteearethesameperson,thenthatisadequateforpurposes
offundingthelivingtrust.
o [BestPractice]:signscheduleofassets.
IftrusteeisNOTtrustor,thenmustformallytransfertitle.
o Need:cleartransfer&acceptance.
o Fundingdocumentcanbeprettyinformal:JustneedtoIDwhatisbeingconveyed&document
trusteesacceptance.
FarmersLoanv.Winthrop:[BestPractice]:will&trustneedtoalign
VerbiageCreatingaTrust
[CL]:Wishordesiretocreateatrustismandatory.
o EstateofBolinger:Precatorylanguageexpressessettlorsdesiresbutisnotbinding.Precatory
languagedoesnotcreateatrust.
50
Fatherdiedleavingeverythingtohisparentswiththebeliefhisparentswoulduseitforthe
bestinterestsofthechildren.
o Levinev.Fisch:Theuseoftheword"desire"indecedent'swillisapositivedirectiveandreflects
decedent'sintentiontoimposeanobligationonanotherpartytocomplywiththetermsofthewill.
Motherleftallher$tochildrenw/expresseddesiretheypay$2400/yrfromtheincomeofthe
proptosupporttheiraunt
Courtlookedatcircumstances:Intentwasclearfromthespecificsfoundinthewill.
(amount,whentostart/stop,etc.)
[TODAY]:lookatcontexttoseeiftestatorintendedaduty;donotneedtousethewordtrust
o Inquireifwordsandfactualcontextrevealanintenttoimposelegallyenforceableobligationon
transferees
o [BP]:useshall&discussobligations.
Trustsv.ContractsareyoutakingpropertyunderKlaworsubjecttoatrust?
Dutiesofparties
Dutyoftrustee
Trust
1. Encompasses
fiduciaryduties
2. Onlyforthe
beneficiarys
benefit
3. Maychangeto
increaseprofitsof
beneficiary
Contract
CanKtocreateTrust
1. Onlycarries
obligations
2. Forownbenefit
3. Cannotchange
4. Requires
consideration.
Pierowichv.MetropolitanLifeInsurance:Thedecedentdidnotcreateatrustwithhislifeinsurancepolicybc
therewasnoassignmentofdesignatedprop.toatrusteew/theintentionofpassingtitlethereto,toholdforthe
benefitofothers,suchthatthelegalestatewasseparatedfromthe"beneficialenjoyments."Thus,anessential
elementof"intenttocreateatrustisabsent.Instead,alifeinsurancepolicyisaKthatcannotbechanged
postdeath.
a.Mantookoutanlifeinsurancepolicyonhimselfnaminghiswifeasbeneficiarybutchangedminor
childrenasbeneficiariespostdivorce.Wifewantedtochangeinordertohavemoneytoraisechildren.
Ctfoundnotrust,onlyacontract.
b.Policy:needtokeeppartiestoacontractintheworldofKlawb/cpartieswilltakecertainactionsbased
onKobligation.
c.TaxPlanning:canalsocreateLifeInsuranceTrustwhichisnotsubjecttoestatetax.
Contractual&SurvivorshipArrangements
Acontractthatprovidesbenefitstoa3Poftenservesasaconvenientsubstituteforagiftorawill.
GovernedbyKlaw
LifeInsurance:biggestnonprobatetransfer!
o 3players:owner,insured,beneficiary
Contractual and
Owner:controlswhathappensw/policy;oftenowner/insuredaresameperson.
Survivorship
Beneficiary:gets$@death
Agreements: Governed
by K Law
Life Insurance
Retirement Plans
51
Notaprobateasset
Freeofownerscreditors
Beneficiarysdesignationcanbechangedbyowner
Settlementoptions:lumpsum,annuity,orseriesofpayments.
3types:
1.Term:endsafterterm,cheapwhenyoung,usually1yrterms
2.WholeLife:combinationsavings&termguaranteed
3.Variable:sameprinciplesaswholelife,butvariableb/cyoudecidehowmuchyouwantto
putinsavings,howtoinvest,andhowmuchterminsuranceisdependsonsuccessof
investment.
RetirementPlans
[Jx.Split]PayonDeathAccts[seeTottenTrustsbelow]
o [UPC]:permitscontractualarrangementformoneytobepaidondeathfornamedbeneficiaries.
Policy:servesliquidity,allowsfamilytoget$immediately@death.
o Requireswrittenrevocation.
JointTenancy
o
o
o
o
o
SomeTypesofTrusts
PourOverTrusts(oftenusedincombinationwithLivingTrusts)
-
Poursresiduaryofestateintoanunfundedtestamentarytrust
o Prop.ownedatdeathincludedinprobate)isgiventoatrusteeofanintervivostrust
o Incorporatetrustdocumentintowill,whichhasadirectionthatthepouroverassetsaretobeaddedtothe
trustpropertyanddisposedofbytruststerms.
o Thetruststermsareamenableandrevocable.DoNOTneedformalitiesofastatuteofwills
Intervivos(living)trustsettlorisalivewhentrustisestablished
o Avoidsprobate
o Secrecy
o BUTadministrationcosts
Traditionallyinvalidb/cthetrustwouldnotbeinexistenceuntildeathsonotrustres
o Fundedduringlifetimewouldthenbeafactofindependentsignificance
ModernLivingtrustsaresoimportanttoestateplanningthattherearenowstatutesallowingthem
o Thetrustexists,itsjustempty
o Avoidsprobate
o Secrecy
UniformTestamentaryLivingTrustAct
o RecognizeLivingTrustwhenever
o Trustmustbecreatedbeforeoratthesametimeasthewill
o Notsubjecttoincorporationbyreferenceyoucanfiddlewiththetrust
TestamentaryAdditionstoTrustAct
o Youcanpouroverintotrust
o Itsokayiftrustwasamendedafterwritingthewill
UPC
o Livingtrustisnotatestamentarytrustbythisprocess
o Doesnothaveongoingct.supervision.
Issues:
o Incorporationbyreference
o Didtrustexistwhenwillwassigned?
TottenTrusts(~POD)
UPCtreatsTottenTrustsandPODaccountsimilarly
52
Anaccountinwhichifthereisanymoneyleftinabankaccount,ondeath,thatmoneygoesintoatrustfor
thebeneficiaries
o Note:notreallyatrustb/caccountholderowesnofiduciaryduties.
o CreditorsCANreachthisbecauseyoucanchangeitduringlifetime
o PODaccounts[UPC]creditorscanreachifestateisinsolvent
PODrevocableby:
o Expresswritingwithbank:filenewdesignationwithbank
o Designationorspecificreferenceinwill(notineverystate)
Tottenrevocableby:
o Willprovision
o Oralrevocation:unequivocalactordeclaration
o Transferdeposittoanotheraccount
o Bycircumstancesresultingininadequacyoftheestatetosatisfythetestamentarygifts,
funeral/administrativeexpenses,taxes,etc.
InreRodgersEstate(1953):ElizabethcreatedaTottenTrustwithbankaccountforsistertopayonher
death.Later,Elizabethsignswillestablishingtrustforsister(underconservatorship)butbankaccountwas
herprimaryasset.TottenTrustwasrevokedby(1)statementstoattyaboutrevokingoutrightgiftto
sister,(2)lookingatschemeofwill.Practicaldifferenceiswhowillcontrolthetrust:trusteeorconversator.
Alienability/AssignabilityofaBeneficiarysInterest
Policy:protectingbeneficiariesfromcreditors(andfromtheirownfollies)
SpendthriftTrusts
-
Settlormakesbeneficiarysinterestinalienablethroughexpresslanguage.(NOASSIGNMENT)
o AbeneficiarysinterestintheprincipalorincomeofthetrustmayNOTbesold,assigned,pledged,
mortgaged,alienatedortransferredinanymanner,orsubjectedtotheclaimsofthebeneficiarys
creditorsortoanyotherlegalprocess.
o Beneficiarycannottakeoutaloanwithtrustasleverage
o Requirements:mustbeEXPRESS&prohibitBOTHvoluntary&
Asset Protection Trusts
involuntaryassignment.
o Foreign trust:
o Oncemoneyisoutofthetrustitisnolongerprotected
no jx or
access
to
info
o Defaultposition:trustisNOTaspendthrifttrustb/creq.expresslang.
o Domestic rule:
- Commonfundtheorydifferentbeneficiarieseachhaddifferentattitudes
minority rule
towardslitigation.Ifonedoesalltheworkandgetsmoremoneyforothers,he
souldbecompensatedmore.
CreditorsAccesstoTrust
o Determinewhatthebeneficiarysinterestis:DISCRETIONARY(~safe)orMANDATORY?
o Istheinterestassignable?Spendthriftclausepreventsassignment
LimitsonSpendthriftTrusts:3rdpartieswhocancollectandreachspendthrifttrusts
o [TRADITIONALLY]:Notvalidifselfsettled
o InvoluntaryCreditors:limitedtowhateverbeneficiarysinterestis
[Jx.Split]TortVictims:easytogotoanotherJx.,soLeg.reversed!
Slighv.FirstNationalBankofHolmesCounty:Tortjudgmentcreditorscanreach
spendthriftstrust.Policiesfavoringspendthriftsdonotoutweighinvoluntarycreditors
claims.Thebeneficiarysinterestshouldnotbeattacheduntilallotherassetsare
exhausted.
o Slighwasinvolvedincaraccidentwithadrunkardwhohasbeneficiaryof2
spendthrifttrustscreatedbyhismom,withremaindertoothers.
53
Childsupport:assumeschildrenhavenomeanstosupportthemselves,otherwiseburdenssociety
Governmentclaims
Claimsofprovidersofnecessitiespublicpolicyinterests:sopeoplewontrefusetohelp
Servicesthatbenefitbeneficiarysinterest(ex.lawyer)
Schreiberv.Kellogg:Determinedthatthespendthriftclausealsoappliestograndchildren,but
trustcouldstillbereachedbecausetheserviceswererenderedtopreservethebeneficiarys
interestinthetrust.Attysoughtfeesfromgrandchildforworkontrust.
Preventsjudgmentproofbeneficiaryfrombeingunjustlyenriched.Ensuresaccessto
legalservicesbyneedybeneficiaries.
Spendthrifttrustownedsharesofdept.store.Schreiberobjectedtotrusteesaleand
forcedincreasedprice,latercompelledotherchangestoadministration.Kelloggfiledfor
bankruptcyandrefusedtopaybills.
CreditorsAccesstononprobateassets:
o Lifeinsurancenocreditorrights
o Jointtenancypropertynocreditorrightsduetorightofsurvivorship
o Tottentrustscreditorscanaccess(b/cduringlifetimecanrevoke)
o PODaccounts(UPC)yesifprobateestateinsolvent
o ERISAretirementplanprotectedfromcreditors
Tip:ifyouchangejobs,leaveyourmoneyinoldfirmsERISAtoprotectfromcreditorsinsteadof
creatinganewIRA
o
o
o
o
DiscretionaryTrust
-
Trusteehasdiscretiontodistributepaymentsforbeneficiaryssupportsubjecttoastandard
o Beneficiaryhasequitablerighttocompelfiduciarydutytodistribute.
o Broaddiscretionarydistribution,subjecttoforfeitureprovisions.
o Trusteeremainssubj.tojudicialcontrol,butmayessentiallyhaveabsolutediscretion.
o Trusteewithholdingfundsmaymakeitdifficultforcreditorstoget$fromtrust
o [BestPractice]:thestrongesttrusthascombinationofdiscretionary&spendthriftprovisions.
OJSimpsonhadnomoneyexceptapensionplan,whichcreditorscouldntreachbutOJhaddiscretiontouse
UnitedStatesv.OShaughnessy:TPbeneficiarydoesnothavepropertyrightinnondistributedtrust
principalorincomebeforetrusteesexercisedpowerofdistributionundertrustagreement.
o Larrywasbeneficiaryofdiscretionarytrust(createdbydad),subjecttoincometaxlienof$400K.Larry
didntwanttotake$fromtrustb/cIRSwouldtakeit.
o [MAJ]:Courtsdonotallowcreditorstocompeltrusteestodistribute.
Exception:trustee/ben.issameperson,thencreditorscancompel.
o Govtriedtoputalienonadiscretionarytrusttopaybacktaxes.Ctholdsthereisnopropertyinterestand
onlyanequitableinterest.Thuscreditorhasnoremedyuntilpaymentisdistributed.
o B/ctheresnorighttofuturepaymentsundertrust,creditorcannotcompel$,butneithercanbeneficiary.
SelfSettledSpendthriftTrusts
-
Settlorhasbeneficialinterestinthetrust,ortrusteeisalsosettlor/beneficiary.
[MAJ]Transferringpropertytoa3Pinspendthrifttrustforyourself(youarethesettlor&ben.)isconsidereda
fraudoncreditors.Spendthriftprovisionisvoidasagainstpublicpolicy&creditorscantapintotrust.
[MIN]:Alaska,Nevadaandafewotherstatesallowsselfsettledtrusts.
Settlorortrusteebeneficiarycanreceivemaxallowedunderdiscretion
o But:creditorcancompeltrusteebeneficiary[CA]:creditorcancompelMAXdistribution.
o But:ifbeneficiaryisneitherthesettlornortrustee,thengenerallycannotcompeldistributions(subjectto
someexceptions,likespendthrift):involuntarycreditors,govt,childsupportetc.
o [NV]:youcanmaketrusttokeepmoneyawayfromspouse?

-
54
Medicare&Medicaid
o Medicare:covershospitalcarenomeanstest
o Medicaid:coverslongtermcaresubjecttomeanstest
o Cohenv.CommissionerofDiv.ofMedicalAss.:CANTput$intrusttoqualifyforMedicaid.
PeoplewithtoomuchincomeattemptedtoqualifyforMedicaid(topayforexpensiveskilled
nursing).Puttheirassetsintoatrustinordertoqualify.Courtsaidthiswasbasicallyselfsettled.
AssetProtectionTrusts
ForeignTrust:noJx.oraccesstoinfo;assetsprotected.
[MIN]Domestic:selfsettledtrust.
o Bankruptcylawallowscreditorstogoback10years.
o Mustalsopaytaxestostate.
o Musthavetrusteeinthestate.
SpecialNeedsTrusts
-
Allowbeneficiarytogetneedbasedgovt$$$byprohibitingpaymentforcostscoveredbygovt(ex:Medicaid)
o ThirdParty:noreimbursementtogovt.
Ex.:Grandmacansetuptrustfordisabledgrandson&keepawaygovtclaims.
Policy:Improvesqualityoflifeforpplw/specialneedsinthattheygetgovt&family$
Whendisabledbeneficiarydies,thetrustmovestoremainder&govtdoesnottake.
o FirstParty:governmentreimbursed
setuptrustusingsettlementfundsforyourselfafteraccident(motivationtopursuetortfeasors)
- LitigationresultinginSpecialNeedsTrust
o Ifdisabledduetotort&receivedamagesCt.canauthorizeputtingdamagesinspecialneedstrust
Govtpaysformedicalexpenses.Trustpaysforthingsthatgovtdoesnot
Whendisabledvictimdies,govtcanrecoverleftover$uptotheamountgovtspentonmedical
expenses.Anyremainderbeyondthatamountgoestorelatives.
TerminationofTrusts
Note:Powertoterminatealwaysincludesthepowertoamend.Powertorevokealwaysincludespowertomodify.
Whathappensw/revocabletrustwhenbeneficiarydies?
Traditionally:creditorscannotrecoverwhenbeneficiarydies.
[CA]StateSt.Bankv.Reiser:creditorcanrecoveruptotheamountthatwasrevocable.
o Husbandtookout$75,000unsecuredloanfrombankbyshowinglivingtrustassets.Setintrustw/
wifeasbeneficiary.Diedwithinsufficientassetsinprobateestate(excludingthetrust)torepaythe
loan.Held:whenwifedied,bankwaspermittedtorecoverthedebt.Ifyouhaverevocabletrustup
totimeofdeath,bankcangetasthoseassets.
[Jx.Split]:RevocationofTrusts
- Powertorevokegivespowertoamend.
o Ifsettlorcanrevoketrust,thensettlorcanoverridetrusteesFDsbyrevoking.
o Ineffect:Ifsettloristhetrustee,thensettlorcanneverbreachFD.
- Oldrule:trustNOTrevocableunlessexpresslysaysrevocable.
- Newrule:revocableunlesssaysNOTrevocable.
- Latestrule:trustforsettlorpresumedrevocable.TrustnotforsettlorpresumedNOTrevocable.
o Flowsfromtaxrules.
- Takeaway:donotleavetodefaultrule,expressiftrustifrevocableornot!!
55
WaystoTerminate
Terms:Bytrustsexpressterms.Ex.:deathorage.
Revocation:Notsubj.toformalities,unlesstrustsetsoutlimitations.
o Ifinstrumentisnotexplicit:Settlormustonlyshowsufficientmanifestintent
o Barnettev.McNulty:Enumeratedmethodsofrevocationarenottheexclusivemethodsof
revocation.Anymanifestationofintentissufficienttorevoke.
Trustdocumentenumerated3waystorevoketrust.Decedentrevokedhistrustinanother,
nonenumeratedway,butthecourtupheldtherevocationb/ctherewasevidenceofanintent
torevoke.
o [CA]:ifdontmentionthatwillcanmodifytrustintrustdocuments,thentrustcanberevokedina
writingotherthanawill.Cal.Prob.Code.15401
o Oldruleisthattrustsareirrevocable.Settlorcanrevokeonlyifhehasexpresspowertodosointhe
trust
o Newrule/CAlawisthattrustsarepresumedrevocable/amendableunlessexpresslysays
irrevocable
o UPC:ifdoesntexpresslysay,questionofinterpretationwheresettlorsintentcontrols.
Ifsettlorisbeneficiary,presumedrevocable
Ifsettlorisnotbeneficiary,presumedirrevocable
Completionofpurpose
o >1purpose:satisfying1ofmanypurposesdoesnotcausetrusttoterminate.
o Ifpurposeiscompleted,thengobacktograntor&heirs.
FrostNationalBankofSanAntoniov.Newton:Onceprimarypurposeoftrustis
completed,thetrustistrustterminated.Iftherearemultiplepurposes,thecourtwillnot
analyzewhichwasprimaryorsecondary
Trust:1/3incometoprovideforhusbandand2/3incomeforsupportandeducation
ofnieces,andremainderincometoNewtonandPurvis.
N&Parguedthatthetwomainpurposeswerecompleted(nieceswereeducatedand
husbandwasdeceased).
o Courtsheldnocompletionofpurposeb/ctwosistersstillhadtobecaredfor.
Frustrationofpurpose:purposebecomesimpossibletocomplete.
o >1purpose:satisfying1ofmanypurposesdoesnotcausetrusttoterminate.
o Only1illegalpurpose:trustterminates.
o DoesNOTapplytoCharitableTrusts:purposecannotbefrustrated.Courtwilljustchangethe
purposeforonethatcanbeaccomplished.
Policy:favorcharitableorgs.
Insufficientprincipal:Amtissetbystatute,onceitgetstoolowitisdeemedinsufficienttoservepurpose.
Nopurposeotherthananillegalone.
Consentoftrustorand/orbeneficiaries:canterminateORMODIFY.
o Beneficiariescancompeltermination/modificationoftrustifallbeneficiariesandtrustoragree.
o Beneficiariesalonecanterminate/modifyifchangewillnotdefeatpurposeofthetrust.
o Anyonerelatedtotrustcanpetitiontoaddresschangedcircumstancesnotanticipatedbytrustor.
Doesnotrequireconsentofall,justneedtoshowmakessense&couldnotbeanticipated.
o Virtualrepresentationisallowed.
Livingadultbeneficiariescanrepresentandgiveconsentforminororunbornbeneficiariesif
interestsofbeneficiaryw.r.t.termination/modificationarethesame.

o
56
InreBayleyTrust(1969):Theprobatecourtcanauthorizeatrusteetoterminateaportionof
thetrustnotnecessarytoprovideincometoremaininglifebeneficiariesifallbeneficiaries
consent.
TrustcreatedforfamilymemberswithremaindertoMuseum.Allbeneficiariesconsentto
termination.Bankdoesnotconsentfearedpersonalsurcharges(beneficiarycouldsue
underclaimthatconsentwasabreachoffiduciaryduty).
Ctallowstheterminationthetrusthadalreadyserveditsprimarypurposeshowshow
banksoverlitigatetrusts.
Stateattorneygeneralisinvolvedb/csheisresponsibleforenforcingallcharitabletrustswith
thestate;thus,isanindispensablepartyinthedispositionofcharitabletrusts.
DoctrineofWorthierTitleIssue:Doheirsatlawhaveanyinterestsunderatrustinstrument?
Ifasettlortriestocreateafutureinterestinhisheirs,thefutureinterestisreclassifiedasa
reversiontothesettlor.Favorsvestedinterests.
Exception:settlorsclearintenttocreatefutureinterestinhisheirs.
Hatchv.RiggsNat.Bank:AbolishedDoctrineofWorthierTitle.
Womancreatedselfsettledtrustforherbenefit,thenforheirsbenefit.Petitionedto
modifytrusttopay$5Koutofcorpusbasedondoctrineofworthiertitle.Ctheld
thatforhertoterminate,sheneededconsentofheirsandaguardianatlitemfor
unknown/unbornheirs.DoctrineofWorthiertitleabolished.
Spendthrifttrusttherewasnoprovisiontoamend,alienateorrevoke
AmendingTrusts:
o CAinordertoamendformallivingtrustmustfollowtermssetoutinthetrust
o Ifhavepowertorevoke,automaticallyhavepowertoamend
StatuteofFrauds:AppliedtoTrusts
StatuteofFrauds(anevidentiaryrule):appliesonlytoexpresstrustsofREALproperty=mustbeinwriting
Exceptions:PartPerformance,Fraud,UnjustEnrichment
BUT:[RST3d]OralTrustsforRealProperty:
1.trusteecanchoosetoperformornot
2.canbeenforcedbasedontrusteespartperformance.Ex.:AgivesrealpropertytoBintrustforC
underoralagmt.BcollectsrentandpaysittoC(actingliketakingitunderatrust),butB
claimsSoFfailure.BengagedinpartperformanceandsoCt.wouldenforcetrustforC.
ResultingTrusts:arisewhenimpliedinfact(vs.constructivetrustisimpliedinlaw)
1. trustspurposebecomesimpossible
2. trustspurposeiscomplete,butpropertyremains
3. personpaysconsiderationforpropertyanddirectstitletobeputin3Psname.
a. Default:3Pisdeemedtrustee.
b. Unless:
57
1. manifestintentthatdidnotwanttocreatearesultingtrust.
2. transferforillegalpurpose(ex.hidingassets)
3. transfereeisspouseornaturalobjectoftransferorsbounty&trustisnotexpresslystated.
a. Presumed:gift,if3Ptitleholderisnearrelativeofpurchaser;NOTatrustfortransferor.
ConstructiveTrusts:arisewhenimpliedinlaw;remedyforwrongdoing,imposedbycourt
DoesNOTneedtobeinwriting
Ariseswhen:
a. Trusteeprocuredbyfraud/duress:
Fairchildv.Rasdall:Bro1woundsSmith.Bro1transfers$intrusttoBro2underoralagmtthatBro2
wouldreconvey,thenleavescountry.Bro2refuses&Bro1swidowtriestocompelreconveyance.
Held:TosatisfySoFtrustMUSTbeinwriting.Allegedfraudcannotbeadenialofexistenceof
trust;nobodytrickedanybody.
b. Transferorandtransfereeinconfidentialrelationship.
c. Preventunjustenrichment
Sullivanv.Rooney:BF/GFw/sharedfinancials,buyahousetogetherw/onlyBFsnameontitleso
theycouldgetaVAloan.Relationshipended&BFtriedtokeephouse.
Held:CourtimposedconstructivetrusttohousetopreventBFsunjustenrichment.
d. Mistake
e. Othertortiousconduct
Ifpropertysubjecttoconstructivetrustissold,cantraceproceedsofsale.
IndefiniteTrust:
[Traditionally]:Privatetrustsmusthaveidentifiablebeneficiarieswhocanenforcethetrust,otherwisethere
isnothingpreventingtrusteefromenjoyingbothlegalandbeneficialownership.
Privatev.CharitableTrusts:[seeCharitableTrustsbelow]
o Moricev.BishopofDurham:WomanleftresidueofestatetoobjectsofBishopsbenevolence.
Heirsatlawsuedtoinvalidatetrustastoovague.
Ifcharitabletrust,thenvalid.
Ifprivatetrust,theninvalidb/cbeneficiariesareindefinite.
Held:private&trustinvalid;passestoheirsviaintestacy.
[Jx.Split]PowersofAppointment:treatindefinitetrustaspowerofappointment:
o Givevalidrighttoperson(bishop)todirecttrustpropertydistributiontobenef.selectedbypowerholder
o Rightdefaultsifnotexercised.(IfBishopdidnotnamebeneficiaries,thendefaultsbackintoestate.)
o Allowschangedcircumstancestobeaddressedafterdeathoftrustor.
[RST3d]:IndefinitePrivateTrustAllowed
o treatsitasapowerofappointment
o Iftrusteedoesnotexercisepower,resultingtrustforreversionbeneficiariesisimpliedbylaw.
CHARITIES:CharitableTrusts&GiftsSubjecttoCharitableRestrictions
Introduction
Acharitabletrustmusthaveacharitablepurpose
Cannotbeforaprivatebenefitorprofit
o Apurposeischaritableifitisfor:
Reliefofpoverty
Advancementofeducationorreligion
Promotionofhealth
Governmentalormunicipalpurposes
Anypurposebenefitingthecommunityatlarge:foundations
Musthaveadefinitepurpose
58
BenevolentTrusts(performkindacts):arenotcharitabletrustsunlesstheyaccomplishaspecific
charitablepurpose
MusthaveINDEFINITEbeneficiariesorabroadclassofbeneficiaries
o Toosmallaclasswithdefeatacharitablepurpose
UnidentifiablebeneficiaryisOK(unlikeaprivatetrustwhichrequiresanidentifiableben.)
o CharitabletrustsarenotsubjecttoRAP,Ct.willappointsuccessortrustees
o
MortmainStatutes(DeadHand)LimitingCharitableGiftsnowunconstitutional
o Intendedtoprotectfamiliesfromdisinheritance
o Limited%ofestatepassingtocharityorTimingofgifttocharity
Nogiftsw/in90daysofdeathtoreligiousinstitutionfearthatmakingbigdonationstogetintoheaven
o Unconstitutionalaslackingrationalbasis
EnforcementofCharitableTrusts
1. WhocanEnforce?
a. AttorneyGeneral:always
i. Lefkowitzv.Cornell:Arestrictionplacedupontheuseofagifttoacharitablecorporation
isreq.tobeclearlyexpressed.Here:therewasnoclearexpressionthatthegifttothe
universitywassubjecttotherestrictionthatitbeforeverusedasaresearchlaboratory
publicbenefit.
1. CurtisWright.,ownerofresearchlaboratoryfacilitiesmadeacharitablegiftoffacilities
toCornell.CreatedaSpecialPurposeEntitytorunthefacilitiesanddoresearchfor
CW,whichwereproppedupbyotherco.sdonations.Thedeedandbillofsalerecited
thatthetransferwasmadeinconsiderationofadvancementofscienceandeducation.
After25years,CornellenteredintoaKtosellthelab.
2. CharitableTrustcreatedbyconveyance:WhentheconveyancetookplacefromCWto
Cornellimmediatelycreatedacharitabletrust.
3.Held:Onlyrestrictionwasfortheadvancementofscience&educationCansell
aslongasthemoneyisusedforsuchpurposes.
b.[Jx.Split]:Donors:sometimes
i.Generally:doNOThavert.toenforcetrustees
ii.Unless:gaveverylargecheck&thereisagiftagmt,whichallowsdonortoenforceviaK.
c.[MIN]:Beneficiaries:rarely
i.StandingIssues:permittingunidentifiedbeneficiariesmakesitdifficulttodeterminestanding.
2.CommonRestrictions:
a.Maintaininperpetuity
b.NamingafterDonor
i. Tenn.Dev.DACv.Vanderbilt:DACdonated$50KtoPeabodyUtoconstructdormnamed
ConfederateMemorialHallandgiveDACmembers/familiespreference.PeabodyU
mergedintoVanderbiltU.VanderbiltUlaterrenovatedhallfor$2.5M.Inresponseto
complaints,newChancellorsoughttodropConfederatenamefromhall.
o Outcome:inordertochangename,schoolhadtorefundDACw/interest.
ii.Today:Donorshoulddeclarewhohasstanding&whatcircumstancesjustifyremovingname.
CyPres&ChangeinCharitablePurpose
CyPresisFrenchforsonear/close
Usedtosalvageacharitablegiftthatwouldotherwisefailforimpossible/illegal/impracticablepurpose
allowscourtstochangethepurposeofthecharitabletrust.
Ifthecharitynolongerexists,divideupamongothercharities(ifallcharitiessimilar)ORfinda
replacementthatdoesthesamepurposeastheonethatnolongerexists.
[Traditionally]:requiresgeneralcharitableintent
59
1.First:MUSTfindgeneralcharitableINTENT.
a.Donorjustwantedtodosomethinggood.
b.Courtsusuallyfindgeneralcharitableintent.
2.Then,courtcanauthorizeuseoftrustforpurposethatisascloseaspossibletodonorsoriginal
purpose.
3.Ifcharitableintentisfound,CyPresapplieswhen:
a.notenoughmoney,or
b.toomuchmoney,or
c.purposeaccomplished,or
d.Changedcircumstances:Ex.Donationforpolioresearch.Polioisnotreallyathinganymore.
e.impossibilityorcharitydoesnotexist,or
Cts.lookfornextclosestcharity.
f.premisesnotsuitableforpurpose.
Applying
Applying cy
cy pres:
pres: 33 step
step analysis
analysis for
for applying
applying Cy
Cy
Pres
Cts.lookfornewlocation.
Pres
1.
Can
4.
Can the
the trust
trust be
be effectuated
effectuated as
as written
written
[RST3d]:CyPres
2.
If
5.
If no,
no, was
was there
there aa charitable
charitable intent?
intent?
3.
o Applyunlessdonorprovidesalternativedisposition.
6. If
If yes,
yes, what
what is
is the
the next
next nearest
nearest charitable
charitable
purpose
for
the
$?
purpose for the $?
o Nogeneralcharitableintentrequired.
o Appliestowastefulpurpose:
Cafferata:thinkabouttheoveralleffectthishasongiving.Peoplewillbelessinclinedtodonateif
theythinktheirgiftwillnotbecarriedoutb/citsdeemedwasteful.
o [UPC]:noreversionbacktoheirsunlesstrustorisaliveorhaddiedw/in21years.
Iftrustordied>21yrsago,thenkeepincharitableworld.
ChangeofPurposeofaGift:evenbroaderpowerthanCyPres.
o Whendealingw/particulargiftsgiventoaninstitution,thereisflexibilityw/intheinstitutiontochangethe
purposeofparticulargifts.
BUT:Purposeofinstitutioncannotbechanged&isstillgovernedbyCyPres.
[UniformPrudentManagementofInstitutionalFundsAct]:Purposeoffundscanbechangedbycourtif
purposeisunlawful,impracticable,impossibletoachieve,orwasteful.Nochangingpurposeofinstitution.
RaciallyResrictiveCovenants:perseunconstitutional
o Evansv.Abney:CyPresdoesnotpermitcourtstosimplydeletetheraciallyrestrictiveclauseswhenthe
testatorexplicitlyindicatedthatthislimitationwasanessentialandindispensablepartofhisplanforland.
SenatorBacon(strongsegregationist)donatedlandforparkexclusivelyforusebywhite
people(aftercourtsrulednoparksegregation).Held:donorhadnogeneralcharitableintent;
landrevertsbacktograntor&heirs.
o Shelleyv.Kramer:IfcallCts.actionstateaction,thenCt.cannotenforceracialcovenants.
o Trammelv.Elliott:Willleavingscholarshipsforwhitestudentsatastatefundedschool.Schoolcan
applyCyPrestoremoveraciallimitations.Held:ifraciallimitationsareimposedb/cjustreflectedthe
times,thenGeneralCharitableIntentmaystillbefound&CyPresmaybeapplied.
o BobJonesUv.U.S.:IRSrevokedtaxexemptstatusofBJUb/cithadraciallydiscriminatoryadmissions
practices.Held:taxbenefictwaseffectivelyagrantoffederalfunds,soconstitutionallimitscouldapply.
o Simmonsv.ParsonsCollege:LesterleftresidueofestatetoDrakeUandParsonsCollegeequally,and
requiredthatifeithershouldfail,thenheirsgetthatshare.ParsonshadfailedbeforeLestersdeath.
Drakesoughtentireestate.OUTCOME:Nocypres.DrakedoesntgetitbecauseParsonsfailedbefore
deathandhemadeotherprovisions,soParsonssharegoestoheirs.
o GenderLimitationsonScholarships:permissible
EstateofWilson:Applicationofcypresisinappropriateunlessthecourt1stfindsthatthe
specificcharitablepurposehasbecomeimpossibleorimpracticable.
60
HonoraryTrusts
Provided2testamentarytrustsfortheeducationofmalesstudentsthatwereatthetopof
theirclasses.
TrustspurposewerenotimpossibleorimpracticableCannotpreventprivate
discrimination
Genderclassificationisacceptableandnotcontrarytopublicpolicy.Similartrustsexist
forwomen.
Inpractice:Justremovestateaction&letlimitationstand(i.e.havestudentsapplyto
scholarshipdirectlyratherthanrequiringstateschooltosupplylistofnamesofeligible
male/femalestudents.)
Policy:50/50gender,soassume$isbalanced.
Includes:monumentortombmaintenance,flowersongraveinperpetuity,sayingofmasses,careofpets,etc.
[RST3d]:Honorarytrustsareheldforpurposew/reversiontobeneficiariesatlaw,solongashonorarytrustisnot
charitableorcapricious.
o Capricious:Giventosuddenandunaccountablechangesofmoodorbehavior
PetTrusts:
o [Traditionally]:Russeltrustforpetsasbeneficiariesisnotvalidb/cpetcannotgointocourttoenforce
thetrust.
o [CA]PetTrustCAProbateCode15212:
TrustsheldforpetsasbeneficiariesareVALID.
Anypersonnamedinthetrustinstrumentormemberofananimalwelfaresocietycanenforcethe
trustandhastherighttoinspectthepetsconditionsandwellbeing.
Accountingstoremainderbeneficiaries.
Courtcanappointatrustee.
61
THEPROBATEPROCESS:AdministrationofEstates&Trusts
State/FederalLawDivide:
o Constitutionreservesprobateprocessforthestates.
o Marshallv.Marshall(SC):Aclaiminfederalcourtfallsoutofboundsoftheprobateexceptionbc
(1)theprobateexceptionisreservedtostateprobatecourts,theprobateorannulmentofawilland
theadministrationofadecedent'sestateandprecludedfederalcourtsfromendeavoringtodispose
ofprop.thatwasinthecustodyofastateprobatecourt,(2)thewidow'sclaimdidnotinvolvethe
administrationofanestate,theprobateofawill,oranyotherpurelyprobatematter,and(3)the
widowdidnotseektoreacharesinthestatecourtscustody
AnnaNicoleSmithmarriesawealthyoldman.Decedentleavesnothingforherinhiswill.Anna
arguesthatsonusedundueinfluencetoomitherfromwill.Sonthensuesforslander.
CAct.:ForAnna(1)Defenseoftruthwasmeritious.(2)sonhadengagedinundueinfluence&
tortiousinterference
9thCir.:Reversed;Statecourtshandleprobate.
SC.:Reversed;probateexceptionisnarrow;SCcanhearcaseb/cthisisaTORTclaimfor
slander&didnotinterferew/probateadministrationinstatecourt.
o [CA]:somesuperiorcourtsaredesignatedasprobatecourts.
o [Jx.Split]re:probate&jury:
[CA]:nojury
FunctionsofProbate:
1. DetermineDocument:which,ifany,governsdistribution?none,thenintestacy.
2. DetermineFiduciary:ifnamedinwill,thenexecutor;ifnotIDd,thenadministrator.
3. SuperviseProcess:Ct.supervisespayingoffcreditors.
4. DocumentTitleinnameofbeneficiaries:needcertainty
5. Deadpeoplecanttelluswhattodowiththeirstuff.
6. Priorityofcreditorsandbeneficiaries.
Jurisdiction/LocationofProbate
WheretoProbate:
1. Placeofresidenceofdecedent:mostlikelyJx.
2. Placeof(real)propertymayrequireancillaryprobateinanotherstateifownrealpropertyinmanyplaces.
o AncillaryProbate:Administrationofpropertyinstateotherthandomicile.
Usuallyforrealproperty.
Usuallysamepersonalrepresentative,whomustbespecifically
appointedinbothJx.
[UPC]executorinforeignJx.allowedtoactlikeanyotherpersoncancomeintoSt.
provepositioninstateofdomicile&coversallotherAncillaryJx.
[MAJ]:executorcanbefromanystate.
o NonissueforCorporateExecutorslikebignationalbankshaveacharterfor
all50states.
[MIN]prohibitnonresidentexecutorsinafewstates.
Willcontestisusuallyheldindomicile.
Mayfollowdifferentlawsofdescent.
Text:Agivendomiciledidnotallowcharitiestoreceivegifts,buttheancillary
probateallowedcharitiestoreceivegifts.AncillaryProbatetrumpsdomicilerulesin
ancillaryprobateJx.
62
Ex:CPJx.v.CLw/electiveshare.>>>canbeverydifferentresults.
3. PlacewhereyoucanhaveJxoverkillerorwherekilled:Rationale:tomakeiteasierforestatetofileacivilsuit
againstmurderertorecoverdamages.
Domicile:Technicallyastateofmind;thefixedplacetowhichyouintendtoreturn.
Canonlyhaveonedomicileforeachparticularpurpose:
o Intheory,only1domicileispossibleb/cyoucantreturnto2places.
Changedomicilebyestablishingnewdomicile.
o Aprolongedabsencefromyourdomicilewillnotchangeitunlessanewdomicileisestablished.
o Ex:studentsawayfor67yearsmaystillbedomiciledintheirparentshome.
Lookat:sellhouse;getanewlicense,changevoterregistration,leavesocialclubs,moveallbankaccounts
TaxationIssue:domicilegetstoimposeestatetaxespickuptax
o [CA]noestatetaxatthemoment(buthashighincometax,somoveoutofCAtosellproperty)
CAisverystrictaboutpeoplefakingotherdomiciles
o [NY]andabout15otherstatesstillhaveestatetaxindependentfromfederalcredit.
DomicileConflicts:
o Twostatesmayclaimdomicile&taxation.
[UPC/MIN]firststatetoopenprobatewins.
Nogoodremedy,cannotforceresolutionofonlyonestateinfederalcourt:PossiblethatbothJx.
willimposetax&yourestatewillbedoublyliable.
Ex:HowardHughes:bothCAandTexasasserteddomicile.Statessettled.
Ex:TupacShakur.DidaconcertinAlabamawheresomeonegotshot.Psattorneysuedin
Alabamaandgotsomeoneappointedasexecutorw/otellingShakursestateandwondefault
judgmentof$10million.EstateallowedthemtotakeeverythinginAlabama(nothing),sothey
nevercollectedonthejudgment.Tupacactuallydiedwithmodestestate,butalotofmoney
cameinlater.
Ex:GillHyattinventedintegratedcircuitinthe1950s,appliesforpatent,spends30years
litigatingthepatentuntilSCOTUSvalidateshispatent.HehadmovedtoLasVegasbeforehe
madebankfrompatentroyaltyincome.CAwantsdomicile,investigates,makesunauthorized
disclosures,HyattsuedCAinNV,appealjurisdictiontoSCOTUS,whosendsbacktoNV,who
giveshimbillionindamages,CAappealsagainstillpending.
Note:Divorcedin1960s.Shegetseverythingexceptthepatents.Inthe1990s,shesues,
arguingshedidntknowwhattheywereworth.FamilyLawcourt:getout,goaway.
o Creditors:needtobringclaimwherepropertysits.
o [UPC]CandesignatestatetocontroldistributionofyourpropertyortobeJx.ofprobateinyour
documents,butthisissubjecttopublicpolicylimitations,whichinclude:
cannotdefeatelectiveshare
cannotdefeatexemptproperty
cannotbeinconsistentwithimportantstatepolicy.
o [BestPractice]:resideentirelyinonedomicile.
1990s:CAhashighstateincometaxes.
MaywanttoleaveCA,butnotreallyleave.
GovtmaynotbelievethatyoutrulyleftCA&imposetaxesanyway.
OnemanwasabletosueCAforimproperconduct&won.
63
FormalProbateProcess
*Probateprovidesfororderlytransfersoftitleorproperty,ensurescreditorsreceivenoticeandhaveopportunityto
presentclaims,extinguishesclaimsofcreditorswhodonotpresentclaimsandensurespropertyisproperlydistributedto
thoseentitledtoreceive.Italsoprotectsagainstfraud.
*Tobeeffective,awillmustbeofferedinprobateorelseithasnoeffect.
WHENdoestitleVESTinthebeneficiary?
o Interestvests@death(butlittlepracticalsignificancesinceneedprobatetodocumenttitle).
o RealProp:vestsimmediately
o Personalprop:firstvestsinpersonalrepresentative,thenbeneficiary.
o Saleafterprobatecreatesbonafidepurchaser(BFP)whotakesagainstlaterdiscoveredwill.
o Ecklandv.Jankowski:Hegstaddiedin1945.Intestatedistribution.Heirssoldpropertyin1946.
Propertywassoldagainthatyear.Willwasdiscoveredin1947,andthebeneficiariesunderwillsought
torecovertheproperty.HELD:bonafidepurchaser(reliedoncourtdecree),nounwindingofsale.
Note:willbeneficiariescouldhavesuedheirwhosolditiftheystillhadanymoneyleft.
StepstoStartProbateProcess:
1. Lodgewill:[CA]w/in90daysofdeath
2. Petitionforprobateinordertoappointapersonaspersonalrepresentative(executororadministrator).
o Nocontest99%ofthetime
o Executor:namedinwill.Ifsaysno,defaulttoadministrator.
o Administrator:ifnooneisappointedinwillasexecutor,courtwillappointanadministrator.
3. Admissionestablishesdueexecution&thatwillisfinal&controlling
4. OKtoadmitwillthatviolatesKorhasambiguities.
ProbateHearing:
o Noticegoesto:heirs,beneficiaries,AGifthereisacharitablebeneficiary.
o Standing:Thesepartiesalsohavestanding.
o Publicationinlegalperiodical:3xin21daysbeforeprobate.
o Willisadmittedbasedon:(1)selfprovingwillOR(2)affidavitsofwitnesses,UNLESSwillcontestisfiled.
o Ifcontestisfiled,thenjustsigndocument&donotrequirewitnesses.
o Nonevent:uncontestedwill;ifnobodyconteststhenwillisfinalwill&begindistribution.
PersonalRepresentativesSupervisoryduties:4mainduties
1. PreparingINVENTORYofassets.
a. Timing:afterprobateopening.Finalaccountingstartswithinventory.
b. Serves2purposes:
i. Determinescompensationforexecutor/atty:set%rate.
1. [CA]:executorsgetslidingscale;competingincentives
a. incentivetoappraiseathighervaluestoearnmoremoney.
b. incentivetovaluefairlyb/cestatehastopaytaxes
2. [MAJ]:reasonablecompensation
ii. Accountsdistribution/use:Processincludes
1. Listingassets
64
2. valuingassets
a. [CA]:requiresassetsbevaluedbycourtappointedprobatereferee.
3. determininganyencumbrancesonassets
2. Givingnoticetocreditorsofopeningofprobate
a. CreditorsClaimsIdentification:
i. Needtoidentifycreditorsandcleardebtsbeforedistributingnetassetstobeneficiaries
ii. Procedureforidentifyingandmanagingclaims:EITHER....
1. Availyourselftocreditorsclaimprocedures&giveNOTICE:...OR...
a. 2waystogivenotice:
i. Publishinlegalnewspaper
1. SoL[CA]:creditorshave4monthstofileclaim
ii. [MAJ/CONSTITUTION(SC)]Actualnoticetoknowncreditors.
1. SoL[CA]:creditorshave60daystofileclaim
2. DONOTavailyourselftocreditorsclaims.Onlydealw/creditorsthatcomeforward.
a. SoL[CA]creditorshave1yrafterdeathtofileclaimregardlessofnotice.If>1yr,
thenclaimsbarred.
b. Theclosercreditorfilestothe1yrmark,thelongerlessefficientthisprocessis.
i. Ex:womansimultaneouslyfiledpetitiontoadminister&creditorclaim2
daysbefore1yrSoLranout.DrejectedWsclaim3monthslater&started
180daySoL.Womanagainfiledsuit2daysbeforethe180daySoLranout.
ii. Note:Ifyouhaveapartywhohaspriorityoverprobatecomparedtoaparty
whocouldadminister,butwhoalsohasacreditorclaim;NEEDthepartyw/
prioritytoserveasexecutor.OTHERWISE,youendupwithanexecutor
whokeepsapprovingtheirownpersonalcreditorclaimsontheestate.
3. Creditorcannotfilesuitwhileclaimsprocessisunderway.
4. BUT:SomeclaimssurviveregardlessofSoL(Bardoesnotapplytothese):
a. claimforperformancebypersonalrepresentativebroughtw/in4mos.ofwhendue.
b. securedclaims
c. claimsuptolimitsofinsurance
d. claimsbypersonalrepresentativeorattyforcompensationorreimbursements
e. debtincurredafterdeath:normalstatutesapply
i. breachofKafterdeath
ii. tortclaimafterdeath:ex.accident@Decedentshouse.
f. federalstatutoryenvironmentalliability:maynotbeinterferedw/bystatecreditor
claimprocedure.
b. CreditorsClaimsProcessing:
i. PersonalrepresentativeEITHER...:
1. Actsonclaim:....OR....
a. SoLapplicabletocreditoraretolledfrommailingofnoticeuntilexpirationof90day
periodafterrejection
i. Exception:aclaimthatdecedentpromisedtomakeagift1yearSoLfrom
dateofdeath.
b. Policy:givespersonalrep.timetolookatclaimadequately.
c. SoL[CA]:Oncerejected,thencreditorhas180daystofilesuitagainsttheestate.
i. findoutsoonerratherthanlaterthatalawsuitwillbefiled.
d. Personalrepresentativehas3options:
i. acceptclaim
1. FD:executorhasdutytoonlyacceptvalidclaims;ifacceptsinvalid
claimexecutormaybepersonallyliable.
ii. rejectclaim:
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1. oftenfamily/friendsusecreditorclaimstogetinheritance.
2. CharitableOrgw/Iplantomakeagiftverbiage=invalidclaim,
UNLESSsupportedbenforceablepledge/K.
iii. acceptinpart/rejectinpart
2. Sitsonclaim.
a. Ifpersonalrepsitsfor90daysw/oaction,thencreditorcantreatlackofactionasa
rejection.
b. BUT:Thisrejectiondoesnottrigger180SoLtofilesuit,socreditorsareinno
rush.
c. AllSoLaretolleduntilexecutorexpresslyrejects,atwhichpointSoLbegintorun
again.
3. Distributingdecedentsproperty.
4. Paydecedentsbills:funeral,atty,etc.
Nonprobateassets&creditorsrights
- Lifeinsurancenocreditorsrights
- Jointtendencynocreditorsrights
- TottenTrustscreditorscanobtain
- PODaccountsUPC:creditorscangettoifprobateisinsolvent
PriorityofCreditorsClaims
Orderonlymattersifestateisinsolventpayeverythingin1categorybeforeexecutorpaysthenext
ORDERofpayingdebts
o Administrativeexpenses:Executor,attys,administrators
o Funeralexpenses
o Expensesforlastillness
o Taxliens
o Securedclaimsonland
o Unsecuredcreditors
InformalProbate
o
[UPC]:proposedinformalprobate.
o RangeofOptions:
1. NocourtactionnoBFP.
2. FilewillwithcourtBFPafter3years.
3. CourtappointsrepresentativeAND/ORdeterminesdocuments.
4. Courtsupervisesadministration
Certainkindsofexemptproperty:
o Wagesinbankaccountthatcanbedistributedimmediatelytosurvivingspouse
o CAhasspousalsurvivingpetition,transferseverythingtosurvivingspousemorequickly
o CAalsohasinformalprocessbyaffidavitsayingyouareentitledtothosebankaccounts
Ifaffidavitlooksfaciallyaccurate,bankisnotliableifpersonwasNOTactuallyentitledtoaccnt
BUT,ifyourefusetohonoraffidavit&endsupvalid,youmustpayoppositionattnyfees
o CA:Smallestatesupto$150KandNOREALPropertycanbesettledbyaffidavit
o Ifsomeonehasalotof$$$butsomeisnotsubjecttoprobateb/citsnotinlivingtrustwhiletherestis
o Ifhavelittlepropertyoutsidelivingtrust,it(if<$150K)canbesubjecttoinformalprobateprocess
Neverabletogivegoodtitletobonafidepurchaserifcourtdoesnotresolveprobateatall
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UnderUPC,thereareseveraloptionsfromDIYtofullysupervised.Tradeoffishowquicklyyoucanhaveclear
titletothepropertyandwhetheryoucaneverconveytitlethatwouldmakesomebodyaBFP.
o LeastformalDIYnoonecanbecomeaBFPitsalwayssubjecttoquestion.
o Depositwilltothecourtthendonothingwithitjustgivepublicnoticewhatyoureoperatingunder.
After3years,youcangivegoodtitletosomebody,youcanbecomeaBFP.
o Itmaybethatyoucantfigureoutwhoyouwanttoadministertheestate,intermsofdocument(or
intestacy),theresnodisputeonwhosentitledbutwhostheadministrator,thenyoucangotothecourt
andaskforafiduciary.Youcanhavethereverseproblemnothavingthedocumentcanhavecourt
decidewhichdocumentyoucanoperateunder.Youcanhavebothproblems.
o Supervisedprobatecourtsupervisestheentireprocess
Advantages
o Lesslaborintensive
o Cheaper
o Better/easierwithcorporatefiduciary(lesslikelytoembezzle)
Issues:
o allowsfraudorembezzlement
o betterw/corporatefiduciary(butBofAwontdoitforsmallestates)
o titleclearingissues
o livingtrustsareabetteralternative
BUT:lotsof$passesoutsideofprobate;lifeinsurance,retirementacct,POLassets.
FinalityofProbateOrders:ordersareFINAL
o Debtspaidtoestatecannotbecollectedagain.
o BFPfromprobatetakesagainstbeneficiariesoflaterdiscovereddocument
Islandv.Denvin:treasurerofnavypaiddebttoexecutor,butexecutorwasapptunderforgedwill.After
treasurerpaid,estatesnewadministratordiscoveredtherealwill&wantedtreasurertopayagain.Held:
eveniforderwasissuedinerroradebtorisnotrequiredtomakethesamepaymenttwice.
Allenv.Dundas:BrownforgedwillPriestmansof&wasappointedexecutor.Brownsoughtpaymentof
&gotNavydebt.Later,Priestmanssonprovedwillwasforged&soughttocollectthedebtfromNavy.
Held:SondoesntgetdebtbackfromBFPbutisfreetosueBrownforfraud.
o Exception:orderisfinalifnotappealedunlessorderisresultoffraud/accident/mistake.
[SoL]forFraud:2yrsfromdiscover&5yrsfromcommission
Exception:canALWAYSgoafterperpetratoroffraud.Policy:perpneedstoreturnassets.
GeneralStepsinSolemnProbate(ExecutorsDuties)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Find&determinedocumentthatconstitutesthewill
Determinepersonalrepresentative
TakewilltoRegistrarofWills
Scheduledateforprobateproceedings
Join,notify,&serveinterestedparties:Everyonenameinthewillsreceivesnoticeofproceedings
Collectmaterialforprobate
o Witnessessignatures
o Deathcertificate,etc.
ReceiveLettersTestamentary
o LettersfromProbateCt.authorizingexecutortochangeallnamesinpropertytitleddecedentto
executorsnameNotthenameoftheestate
Postbond(ifnecessary)
Marshalassetsoftheestate:Executortakeintopersonalcontrol(onlyprobateassets)
Prepareinventory
o List,value,encumbrances
CAdeterminelistsofassets,taketoassetsrefereetodeterminevalue
o Appraiserswhereneeded,bysurewillnameswhohe/sheshouldbe
IfnotneededBesurewillwaiveshim/herastogeneralappraisals(toavoidcronyism)
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1. ButifdecedentownsacollectionofsomethingMUSTbeappraised
2. MaychoosepersonfromwhomdecedentpurchaseditemsInventoryAssets
11. Dealw/creditors
o Figureoutwhoisowedwhat
o Mustgivenoticetocreditorstofileaclaimwiththeestate
Publication
Mustgiveknowncreditorsactualnotice
CAcreditorshave60daysinwhichtofileaclaimagainstanestate
Onceacreditorsendsaclaimexecutorcanacceptorrejectit
1. Within90days
2. Ifexecutordoesnotactconsideredrejected.
Ifclaimisrejectedcreditorcansuetheestate
12. Paydebts&taxes
13. Filepreliminaryacct.
14. Presentownbill
o Bothforexecutorfees(noneedtojustify)&forattyfees(judgewillrequireproofofseparateworkdone)
15. Presentfinalacct.,including:
o Everythingdonetoestate
o Debts&taxespaid
o Includecheckstolegatees(howdistributionwilltakeplace)
16. Distributeestateasperattacheddistribution
17. Oncedistributioniscomplete,executorisdischargedofduties
FiduciaryRoles
Generictermencompassing:Executor,trustee,agentsunderpowerofatty
administrator,personalrepresentatives,guardians/conservators
FiduciaryRoles&Breach:
1.
Executors/Administrators:namedindoc.,ultimatelyuptocourt,butifwilling/ablecourtfollowsdoc,UNLESS
namedexecutorisinvolvedinadisputeoverestate;manageprobateestate.
a.OrAdministrator:appointedbyCt.;manageprobateestate.
b.PriorityofAdministrators:canfilepetitionw/court
i.Spouse
ii.Children
iii.Heirs
iv.Creditors
v.PublicGuardian
vi.InterestedPersonfinancialinterest
c.ExecutorspecificDuties:
i.MUSTperformdecedentsKs:
1.Exception:Ksforpersonalservices
ii.Mayoperatebusinessuntilsold
iii.PersonallyliableifexecutorentersintoaKthattheestatecannotperform.[SeeOnanianv.
Legattbelow]
2.
Trustee:legaltitle,butnotbeneficialtitleintrust
a.ofIntervivosTrust:appointedbydocument
b.ofTestamentaryTrust:appointedbycourt
3.
Guardians/Conservator:appointedbycourt;manageaffairsofincompetentperson
a.Guardianssuperviseminorswhoareautomaticallyincompetent

b.Conservatorssuperviseadultswhoarew/omentalcapacitytomanagetheiraffairs.
4.
AgentsunderPowerofAttorney:appointedbydocument;namedindividualstomanageaffairs
a.DurablePwrofAtty:continuesevenafterincapacitated[lookup]
b.HealthcarePwrofAtty:continuesevenaftermedicalissues[lookup]
5.
SoLforBreachofFiduciaryDuty:4yrs;startstorunwhenbreachingpartydies.
Qualifications:
1.CompetentIndividualatleast18y.o.
a.
MAYREQUIREBOND
i. Policy:protectsestateassetsfrominfidelityoffiduciary.
ii. Oftenrequiredforindividualfiduciaries.
iii.Bondamount:usuallytheliquidassetsoftheestate(Policy:easytosteal)
iv.Testatororbeneficiariesmaywaivebond.
v.Relationshipbetweentrustee/beneficiary:Riskytobefiduciaryifbeneficiarydoesnotlikeyou
b/cwilltrytotagyouwithliability;requireshighbond.
vi.Noteveryonecanbebonded.
vii.Premiumoncostofadministration.
b.BUT:bondingisnotrequiredif
i.fiduciaryisnamedinwillOR
ii.trusteeorbeneficiarieswaivebondingreq.
2.Corporationauthorizedtodotrustbusinessinthatstate
LawyersasFiduciaries:lawyersnamedastrusteeorexecutor
1.Cannotselectselfascounselforestateinwill.
2.Maybesubjecttoremovalonlowershowingifdraftingattorney
a.Presumption:attorneybreacheddutyifincludedinthewill.
3.Compensation:
a.Maybeprohibitedfromdoublecompensation:cannotchargeasbothattorney&executor.
b.Entitledto:
i.(1)ReasonableOR
1.[BestPractice]:standardindoc
ii.(2)FeeScheduleCompensation
1.FeeSchedulestatesallowextraordinarycompensation!
2.Example:CAProbateFeeSchedule:
a. 4%onfirst$100K
b. 3%onnext$100K
c. 2%onnext$800K
d. 1%onnext$9M
e. %onnext$15M
f. foramountsabove$25M,areasonableamounttobedeterminedbycourt
c.Compensationisoftenafunctionofassetbase:rangesfrom1/2%to3%dependingonsizeoftrust;as
trustsizeincreases,percentagedecreases.
d.Executorsfeeschedule:
i.payincometaxesonit
ii.schedulebasedonGROSSESTATE,notnetestate.
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69
iii.But:sometimesifestateisinsolvent,thisistheonlywaytogetmoneytothefamilyquickly.
NamingFiduciaries:
1.[BestPractice]:nameoneormore
2.Canbeindividualsorcorporate,orboth
a.Corp:banks/trustcos.havevirtueofnotdying,areinexistenceinperpetuity
3.Multipletrusteesmustagreebyeitherunanimityormajority
a.[BestPractice]:documentshouldspecify
b.Atleast3trusteestouseMajoritydecision.
c.Iflessthen3trustees,canonlychooseunanimitydecision.
CapacityofPersonalRepresentatives:
1.[EARLYRULE]:personalcapacity
a.
Onanianv.Leggat:Leggat(executor&probateattorney)enteredKwithOnanian(realestatedeveloper)
toselllandat$X,thenbreachedKtoselllandtoOnanianatauctionforalittlemore.Onaniansued
Leggatforthedifference.Held:ExecutorwaspersonallyliableforbreachofKw/landbuyer.
i.Today:beneficiarieswouldsueexecutorafterbuyer.
2.[MODERNTREND]:representativecapacity
a.beneficiariescansuefiduciaryforbreachofduties
b.[MAJ]:Vancev.EstateofMyers:Meyersownsbar.Holbertwasexecutor(andsoninlaw).Holbert
andanotheremployeeserveddrinkstoVance,whogotintofightandwastoodrunktodefendhimself.
Vancesues.Theestateownsbar,butHolbert(executor)hasnoassets.Held:tortvictimcantapassets
ofestatetorecover(andthenbeneficiariescansueexecutorforbreachoffiduciaryduties).
c.[UPC]:RepresentativeCapacityofExecutor:
i.NoindividualliabilityunlessKsoprovidesorrepresentativecapacityisnotdisclosed
ii.Personalliabilityforownershiporcontrolofestatepropertyortortifpersonallyatfault.
iii.ClaiminKorfortortcanbebroughtagainstestate,regardlessofliabilityofexecutor.
iv.Issuesofliabilitybetweenexecutor&estatecanberesolvedinaccountings,surcharge,or
indemnificationproceedings.
ExecutorDuties
Separatefiduciaryslegalownershipfrombeneficiarysbeneficialownership
MustperformdecedentsKsotherthanforpersonalservices.
Mayoperatebusinessuntilsold.
Possiblepersonalliabilityifexecutorentersintoacontractestatecannotperform.
1.
SimpleFiduciaryDuty:
a.Keeptrackof$/property&donotstealit
b.Manageandinvest$/propertyreasonably
c.Give$tobeneficiariesinmannercalledforindocument.Makeappropriatedistributions.
2.HighestStandardofLawappliesbestnottobetrusteeifbeneficiarydoesntlikeyou
3.DUTYOFLOYALTY
i.cannotengageinselfdealing:dutytonottakepersonalprofitoradvantagefromtrust
1.[CL]:STRICTLIABILITYforbreach;takingpersonalprofitsisALWAYSabreach(nofurther
inquireruleliableonceitisfoundthatselfdealingoccurred)
2.[CL]:mustreturnanyprofittotrustthatresultedfromselfdealing,eveniftrnsxnbenefittedtrust
3.Damages:IfBADFAITH,trendincreasesdamages.IfGOODFAITH,trendawayfromdamages.
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4.[RST2d]:mustreturnanyprofittotrustregardlessofselfdealingornot.
a.RSTstilldistinguishesbetweenbreach&notbreach,buteitherwaytrusteeisrequiredto
returnprofits.
b.Breach:Ifgoalwastoearnprofit,dutybreached&mustreturnprofits.
c.NotBreach:ifgoalwasnottoearnprofit,butearnedprofit,thennotbreach,butstillneedto
returnprofits.
i.Risk:evenbuyingpropertyfromtrusttohelptrustcanresultinprofit.
ii.Lackofbreachmightpreventremoval.
5.[MODERNTrend]:nobreachiftrusteeprofitscontingenttoaselfdealingKifKis:
a.prudentAND
b.inbestinterestsofthetrust.
c.Damages:ifnotprudent,returnlosses.
d.[Inpractice]:trusteeshouldseekinstructionsifhebelievesthisexceptionappliestotrnsxn.
ii.ConflictofInterest
1. EstateofRothko:Alltrusteesowebeneficiaryadutyofloyalty,&,inthecaseofmultiple
trustees,atrusteecanbeliablefortheothertrusteesbreachesofloyalty.
a. Rothkoleft797paintingstocharity.TrusteessoldtoMAGartgallery.Trusteeshadconflict
ofinterestb/cofrelationshiptoMAG.KstosellpaintingstoMACwereneitherfairnorin
beneficiariesbestinterest:trusteesoldtofloodmarketforpersonalgain.57paintingssold
inviolationofrestrainingorder.
b. Measureofdamages:trusteeschargedthedifferenceinsalepriceplusappreciationdamages
c.3rdPartywhoknowinglybreachesdutyofloyaltycanbecompelledtoreturnproperty.
Beneficiarycouldpursuepropertysoldtoa3rdpartyif3Ptookthepropertyw/noticethat
salebreachoftrust.
d.Note:incases,inwhichselfdealingislessobvious,havingatrusteevotenotothesale
wouldbesufficienttorelievethattrusteeofliability.
iii.
ProtectionsforTrustee:sometimestrustorwantstogivetrusteesomeflexibility
1.Documentcanrelaxselfdealingrule
2.Trusteecangetcourtapprovalinadvanceofselfdealingtransaction
3.Trusteecangetbeneficiaryapproval/consent:careful!easilysubjecttochallengeforlackofinfo
4.StatutoryExceptions:bankscanpurchaseowncommontrustandmutualfunds,butnotbanksstock.
5.Exculpationclauses
4.DUTYOFCARE
i. FOCUSESONTHEINVESTMENTOFTHETRUST...AND....
1.needtomakeintelligentdecisionsabouthowtoinvesttrust.
2.eachinvestmentdecisionislookedatinisolation
a.ForANYsinglecaseofloss,trusteeliable.
3.Typesofinvestments:
a.Bondloanforwhichprincipalamountwillberepaidwithinterest.Ifborrowerdoesnot
default,noriskoflossofnominalprincipalifbondisheldtomaturity.
i.Bondpriceisbasedoninterestratesandstrengthofissues(borrower).
ii. Ifinterestratesrise,bondvaluedropssobuyergetsequivalentofcurrentmarketrate
return.
iii. BondPrice=(C/i)*[1(1/[(1+i)^n])]+M/[(1+i)^n]
71
b.Stock/Equityownershipinterestinbusiness.Sharesinprofitleftafterexpenses.If
businessliquidates,alldebtsarepaidbeforestock/equityispaid.
4.
[OriginalRule]:PrudentMan/PrudentPersonRule
a.Howmenofprudence,discretionandintelligencemanagetheirownaffairsbut
notinregardstospeculationbutinregardstopermanentdispositionoftheirfunds
consideringprobateincomeaswellassafetyofprinciple.Harvardv.Amory
b.prudentpersonusingdiscretion,intelligence,managingtheirownaffairs,notin
regardtospeculationbutinregardtopermanentdispositionoftheirfunds,consideringthe
probableincome,aswellasprobablesafetyofcapitaltobeinvested,Harvardv.Amory.
c.Problemwasassetbyassetanalysis,lookedatinisolation,sononettingof
returns.Goalwasreallytoavoidlosses,donoharm.VERYCONSERVATIVE
d. Focus:incomebeneficiary,notremainderbeneficiaries
e. Investmentsanalyzedinisolation(cannotnetgainononeinvestmentagainstlossonanother)
i. Policy:topreventtrusteewhohasincurredalossfrommakingariskyinvestmentto
makeuptheloss.
f.PrimaryGoal:preserveinitialprincipleandgetincomemainlyBONDS
g.[Manystates]:legallistsofbondsonlysafe&returnonprinciple+interest.
h.[Otherstates]:somebluechipstockswithstrongearninghistoryallowed
i.Assetsevaluatedinisolation.
j. Problems:
i.Bondonlyportfoliosareriskierthanmixed(stock&bond)portfolio
1.Anyportfoliow/onlyasingleassetclassisrisky.
2.40%stock/60%bondsisleastriskiestbalanceforinvestment
ii.PMRdidnotaccountforinflation(reductioninpurchasingpowerinfuture)
1.historicinflationrate~3%/year
2. St.LouisAdjustedMonetaryBase:~$4trillion(hugespikeafter2008
recession)
3. VelocityofM2MoneyStock:~1.5ratio(droppingsince2008recession)
iii.PMRdidnotconsidercircumstancesoftrust&beneficiaries(especiallyremainders)
1.Ex.:durationoftrust?
2.Shortterm:concernedaboutinterest,bondsbest
3.Longterm:lookingabout20yrsout,concernedaboutinflation,stocksbest
5.
[NewRule]:PrudentInvestorRule
a.Managetrustasprudentinvestorconsideringpurpose,term,distributions,andother
circumstancesoftrust
b.FocusonthePROCESS,nottheresult.
i.EasiestBreach:donotdiversify
c.Investmentslookedatincontextofwholeportfolio.
d.Risklookedatinlightofpotentialreturn.
e.Dutytomakereasonableefforttoverifyfactsrelatedtoinvestments.
f.CaninvestinANYassetclass.
g.Dutytousespecialknowledge.
h.
FactorstoconsiderwhetherPIRmet:
i.economy
ii.inflation/deflation
1.neutronbombofinvestment
2.Problemw/Bonds:$1000willstillbe$100010yearslater,buthavegreatly
diminishedpurchasingpower;invisibleloss.
3.Assumption:equitities(stocks)outperforminflation.
iii.taxes
72
iv.incomeandappreciationexpected
v.needsforliquidity,income,appreciation
vi.specialrelationshipofassettotrustpurposeorbeneficiary
vii.
MUSTDiversifyUNLESSimprudenttodoso:keepbonds&stocks.
1.Policy:diversifyingissafer&almostalwaysreducesrisk
a.[BestPractice]:mixofequities(stocks)&fixedincome
investments(bonds)
i.Stocksgetlessriskyovertime,usedtoaddressinflation.
2.MarketdoesnotcompensateforRiskofConcentration
3.Lookforassetswithnoncorrelatedreturns
a.Noncorrelatedassetclasseshavelessriskthanweightedaverage
riskofholdings
b.Inextrememarkets,manyassetsclassesbecomecorrelated.
4.TypesofRisk
a.Companyspecificrisk
i.Ex:Enronoverstatesearnings
ii.Canbeminimizedbyowningstockofmultipleenergy
companies
b.Sectorrisk
i. Ex:Warmwinterineastdepressespricesforoilandnatural
gas,impactingChevron,Shell,BP,etc.
ii. Canbeminimizedbyowningothersectors,like
pharmaceuticalsandconstruction,thatwouldnotbe
impactedormightevenbehelpedbygoodweather.
c.Marketrisk
i.Ex:Bearishfedreportdepressesequityvalues.
ii. Maybereducebyholdingcashandbonds.
iii.Ex:Globalliquiditycrisisdepressesallassetclaims.
iv.Doesthemarketpriceriskcorrectly?
v.NormalDistributionwithOutlier
vi.Averageweightof100peopleinU.S.is190lbs.
vii.Ifyoucomputeaverageof100peoplewith
heaviestat1400lbs,averagebecomes200lbs.
viii.Themostextremeoutlieronlychangesthe
averageby5%.
ix.Inplanning,ifyouhavelargeenoughsample,
youcansafelyassumeyouwillhaveaveragereturn
withminimalriskevenwithanoutlier.
d.FatTailDistributionandOutlier
i.InU.S.,AverageNetWorth$93K
ii.Ifyoutakesampleof100peopleandBillGates
(NW~$70B),averagebecomes$505M
iii.Outlierchangesaverage5425%
e. LeverageMultiplesRiskandReturn
i. Ifinvestorborrows$tomakeinvestmentandgetsa
returngreaterthaninterestcharge,returnoncapital
isgreatlyenhanced.
ii. Ifreturnislessthaninterestcharge,lossisgreatly
exacerbated.
5.TimeHorizonandRisk
a.Inflationriskgreateroverlongerterm
73
b.Volatileassetsthatonaveragehaveapositivereturnarelessrisky
overtime(stocks)
c.Weareinbearmarketnow
d.Paintopleasureratiois~2:1(bigpain:smallpleasure)
e.AverageStockFundReturn9.9%vs.averagestockfundinvestor
return3.8%6.1%differenceisInvestorBehaviorpenalty
6.
EstateofJames:TrusteeknowsKodakstockisrapidlydepreciating,but
doesnotsell.Held:trusteeliableforbreachb/cdidnotdiversifyorsell.
a.Damages:
i.whenwouldprudentpersonhavesold?
ii.whatwouldbankhavedonew/$?
iii.
Held:GF=amtowed+interest
iv.But:ifBF,thenamtowed+lossofprofit
7.
Exception:sometimesdocumentmayoverridediversification
a.Ex.:keepallstocksb/ctryingtokeepcontroloffamilybusiness.
b.ExceptionindocumentMUSTBE:clear,wellthoughtout,andmake
sense.
c.Assoonasrelevantissueends,thenneedtogotoCt.tohave
exceptionremoved.
ii.
HANDLEOTHERMANAGEMENTANDACCOUNTINGDECISIONS
1.DutytoSegregateAssets:
a.Trusteemustkeepseparate:hisownpersonalassetsvs.trust(s)sassets
i.keeptrustAseparatefromtrustBandbothseparatefrompersonalacct.
b.Exceptions:
i.corporatetrustee:cancomingleassetsofmultipletrustsforinvestmentpurposes&
usecommonfundaccountingtokeeptrack.
1.Policy:keepscosts&feesdown.
ii.formapartnershiptomanagemultipletrusts:[lookup]
1.Ex.:2kids&4trusts(1frommom/dad);havekidsbuyallinatareduced
cost&formPship,whichmakesinvestment.
2.Havethepshiptrackeachtrustsinvestment.
2.Duty:TaxRegulatoryCompliance
a.file&paytaxes
b.makeadvantageoustaxdecisions:
i.timelymanner
ii.expectedtoretainacompetentprofessional
iii.asktherightquestions
iv.InsolatedfromLiability:iffollowadvice,butadviceisbadorthereisamistake.
Trusteewouldbeprotected,butthetrustmaybeabletosuecompetentprofessional
formalpractice.
c.maintainlegal/businessentities(corporateorpartnership)andothertrustpropertyrights:
i.requiredannualfilings.
ii.votesharesorinterestsinbestinterestoftrust
iii.manageentityiftrustholdscontrollinginterestintheentity
iv.BusinessNovice:canhiresomebodyw/moreexpertisetomanage
d.BadExcuse:Ididntknowisnotagoodansweriftrusthassubstantialfunds.
3.RelianceonProfessionals:
a.Baselineexpectation:actw/commonknowledgethatreasonablepersonwouldknow
b.But:ifhypertechnical,allowedtorelyonprofessionalsREASONABLEadvice
74
i.tax:CPA,legal:atty
c.Cannotfollowadvicethatisobviouslybad/wrongorsubjecttoquestionbyreasonableperson
EnforcementMechanismsForFiduciaryDuties
1.Accounting:
a.Def.:fiduciaryexplainswhattheyhavebeendoing&beneficiarycanreview&object.
b.Accountingsarerequiredwhen:
i.terminationoftrust
ii.changeoftrustee
iii.atrequestofbeneficiary:accountingrequiredw/in60daysofrequest,orelsecourtcancompel,
UNLESStherewasanotheraccountingw/in1yr.
1.Documentcannotpreventbeneficiariesfromaskingforaccounting!
iv.Ifaccountingisntsubmittedtocourt,thenSoLvariesbtwn180days4yrsforbenef.complaint.
c.Onceaccountingisapprovedbycourt,accountingactscannotbebasisofliabilityfortrustee.
i.Ineffect:cheapinsurancefortrustees,nolongtrailofdecisionsthatcanbequestioned.
2.Instruction:
a.Def.:trusteeorbeneficiariescanpetitionthecourttodirecttrusteetoact.
b.Trusteecanrequestinstructionstoprotecthimselffromliability.
c.Actdonepursuanttoinstructioncannotbebasisofliability.
3.Surcharge:
a.Def.:iffiduciaryactedimproperly,beneficiariescanrequestcourttoassesstrusteefordamagestotrust.
b.Badfaith:awardlargersum!
4.Removal:
a.Def.:Ct.removestrusteeforimproperconduct.
DelegationbyTrustee
1.[TraditionalRule]:fiduciariescannotdelegatedutiestoothers
2. [ModernTrend]:allowsdelegationthatisprudent&supervised
a.Note:Rulesarestackedinfavorofgiantinvestmentorganization;trusteetakesonanincreasedriskwhen
selectsanindividualoveranorganization.
b.Mostoftendelegatemattersrelatingtotax,legal,andinvestments.
i.Ex:probablyprudentforMichaelJacksonsestatetohireacopyrightspecialist.
3.[RST3d]Requirementsforlegitdelegate:
a.Dutynottodelegateexceptasaprudentperson.
b.Mustprudentlyselect,supervise,andmonitorasprudentperson.
c.MaybeimprudenttoFAILtodelegate:i.e.MUSTdelegatetoareasoutsideofyourcompetence.
d.Delegationsarenotlimitedtoministerialtasks&mayincludeinvestmentmanagement.
e.Delegationmaybesubjecttoabuseofdiscretionreview
f.CannotdelegateALLresponsibilitiesexceptasallowedindocumentcanonlydelegatediscretetasks
4. Note:Liabilitygapassumesthepersondelegatedtoisnowliable(assumesmalpracticeactionagainstwhoyou
delegatedto),butmostinvestmentmanagementagreementslimitedliabilitytogrossnegligenceorreckless
conduct
5.SatisfyingPrudentInvestorRulemayrequiredelegation:
a.Prudentdelegationofinvestmentmanagementallowed
b.Requirements:
i.Mustprudentlyselectagent
ii.Mustestablishscopeofdelegationconsistentw/trustterms
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1.InvestmentPlan:
a.agreedtoattimeofdelegation
b.agreetorangeof%ofinvestment&whichtypeofinvestmentpermitted
c.IfagentdoesnotfollowagreeduponIP,thentrusteeshouldnotice&askabout
thisfailure.Otherwise,trusteeliable.
iii.Mustprudentlymonitoragent
1.cantjustdelegateandforgetaboutit
iv.Inreturn,agentowesdutyofreasonablecare&canbeliableforbreach.
v.But:Trusteeisnotliableforagentsactsunderreasonabledelegation.
ThingsTrusteeCANNOTMODIFY:
1.
[UPC]LIMITSONTRUSTTERMS:
a.Requirementstocreatetrust
b.Dutyoftrusteetoactingoodfaith
c.Trustbeforbeneficiaries
d.Lawfulpurpose,validpublicpolicy
e.Courtpowertomodify,orterminate
f.Effectofspendthriftclause
g.Courtpowerregardingbond
h.Courtpowertoadjustunreasonabletrusteecompensation
i.Dutytonotifyadultbeneficiariesofexistenceoftrust
j.Powerofcourttocompeltrusteetoaccount
k.Limitsonexculpatorylanguage
l.Risksof3Ps
m.SoL
n.CourtJx.
o.Venue
p.statestatutescannotbeoverriddenintrustdoc.
2.BUT:defaultrulescanbevariedw/inlimits
Liability
CoFiduciariesLiability:
1.Notliableifvoteagainsttxn,evenifvotingagainsttxnamountstobreach.
2.Dutytotrytostopaclearbreach
a.liableif:(1)clearbreach(2)failuretoact.
3.Liableforapprovingothertrusteesselfdealing,evenifyoudidnotbenefitfromtxn.
LimitationofLiabilityforFiduciaries
Exculpatoryclausescannoteliminatefullfiduciarydutybutcanreducedegreeofcareandprudencerequired
Oftenconstruednarrowlyonlydefinedbreachesareokay,nothingmore
WhenFiduciariesMakeMistakes&LimitationofTrusteeLiability
- LimitationofLiability
o Protectingasurvivingspouseorotherrelatedtrusteefromharassmentbybeneficiaries
o Sometimesyouwantatrusteewithaconflictofinterest(Ex:allowtrusteetooperatebusinessinwhich
hehasinterest)
o Allowtrusteetomanagetrustinvestmentsmoreaggressivelythanprudentmanstandardwouldallow

-
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Generally:Removalandresignationnotallowed
o BUT:Ct.canimposesurchargefordamagetotrustorestate
Removaloffiduciary:usuallyonlydoneifconductendangerstheestate
o Mayberemovedformalfeasance,breachofduty,unfitnesstoserveifconductendangerstheestate
Generallynotremovedtillincidenceofmistake
o Petitiontosurchargeandremove
o Courtsareveryreluctanttoremovefiduciaries,eveniftheybreach
Resignation
o CtsaregenerallyunreceptivetorequestUNLESSb/cof:Oldage,physicalinfirmityorstrained
relationshipw/beneficiaries
SuccessorFiduciary:Pickingsuccessortrusteeifformertrusteeremoved,died,orresigned
o Firstlookatdocumentforsuccessor,thenBeneficiariescannominateorCt.appoint
o Otherfiduciariesmaycontinueonwithoutthenewappointment
[Jx.Split]:defaultrulestofillvancancyatdiscretionofotherfiduciaries.
o Successortrusteeisnotliableforprevioustrusteesbreach,evenifdiscoveredduringsuccessorsterm.
DistributiontoBeneficiaries
Typicaltruststructurepaysincometoapersonforlifewithremainderpassingoutrightorinfurthertrustforother
beneficiaries.
3TypesofDistributionstoBeneficiaries
1. Mandatory:requiredistribution,nodiscretion,fixedamount.
2. Income:annualdistributionofincomeoftrust.
a. Commonly:incometoBobforlife,remaindertoJane[seeDutytoBalanceIncome&Remainder
Beneficiariesbelow]
3. Discretionary:uptotrusteetodetermineifconditionfordistributionismet;&ifso,howmuchtodistribute.
a. Commonly:forhealth/support/maintenance/educationofbeneficiary
i. Tax:ifforhealth/support/maintenance/education,thenthoseassetsareexcludedfromtaxable
estate.
DutytoBalanceIncome&RemainderBeneficiaries
1.Difference:
a.Incomebeneficiary:keepsassetsthatgenerateincome
b.Remainderbeneficiary:wanttrusteetobuyassetsthatgrowinvalue
2.Trusteemustbeimpartial
3.Distributionsmustbebalanced
4.Investmentsmustconsiderbothinterests
5.IfGF,Cts.easyontrustees:
a.canrecoverlegalfeesifbeneficiariessue
b.nosurchargeimposed
c.notremoved
d.allowedtomakeareasonablemistake
e.
Steelman/Stillman:Jamesestablishedtrustworth$8Min1977forgrandchildren.Trusteecould
distribute1/5principalatage25uptoallofitbyage40.Incomewas~$300Kbackthen,20%income
taxexempt.Trusteegavegrandson$230Kforsugarplantationtheadvisedagainstbadbusiness.Now
Guywanted$145K.JamesJr.wanted$150Kforbusinessonbeach.Trusteedidnotgivethemthe
money,sobeneficiariessue.Courtordereddistributiontobeneficiaries.Lookedatgrandpasintent(he
didntcareifallthemoneywasgonebyage40),butdidnotremovetrusteeb/cactingingoodfaithand
allowedhimtogetattorneysfeesfromtrustassets.
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6.
Dennisv.RhodeIslandHospital:Trustestablishedin1920withbuildingsinRI(wasabusycitythen).Trustee
managedbuildings,whichgeneratedrentalincome,whichwasgoodforincomebeneficiaries.Valueofbuildings
begantodecrease,buttrusteedidnotsellbuildingsuntilhadgreatlydepreciatedinvalue($300K$185K),
whichwasahugelosstoremainderbeneficiaries,whosuedtrusteefornotmaintainingpropertiesandnotholding
concentratedassetsinadecliningmarket.
a.
Held:Trusteebreachedbyfavoringincomebeneficiaries.Trialcourtawardeddifferenceinpriceplus
interestandinflation,butappellatecourtremovedinflationdamages.
b.Damages:differencebetweenbuildingpricewhenshouldhavesoldandwhenreallysoldPLUS
accountedforrateofinflation.
7.
PotTrust:holdmoneyinpotfora#ofbeneficiaries
a.mayimposebudgetonbeneficiaries
b.needtobeclearaboutunevendistributioneverybodyisvyingforthemoney,allintensionwithe/o
c.Education:[MAJ]getcollegeeducation,pricedifferenceofpublicv.privateuniversitydoesnotmatter.
.
.
.
AllocatingPrinciple&Income
1.
TraditionalPrinciple&IncomeAct:
a. Actdirectstrusteehowtoallocatereceiptsandexpenses.
b. Actreferstodistributionsfromspecificassetslikestocks,bondsandrealestate.
c. Income=dividends,interest,rents,androyaltiesgoestoincomebeneficiary
i. Lifebeneficiarieswanttogrowincome&favor:specificassetslikestocksw/highdividends,
bonds,andrealestate.
d. Principal=gainfromsaleorliquidationofassetsgoestoremainderbeneficiary
i. Remaindermenwanttogrowprincipal&favor:stocksw/nodiversityandrawrealestate.
ii. Taitv.Peck:Distributionsofcapitalgain,inanyform,byaninvestmentco.toatrustareto
beallocatedtoprincipal.
1. Trustheldsharesofaninvestmentcompany.Someofthestockwasliquidatedintocash.
Thesolelifebeneficiaryoftrustrequestedthetrustee(abank)toallocateasumof$from
theliquidatedstocktoincometobedistributedtoher.Shemadetherequestundera
provisionofthewill,whichstatedthetrusteehaddiscretionarypowertodetermine
whetheranymoneycomingintoitshandswastobetreatedasprincipalorincome.
2. Whenaninvestmentco.isinvolved,itismorelikeparticipatinginacommontrustto
achieveriskofdiversification.
e. Trustexpenses/feesalsoallocatedandsplitbetweenprincipalandincome.
f. Problems:
i. Didnotaddressevolvinginvestmentvehicles
ii. Investinginordertogenerateincometendedtoreduceoveralltrustreturn
iii. CreatedincentivesinconflictwithPrudentInvestorRule.
2.
RevisedPrincipleandIncomeAct
a.Default=Income:distributionofmoneyfromanentityisINCOME,unlessotherwiseprovidedfor.
i.Documentcontrols:canKaround.
b.Whatsprincipal?
i.propertydistributionsfromanentity.
ii. redemptioninoneormorepayment(co.buysinterestback)
iii. liquidatingdistributions
iv. mutualfundcapitalgain(seeTaitv.Peckabove)
v. catchallprovision:distributionsinexcessof20%ofvalueofentity
3. Trusteecanchangedistributionifitisntequitable.
a. Canpayacertainamounteachyear,often~3to5%oftrustassets.
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4. CAChangestoDistributionsRule
a. Presumptionsofincomelimitedto10%ofvalueoftrustsinterestinentity.
b. Generallytrusteemustlookthroughentitytoseeifdistributionrelatestosaleofassetswhichmustbe
allocatedtoprincipal.
st
5. Englundv.1NationalBankofBirmingham:Atrustprovisionauthorizingthetrusteetodesignatethe
characterofpropertycomingintoitshandsappliedonlyifthecharacterofthereceiptisunclearor
doubtful.
1932,Bushcreatedtrustforwife(3/4income)andsister(1/4income).Powertoinvadeprincipalforsupport
andcomfort.Sametermsfordaughterafterdeathofmomandaunt.Auntdiesin1932andmomdiesin
1971.DaughterGagediedin2009,AlixandraandRachaelaregranddaughters.Soldcompanyfor$31M(net
$17M)in1977.Daughterwantedmoreincomesoaskedtrusteeformore.Truststatedthattrusteehadpower
toallocatereceiptsandpowertoinvadeincomevs.principalforsupportandcomfort.But,governingstatute
requiredonlyallocationtoincome.Held:noreallocationbecausenotstandard.Saleproceedsgotoprincipal.
TrusteesPOWERTOADJUSTRECEIPTSbetweenPrincipalv.Income:
1.POLICY:needtobeabletoadjustP&IinordertosatisfyPrudentInvestorRuletobalanceinterestof
beneficiaries
a.Today:mostlyadjustingfromprincipletoincome
2.Default:havepowertoadjust;UNLESSexpresslylimited.
a.Trusteewhoisabeneficiarycannotusepowertoadjust.
3.RequirementstoAdjust:
a.mustbeusedimpartially
b.mustbeinvestingfortotalreturn
4.FactorsTrusteeConsiders:
a.purpose&natureoftrust
b.settlorsintent
c.circumstancesofbeneficiary
d.needforliquidity
e.preservationofcapital
f.regulatoryofreturn
g.appreciation
h.closelyheldbusinessassets
i.otherallocationrules
j.powertoinvadeprincipal
k.economicconditions
l.inflation
m.taxes
PayOuts
1.Focus:smoothingoutrules
2.Remember:needsofbeneficiariesrarelydecrease,sodonotwritetrustassumingbeneficiarywilleventuallyneed
lessmoney
3.[Jx.Split]AdoptionofUnitrustAmount
n.Def.:Somestatesallowtrusteetosetafixedpercentage(35%)ofvalueoftrustassetsasINCOME.
i.Verysimplemathforincomedistributionamount.
o.POLICY:banksthoughtpowertoadjustwascomplicated&wantedasimplerule
p.Benefit:bothincomebeneficiary&remaindermenbothwantmaximumreturn,closetosamepage.
i.slightdifferenceinattitudes,butbothwanttrusteetoearnmostpossible.

ii.Thelargerthetrust,thelargertheincomepaymentandthelargertheremainder.
q.Problem:payingouteachyearcanbebumpy
i.Solution:Unitrustw/multiyearvaluationavg.payoutover3yrs,distrevery3yrs,flattens
curve
4.OtherPayOutFormulas
r. AnnuityTrustpaysfixedamount
s. InflationAdjustedAnnuityTrust:Startw/setamount,buteachyr.adjustforinflation;maintains
lifestyle
t.DiscretionaryTrust:discretionaryforsupport,health,education,reasonablepurpose,etc.:mosttax
efficientstandard,makestrustlastalongtime
u.IncentiveTrusts:Ex:distributeamountequaltoW2income;aftercompletingcollege;uponmarriage
(maybeagainstpublicpolicy);canbeunequalamongbeneficiaries
v.Focus:smoothingrules
FUTUREINTERESTS
Introduction
FutureInterest:
1. Presentrighttousepropertyinthefuture
2. Feesimple:presentrighttoALLfuturepossessoryinterests(presentinterest:lifeestate;futureinterest:
remainder)
3. Transferable
Vesting:
1. Ifvested,thennotsubjecttoRAP(seebelow)
2. AninterestCANNOTbevestedinanunbornperson
3. Vestedinterestdoesnotrequiresurvival
a. IfXdies,thenratherthangoingtoX,goestoXsestate.
4. Ifvested,transferable,cansell.
5. ReversionaryinterestsarenotsubjecttoRAP.(Reversionisfailureofallotherinterestbacktograntorsheirs.)
TypesofFutureInterests:
1.IndefeasiblyVestedRemainder:
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a.AtoBforlifethentoC.
b.NOTsubjecttoRAP
2.Remaindervestedsubjecttoopen:
a.Subjecttoopen=classcanshrinkorexpand.
b.AtoBthentoBschildren.Bhas1child.
c.Childsinterestmaybediminished:otherchildrencouldbeborn&interestwouldvestinthoseunborn
childrentoo.BUT:cannotvestinunbornperson.
d.SubjecttoRAP
3.Vestedremaindersubjecttocompletedefeasance:
a.AtoBremaindertoC,butifCpredeceasesB,toD.
b.Vested,butw/anamedcircumstancesgoestosomebodyelse.
c.NOTsubjecttoRAP
4.ContingentRemainder:
a.AtoBremaindertoCbutifCdoesnotsurviveB,toD.
b.Vestingofgiftisconditionedonagiftthatisallpartofthesameclause.
c.SubjecttoRAP
5.ExecutoryInterests:
a.Cafferata:noreasontocreatethese
b.Def.:Interestsin3Psotherthanremainderinterests.
i.Precededbyagap:
1.AtoBthentoConeyearafterBsdeath.
ii.Divestanotherinterest:
1.AtoB,butifBremarries,toC.
c.Subj.toRAP
RuleAgainstPerpetuities
1. InterestthatviolatesRAPisvoid.
2. Doesnotapplytovestedinterests.
3.Step1:AskwhetherthetypeofinterestatissueisevensubjecttoRAP?Ifnot,interestisvalid.
a.Charities:RAPdoesnotapplytogiftstocharities.
4.Def.:Aninterestmustvest,ifatall,nolaterthan21yrsafterlivesinbeingattimeofcreationofinterest.
a.Basically:interestmustvestw/inlifetimesofpeoplealiveatthetimetheinterestwascreated+21yrs
beyondthat.
b.FocusonVesting:concludethataninteresteitherwillorwillnotvest.
c.Ifcannotdeterminewhetherwillorwillnotvest,thenINTERESTVOID.
d.LivesinBeing:
i.measurablelivesmustbeanascertainablegroup
ii.21yrsbeginsatendoflivesinbeing.
iii.Policy:21yrwindowallowsnextgenerationtoreachmajority(adulthood).
5.Benefits:
a.Limitsdeadhandrule:limitscontrolfromthegrave
b.Clearstitle:trusteeistherealowner
6.[TraditionalRule]:RemotePossibilityTest
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81
a.IfcourtcancomeupwithANYscenario,inwhichinterestsvestsoutsideofRAP,thengiftisvoid&
fails.
i. Unbornwidow:apersonswidowcannotbeIDduntildeath.Anyfutureint.followingafuture
int.toawidowmightviolateRAP.
ii. Fertileoctogenarian:apersonisfertileuntildeath.Problemsforfutureinterestsin
grandchildren.
1. Jeev.Audley:Commonlawfertileoctogenarianpresumesanindividualisfertile
&capableofhavingchildrenregardlessofage.Coupledw/RAPsabstract
approach,resultisthatafutureinterestthatappearsvalidmaybeinvalid.
a. RemainderSubjecttoOpen,soRAPApplies.
b. Audleygave$$towifeforlifethentoniece&issue(ifany),thenliving
daughter.Theinterestinsistersissuewasinvalidb/citwaspossibleforhimto
havemorechildrendespiteage.
c. AudleysWillFails:
i. MaryhasissueafterAudleydieswholivemorethan21years.
ii. JeeshaveanotherchildafterAudleydies.
iii. MaryandtheJesaliveatAudleysdeathalldie.
iv. Marysissuediemorethan21yearsafterdeathsofMaryandtheJees
livingatAudleysdeath.
v. PropertynowveststhenintheJeechildbornafterAudleysdeath,
violatingRAP.
b.Ex.:AtoBandBsheir,butifBdieswithoutissue,toCandhisissue.
i.B=measuringlife
ii.CvestsonlyifBneverhasissue:OK
iii.CvestsifatBsdeath,noissue:OK
iv.CorCsissuevestwhenB&Bsissuedieout:fails
1.AfterAdies,BcouldhaveissuewhohaveissuewhooutliveB&Cbymorethan21yrs.
7. ClassGifts
a.Classclosesattimethatdivisionofpropertyisrequired,notwhendocumentiswritten.
b.Classmustclosew/inRAP.
8.RAPPresumptions:
a.testatorintendedvalidinterest
b.referencetounnamedspousewillpresumespousetobetoalifeinbeing
c.contingentestatewillbepresumedadministeredw/in21yrsofdeathofdecedent
d.Fertility:
i.Females:age1255
ii.Males:age14todeath
iii.Canrebutw/evidenceofinfertility
e.Possibilityofadoptionisignored
f.BUT:EVENTSTOTHECONTRARYWILLNOTVOIDGIFTS!!
9.Assistedreproduction:
a.AchildcanbetheproductoftheeggofAnn,spermofJohn,birthofSally,andraisedbyCathyandRick.
b.Apersonsspermoreggcanbeusedyearsafterhisorherdeath.
c.
Woodwardv.Commissioner(2002):Incertainlimitedcircumstances,achildresultingfrom
posthumousreproductionmayenjoytheinheritancerightsofissue.Theselimitedcircumstances
existwhere,asathresholdmatter,thecuringparentorthechildslegalrepresentative
demonstratesageneticrelationshipbetweenthechild&thedecedent.
i.Awomanconceiveschildthroughartificialinseminationfromdeceasedhusbandsfrozensperm.
Hisspermwasfrozenbeforespermkillingcancersurgery.
ii.Determinerighttoinherit:(1)diddecedentaffirmatlivelyconsenttoposthumousconception(2)
diddecedentconsenttosupportanyresultingchild?
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iii.Note:Timelimitationsmayprecludeaclaimforsuccessionrights.
d.[UPC]:PosthumouslyConceivedChildren
i.childmustlive120hours.
ii.Decedentprovidedeggorsperm.
iii.Parentalrightsofdonorwerenotjudiciallyterminated.
iv.Decedentgavewrittenconsenttoposthumousconception.
v.Judicialproceedingtoestablishparentageisinstitutedwithin3yearsofdeathandbeforeestate
distributed.
10. ModernTrend:RAPisuncommontodealw/today
a. [CA/MAJ.]90yrwait&see:
i. Courtwillwaittoseeifinterestvestsw/in90yrs.Ifvests,valid.Ifdoesnotvest,void.
ii. Atoutset,cannotvoidanybodysinterest.
iii. FutureAttyWork:Sinceitscreation,wehavenotyetreached90yrpoint.
b. LongRAP(NV360yrs,FL1000yrs)
c. RepealofRAP:[Alaska][ND][DE][ID][NJ][RI][SD]
i. TaxIncentives:cancreatetruststhatgofromgenerationtogenerationw/oeverpayingestateor
gifttaxesthatarenotsubjecttoRAP.
d. SavingsClause&TrustsviolatingRAP:
i. Thomasv.Harrison:Discretionarydistributionsforbeneficiariesw/noclearendingpoint
fiolatesRAP&voidsentiretrust.
1. Trustiscreatedwresiduaryestateforson,wife&issue(trustduringlifetime).Trustees
weregivenabsolutediscretionovertheincome&principaltoalleviatefinancialburdens
ofbeneficiaries,toprovideeducationalsupport,ortoaccumulateanyincomenotspent.
2. B/cthetrustwasdiscretionary,thewholetrustwascontingentastoallthebeneficiaries.
3. Inthy,allbenscoulddieandtrusteecoulddistributemorethan21yrslater.
ii. [Today]:SavingsClauseforcestrusttoterminatew/inRAP;distr.towhoeverthenentitled.
DIGITALASSETS
Whatarethese?
o Onlineaccountsandpasswords
o Cloudstoredinformation
Issues:
o Whoownstheasset?
o Whohasrighttocontrolassetafterdeath?
o Whichgovernstermsofserviceorstatelaw?
o Whatistheforumforenforcement?
Suggestions:
o Leavesomeoneaccess/passwordinformation.
o Grantfiduciariespowersoverdigitalassetsinestateplanningdocuments.
TRANSFERTAXES
TRANSFERTAXESTaxesonwealthtransfersintheU.S.:income,consumption(sales&use),gift,estate,generation
skippingtransfer
GiftTax
1.Today:toprateis40%
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2.BackstopsEstate&IncomeTax
a.Ifhaveincometaxinplace,needtohavegifttaxinplace.Otherwiseemployerswouldjustmakegifts
insteadofpaysalary.
b. Estatetaxcanbeavoidedbymakinglifetimetransfers,butwillstillowegifttax.
3.Imposedontransfersw/ofullandadequateconsideration.
a.Full&adequateconsideration=fairmarketvalue,objectivelyequalvalue,oratleastmorethanmere
peppercorn
b.gratuitioustransfersmadeduringlifetimearetaxedatdeath.
4.Taximposedonvalueofpropertytransferred.
5.Giftv.K:canKforminimalconsideration,butcannotmakegiftforminimalconsideration.
6.WhenComplete:
a.nodonativeintentrequired
b.noidentifieddone(specificrecipient)required
c.incompleteif:donorcanrevokeorchangebeneficiary(propertywillbesubjecttoestatetax)
i.atrust,inwhichtrustorretainscontrolisNOTcompletegift.
d.Giftcanstillbeinestate:
i.Insteadofpayinggifttax,payestatetax
ii.Canbebothacompletedgiftandstillbeindonorsestate
e.Controloftime/remainderofenjoymentofpropertybydonordoesnotpreventcompletegift.
i.Transfertotrust&controldistribution,butcannotchangebeneficiaries=stillcontrollingtiming,
sogiftiscompleted.
ii.Ex.:gifttochildforhisbenefit/enjoyment,thentoB.
1.incompletegift:canchangebeneficiaries,givetosomebodyelsebesidesB.
2.Therefore,giftisstillinestate.
7.
Smithv.Shaughnessy:
a.Smith(familyownstypewriterco.)places$600Kworthofsharesintrustforyoungerwifeforlife,upon
herdeath,stocktobereturnedtohimifhewasstillalive.Ifhewasnotstillliving,itwastogoto
whoeverwifedesignatedinherwill.Taxpayerthoughtthatreversionmadeitanincompletegift.
b.Held:TPiswrongreversionmayreducevalueofremainderbutstillhaveaninterestandcourt
willdeterminevaluationofit
8.ExamplesofCompletedGifts:
a.Cash
b.Checkcompleteondatewhenpresentedtobank
c.Charitable:completewheneitherpostmarkedorhandedtocharity
d.Property:completewhendelivered
e.FutureInterest:
i.Irrevocablefutureinterestsarecompletegifts.
ii.Justbecausesomethingisdifficulttovalue,doesnotstoptaxfrombeingimposed.
9.TodaysLowerInterestRateEnvironment:
a.InPractice:Haveclientssellassetstochildreninexchangeforpromissorynote.
b.Ifnotepaysoutatthesamerateastreasurybonds,thenthenoteamountstofull&adequateconsideration
forproperty.
c.Circumventsgifttax.
d.Greatb/ctreasurybondinterestrateisVERYlow.
e.Qstoask:
i.isitapromissorynote?
ii.didyouchargeminimuminterestrate?
iii.Ifyes,thennogifttax.b/cnote=full&adequateconsideration.
iv. Stillpartofestatetaxthough!
10.AnnualExclusion:nogifttaxwhen
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a.Ignoressomegifts
b.$14,000indexedforinflation/perrecipient/peryear
i.Exception:tuition+medicalexpenses+$14,000permittedeventhoughtechnically>14,000.
c.PresentInterestinproperty
d.Any#ofdonees
e.Canamounttouptoalotof$quickly:
i.H&WeachgetacheckfromGrandma&Grandpa
ii.4checks=$52,000/yr.
11.ComputationofGiftTax:
a.GiftTax=(rate)*(valueofpropertytransferred)
i.40%ishighestratein2013(for$1M+gifts)
b.Graduaterate:lowergiftshavelowerrate,highergiftshavehigherrate
c.
LifetimeCreditforfirst~$5Mofgifts
i.Effectively:onlyworryaboutgifttaxifgive>$5M
ii.donothavetogiveaway$5Mallatonce,canbeseparatesmallergifts
iii.
AnnualExclusionforgiftstoanyonepersonnotmorethan$10K($14Kin2014)
1. Giftmustbeapresentinterestproperty.
2. Donormaymakeannualexclusiongiftstoanynumberofdonees.
3. Doesnotcountagainst$5Mlifetimeexemption.
4. Trusts:
a. Normallyaninterestinatrustisafutureinterest(nopresentinterest),sogiftsin
trustdonotqualifyforannualexclusion.
b. Togetbenefitofannualexclusion,setuptrustandgivebeneficiary30daysto
withdraw,thenmoneystaysinuntilalaterdate.Crummeyv.Commissioner.
iv. automaticallyusedwhentaxablegiftismade.
v. DonormustreporttaxablegiftsanduseofexemptiononForm709GiftTaxReturn.
1.yourcreditwillbeequaltothevalueoftheTAXdueontheexemptedgift.
a.youwillnotsee$1or$5milliononyourtaxreturn,youllsee40%*$5M
b.Ifgive$5M,thencredit=$2M
vi. Since40%rateappliestogiftsover$1M,andtaxonlypaidongiftsover$5M,allgifttaxwillat
40%rate.
d.
LifetimeCredit/GiftTaxExclusions:donotreduceyour$5Mlifetimecreditwhenmakingthesegifts
i.giftstoacitizenspouse
ii.charitablegifts
iii.annualexclusion($14K/year)
iv.paymentsoftuition
v.paymentsofmedicalexpenses
e.
Example:Sallymakesthefollowingtransfersin2014:
i.$100KcashtoJake.
ii.$30KFranksschooltuition
iii.$18KforCateshealthinsurance
iv.$20KtotrustforDonnathatholdsfundsuntilage35.
v.Howmuchexemptiondidsheuse?
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EstateTax
1.
CAhasNOestatetax,butthereisFEDERALone
2.Taximposedonpropertyownedbydecedentatdeath.(notjusttitled,butalsocontrolledbydecedent)
3. SHARELIFETIMECREDIT/exemptionof$5Mbetweenestateandgifttax.$5Misindexedforinflation.
4.Graduatedrates:
a.
now:40%=toprate,whichparallelstheincometaxandgifttaxrates.
5.
GrossEstate:includes
a.propertyownedbydecedentintitleandbyjointtenancy
b.propertysubjectedtopowersretainedbydecedent(ex.revocabletrust)
c.retirementassetsandannuities
d.lifeinsuranceifdecedentholdsincidentsofownership:
i.powertochangebeneficiaryofpolicy
ii.powertoborrowagainstpolicy.
iii.Powertosurrenderpolicy.
6.RetainedPowerProperty:
a.Examplesofretainedpowersofenjoyment:
i.lifeestates
ii.incomeinterest
iii.powertoalterbeneficialenjoyment
iv.powertorevoketransfer
v.assetsubjecttoclaimsofcreditors
vi.powertovotestockofcloselyheldcorporation
b.Thesearecountedtowardestatetax,notgifttax.
i.WhyBad:cheapertopaygifttaxthanestatetax.
c.OldRule:giftsincontemplationofdeathwerevoided.
i.Now:giftsmadew/in3yrsofdeathfortaxpurposespayestatetaxanyway.
d.
OldColonyTrustCo.v.U.S.:
i.Father/decedentsetuptrustw/80%incometoson,remaindertosonswidoworissue.
ii.Decedentactedastrustee&hadpowertoincreaseorstoppayments.
iii.
Held:decedenthadsufficientcontroltoestablishincompletegift&actuallypartoftaxableestate,
subjecttoestatetax!
iv.Takeaway:donotactastrusteeoftheestateyouarecreating.
e.
EstateofRapelje:
i.Fatherdeededhousetodaughter(reportedtaxablegift),butcontinuedtoliveinhouse&paytaxes.
ii.Atdeath:housewasaretainedpowerasset&partoftaxableestate,subjecttoestatetax.
iii.
Takeaway:substanceofataxationismoreimportantthanpaperwork.
f.ReciprocalTrustDoctrine:consideredcollusion
i.H&Wputtheirownassetsintrustforspouse.
ii.CourtwilltreatHhascreatingtrustforhimself&Wascreatingtrustforherself.
iii.Therefore,H&Wretaincontrol&trustsaresubjecttoestatetax.
iv.
EstateofGrace:
1. JosephmarriedJanet1908.Between1908and1931hetransferredalotofwealthtoJanet,
includingLongIslandestate.Shedidnotactivelymanageproperties.Dec.15,1931he
createsJosephGraceTrust(incometoJanet,principalforanyreasonadvisable,shecould
directpropertyatdeath).16dayslater,JanetcreatesJanesGraceTrust,withsametermsfor
husband.
g.Loophole:AugmentedEstate/[UPC]ElectiveShare:
86
1.estatetaxisimposeduponestateyouownwhenyoudie,soplantocontrolassetsw/oowning
them.
2.keeppropertyinatrust,inwhichyouretaincontrol/use/enjoyment&giveawaythe
remainderinterest.
3.Becarefuloftoomuchcontrolthough,b/cthenincompletegift.
7.
DeductionsfromGrossEstateforpurposesofcalculatingEstateTax:
a.Debtsofdecedent
b.Claimsagainstdecedentdeductedwhenpaid
c.maritaldeduction(gifttosurvivingcitizenspouse)
d.charitablegiftsdeduction
e.expensesofadministration
8.
ComputationofEstateTax:
a. Calculatevalueofgrossestate
b. Subtractalldeductions(debtsandpaidclaims,maritalandcharitablegifts,administrationexpenses)toget
taxableestate
c.EstateTax=(rate)*(taxableestate)
d.ReduceTaxbyCredit:
i.Exemption:amountthatcanbegivenawayfreeoftax.
ii.Credit=(exemption)*(rate)
e.LifetimeGifts:
i.countagainstcredit
ii.usedtodeterminerate.
Example:SimpleEstateTax
Assets
Debts
Gifttocharity
GrossEstate
Rate
TentativeTax
Credit
TaxDue
10mil.
2mil.
1mil.
=7mil.
*40%
=$2,745,800
$1,945,800
=$800,000
Current Law:
1. Rate = 40%
2. Exemption = $5M
3. Credit = $2M
4. 2001-2009: could give away less during life than at
death
5. 2009-now: can give away the same amount during
life & at death
Example:EstateTaxafterLifetimeGiftof$1M
Assets
Debts
Gifttocharity
GrossEstate
Rate
TentativeTax
Credit($1Mlifetime
gifts)
TaxDue
10mil.
2mil.
1mil.
=7mil.
*40%
=$2,745,800
$1,600,000
=$1,145,800
Giftv.EstateTax:Ex.$150@40%EstateandGiftTaxrates
Gift
Donottaxthetax,
onlythegift
Estate
Taxthetaxandthe
gift
Youre taxed on the estate tax!

o $ you use to pay the estate tax is also
taxed.
o [default]: gifts from the estate pay their
own tax
must be express if you want
residuary to pay instead.

Gift$107.14
Tax$42.86
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Estate$150
Tax$60
NettoHeirs$90
MaxGift=
Total/1.4
StepUpinBasisatDeath(notwithlivegift)[lookup!]
1.Generally,taxpayerhastaxableincomeonsaleofassetequaltodifferencebetweenpurchasepriceandsaleprice.
2. Taxpayersbasismaybereducedisheclaimsdepreciationdeductionswhileholdingproperty.
3.
RULE:Basiscarriesoverwithgiftsbutnotwithestate(incometaxbasisbecomesdateofdeathvalue)
4.Idea:takedateofdeathvalueofproperty&whoeverinheritsistreatedasiftheyboughtthatpropertyforitsvalue
ondateofdeath.
5.Example:
a.Purchasefor$100,000
b.Deathat$1,100,000
c.IncomeTax:Salebeforedeath@25%profit=$250,000tax
d.Saleafterdeath0tax:donotpayincometaxb/calreadypaidestatetax.
6.McCafferyPlan:Buy,Borrow,Die
a.Buybuildingfor$100K.Whenitappreciatesto$200K,borrowanother$100K(notincome).When
appreciatesagain,borrowmoreagain.
b.Repeatuntilbuildingisworth$2M(borrowed$1.9M).
c.Ifbuildingissold,taxdueis$665K.$665Kplus$1.9Mdebt=$2.565K(morethansalepriceof$2M).
d.Ifownerdies,only$100Kintaxableestate($2M$1.9Mdebt).Heirssellfor$2M.Noincometaxsince
basisbecome$2Matdeath.Payoff$1.9Mindebt,leave$100Kinestate.Pay40%taxonthat,youare
leftwithnot$60K.
GenerationSkippingTransferTax
1.
Giftstograndchildrenandmoreremotedescendants(or37.5yearsyoungerifnotrelated)
2.Normally:2estatetaxes
a.But:ifgiftismoreremoteandgoesfromparentstograndchildren,thenonly1estatetaxispaid.
3.GSTtreatschildrenasiftaxed,soreallyimposing2estatetaxes.
4.GSTimposedattopestatetaxrateattimeoftransfer(40%now).
5.Exemption:$5M/year(indexedforinflation).
a.GiftstochildrendontuseGSTexemption.
b.Applytodirectskipgiftof$100Kcashtograndchild.NoGSTpayableifGSTexemptionisavailable.
Ifdonoralsohas$100Kgiftexemptionavailable,thenpaynotransfertaxesatall.
c.Applytoatrustplace$1Mintrustanduse$1MofGSTexemption.Trustisnotsubjecttotransfertax
solongastrustisnotdistricutedorotherwiseincludedinbeneficiarystaxableestate.
6.GSTiscostlytax:
a.AssumedonorhasnoremaininggiftorGSTexemption.
b.Donormakes$1Mgifttograndchild.
c.Gifttaxdue:$400K(40%of$1M)
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d.GIFTisdueonBOTHamountofgiftandongifttaxpaid:$560K(40%of$1.4M)
e.Totaltransfertaxespaidare$960Kona$1Mgift.
Doingyourchildrensestateplanning
Place$5Mintrustforchilddiscretionarydistributions
Use$5Mgiftexemption.Apply$5MGSTexemption.
Trusttermsaresuchthatitpassestochildschildrenandisnotinchildstaxableestate.Notaxdueonchilds
deathonbalanceofassetsintrust.
Upondeathofgrandchildren,sameresultnotaxdue.ProcesscanrepeataslonastrusthasassetsuptoRAP(if
applicable).
ValuingProperty
1.TransferTax=(rate)*(valueoftransferredproperty)
2.Donorcannotchangerate;setbyCongress
3. Value:willingbuyer,willingseller.loosestandard,roomforinterpretation.
Timing:
1.
Gift:Valueofpropertytransferredondateofgift
2.
Estate:Valueofpropertytransferredoneither:
a.dateofdeathOR
b.alternativevaluationdatew/in6monthsafterdeath.
i.iftotalestateisworthless6monthsafterdeath,thencanchoosetovalueatthislaterdatesothat
yourestatetaxwillbemuchlower.
ii.Usethiswhenthemarketdeclinesshortlyafterdeath.
c.Basically:chooselesserofthe2
3.EstateTaxisdue9monthsafterdeath.
Valuation:
1. Cashfacevalue
2. Publiclytradedstockaverageofhighandlowondateofvaluation
3. Realestate,closelyheldbusiness,othernonpubliclytradedassetsvaluedbyappraisal,butbusinessesare
hardertovaluethanhomes
a. Salesofcomparableproperties
b. Discountedvalueoffuturecashflow
c. Liquidationvalue
FractionalInterestValuation:
1.Partialinterestsareworthlessthanproportionateinterestinwhole.
2.Resultsindiscountfor:
a.lackofcontrolforminority
b.lackofmarketability(ofcloselyheldentity)
3.Instead:
a.managegiftstotransferminorityinterest
b.cancreateentitiesw/eyetowardstaxdiscount.
4.Takeaway:ifyoucomeupw/anyreasonablereasontocreateanentity,followformalities,respectbusiness,then
cancreateentitytocreatetaxdiscounts.
a. Reducesvalueofproperty&estatetax!
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b. Buyasset,transfertoanLLCyoucreate/manage.Give32%ofLLCtoeachofyour3children.
1. Now,eachhasminorityinterest
2. Lackscontrol15%discount
3. Notmarketable20%discount
4. Ata40%taxrate,thissaves$400Kintaxesforeachchild=$1.2Mtotal
5. Atdeath,parentsretained4%discountedinestateorlikelygivenawayinalateryear
TransferringFutureAppreciation:
Donortransfershouseworth$1Min2008tochild
In2014,houseworth$1.8M.Donordies.
Donorsestateisnottaxedon$800Kappreciation(wouldvebeentaxedifdonorkepthouse).Taxsavings$320K
TaxFavoredSaleofAsset:
IRCallowsintrafamilyloansatinterestbasedonTreasuryRates.
Parentcansellchildbusinessinterestworth$10Mforanoteat2%interest.
Typicalcloselyheldbusinesshas20%rateofreturn.
Ifchildpaysinterestandappliesallexcessincometorepaymentofloan,loancanberepaidin5yearsandchild
stillhas$10Massetandallfutureincome.
MaximizingPowerofSales:
Saletotruststructuredsothatparentpaystaxontrustincomesotrustgrowstaxfree.
Trustcanbegenerationskippingtransfertaxexempt.Donorgives$5Massetstotrustandsells$50Massetsto
trustfornote.In5years,trusthas$55Massetsprotectedfromfuturetransfertax.
TaxReductionStrategies:
1.
ViaGift:
a.Gifttaxislessthanestatetax,makinggiftssaves$
b.GiftappreciatesoutsideofestateEx.$1milappreciatesto$2milbytimeofdeath.
i.Ifgivegiftwhenitsworth$1million,thengiftappreciatesto$2millionoutofestate.Paygift
taxfor$1mil.
ii.But:ifgivegift@death,thenyourepayingestatetaxfor$2mil.
c.PossibleDiscounts
2.
ViaSale:
a.aka:sellassetstokidsunderfavorableterms;ex.:onlyselltokids10%atatime.
b.Favorablevaluationusingdiscounts
c.Favorablefinancingatallowedinterestrates:chargekidstreasurybondrate!(only<1<3%)
d.Appreciationoutofestate:notsubjecttoestatetaxafterappreciation!
GrantorTrustsStrategy:
1.InGrantorTrustincomeistaxedtograntor
a.whengrantorpaysincometax,thetransferisnotconsideredagift.
b.Bystatute:grantorhaspowertosaywhetherbeneficiaryownstrustforincomeorestatetax
i.Ifownforincome,trustgrowsfaster.
2.IncomeTaxv.TransferTax(akaEstateTax)
B: income tax
a.Trusts:subjecttoincometax,notestatetax
G: overlap
W: estate tax
b.Assetsalew/ogain[?]
c.Trustscanbeusedtopaybeneficiarysincometax.
3.Interplaybtw.Income&EstateTax:
a.Overlap(grey)=Ifyouownthetrustforestatetax,thenyouownthetrustforincometax,too.
b.SmallIncomeTaxSliver(blue)=Youowntrustforincometax,butnotforestatetax.
90
[POLICY]DoesEstateTaxMakeSense?
1. 2010ONLY:[EGTRA]repealedEstateTax&GSTin2010(btwRepublicansgainedcontrolin2010)
a. NoestatetaxorGSTin2010
b.GiftTaxremains
c.Carryoverbasis
d. CreatureofSenateRules
e. Reconciliationacts
i. Insenate,ifyouwanttoshutoffdebate,youhavetouseclosurevotewhichrequires60votes
ii. Certainbillsarenotsubjecttofilibuster
iii. Reconciliationactscannotaffectrevenueformorethan10years,andifitdoesitissubjectto
filibuster
f. HistoryofEstateTax:
i. 2000:exemptionis$1M,toprateis55%
ii. 2009:exemptionis$3.5M,toprateis45%
iii. 2010:exemptionis$0or$5M,toprateis0%(w/nocarryover)or35%
1. ifyoudiedin2010:youhadachoice:carryoverbasisorpayestatetax
iv. 2011/12:exemptionis$5M,toprateis35%
v.
2013:exemptionis$5M,toprateis40%
2. IsEstateTaxworthit?
a. Mostpeoplewouldrepealestatetax:
i.moneycouldbespentduringlifetime&usedtostimulateeconomy
ii.incentivizepeopletoinvent&createwealth
b.Counterargument:wealthypeopleshouldpayextra.
3.
Whoistaxed?
a.Lessthan.14%ofthepopulationsecuresthe$5millionexemption.
4.
Whopaysestatetax?
a. In2013,onlytop0.14%
b.1/3ofrevenuefrom500wealthiestdecedents.
5.
ComparetoIncomeTaxes:
a.FederalIncomeTaxes:
i.Top1%comprises20%ofU.S.sIncomeandpays40%ofU.S.incometaxes.
ii.Top50%pay97%
b.CAIncomeTaxes:
i.Top3%pay50%
ii.Top9%pay70%
iii.Top30%pay93%
6.
ComparetoSocialSecurity&Medicaretaxes/benefits:
a.1960s:9:1returnontaxes
b.1980s:3:1returnontaxes
c.2010:payinmoretosocialsecuritythangettingout.
7.
Problem:govtoftenskewsthe#s
a.Whentalkaboutpopnintop10%,top5%,top1%,thenumberslookbetterthantheyreallyare,b/cthe
top5%includesthetop1%.
b.1%usuallydoesthebest,whichmakesthetop5%and10%lookliketheyredoingbetterthaninfact.
91
c.Between1975&2008:top1%experienceda10%growthinincome.
i.Brokendownevenfurther
1..01%experienced7.8%growth
2..09%experienced2.2%growth.
8.
Compareto:Top400Taxpayers
a.Top400taxpayersmake$345Million+inoneyear.
b.2007IncomeTaxRate=17%
i.1992IncomeTaxRate=26%
c.2007CapitalGains&DividendRate=15%
i.CapitalGainsratedrivestaxrate.
d.Effectively:
i.Canreallyonlymake$345mil.ifyousellabusiness,i.e.acapitalgain
ii.Notrepeatplayers,usuallyonegoodyear.
9. EstateTaxasasourceoffederalrevenue
a. 0.7%offederalrevenue
b. average$20B/yearfornext10years(total$200Bover10years)notreallythatmuch
10. vs.Canada:doesestatetaxwithincometaxeswhenyougetappreciatedproperty,youpaythetaxonitthat
way.
11.Deficits:Wealth
a.20082009:$1.7Trillion
b.20092010:$1.3Trillion
c.Forbes500:$1.4Trillion
MEDIATION
Compare:
1. Mediation:noresolutionunlessALLpartiesagree;mediatorhasnoauthoritytomakebindingruling.
2. Arbitration:privatepartyasajudge,whogivebindingdecision.
Facts:
8090%probatecasesresolvedinmediationbecausetrialscostwaymore(Ex:formaldiscoveryisyoutryingto
getdocumentsfromopposition,whoistryingtocomplyinmostunhelpfulwaypossibleveryexpensive)
disputeisusuallyjustaboutthemoney
mediationcanhelpallocateapotofmoney
noonefeelslikeawinnerorajustresultaftermediation
typesofmediators:
o evaluativetellsbothsideswhathethinksaboutthecase
o nonevaluativewillnotexpressopinion;willgobackandforthbetweenparties
o Ex:JudgeGoldwasevaluative,whichcanbegoodifsideshateeachothersomuchtheywontagreeto
anythingtheoppositionproposesbutmaybewouldagreetomediatorssuggestions.Outcome:legalfees
$170K,morethan$150Ktrusteewasevenaskingfor.
Ifyoudontsettle,thereisachancesomethingwillchange(Ex:opposinglawyerhappenstobegoodfriends
withthemediator,youfindoutthereisanotherchild,etc.)
MediationFormula:
92
1.CalculateyourTarget:
a. Whatisbestresultifyouwonthecaseattrial?
b. Whatareyourlikelyfees?(generally,eachsidepaysitsownlegalfees)
c. Howlikelyareyoutowin?
2. Ifyoucandoaswellorbetterinmediation,takethedeal.
Example:
Disputeoverhouseinatrust.Decedentattemptedtogiveawayhouseinwill.
Canthewillrevokethetrust?
o CAlawsaystrustcanbeamendedbywritingotherthanwill.
o Trustsaysitcanbeamendedpersonally.
Valueofhouse$500K
Feestofight$50K
Changesofwinning50/50
Goodsettlement($500K$50K)*50%=$225K
TipsforSuccessfulMediation:
Goinwithanchor(startingpointorgoal)
Dontgetpersonalorreactiftheydo
Bepreparedforlonghours
Seekinformationoranalysisthatinformsyourpositionandadjustaccordingly
Befullypreparedwithasmuchinformationandlawaspossible
Draftaclearbriefprobablyjustsharewithmediator,nottheotherside
o Youcanusebrieftoexplain/dullbadfactsforyourclientandtoprovidearoadmapforthemediator
Lookforthingsthathavevaluetotheothersidethatarecheapforyou
o Maybecharitycangivechildrenaplaqueorsomeotherrecognitionforgift
Makesuretogetitinwritingdontletasettlementfallapartmaybetakeapredraftedsettlementagreement
withyou
WillDraftingExercise&AchillesWill
WillDraftingExerciseseedocumentwithsamples
dontsayyoudon'thavechildrenbutthengivesomethingtoyourchildren
bytermsofservice(itunes,gaming,etc.)youcantreallytransferyourmusic/mediatosomeoneelse
maybeputinaclause:ifIhavechildrenattimeofdeath,theywillget/divide
ifnooneinwillsurvives,alwaysgoodtosayitgoestointestateheirsorpickacharity
guardianshipclause
rememberthatifyougivetoparents/wife/children,thenleaveresiduetointestateheirs,theygetagiftagain
accountforsituationsifoneparent,oneinagroupsofcousins,etc.dies.Dotherestnowshareitallordoesthedead
cousinschildgethershare?
Leavingmoneyforsomeoneseducationleaveaspecificamount
Accountforfutureniecesandnephews,butwhatifyouonlyleavemoneyforeducationtotheonlynephewbornasof
drafting?Doesitmeanthelaterbornnieces/nephewsgeteducationfundtoo?
Liketohaveresiduaryclauseattheendofallspecificgifts
Taxclause(alltaxespaidbyresidue)notagoodidea,youhaveotherassetsthataretaxablebutdontpassthrough
estate,whynotuselifeinsurance/retirementplantohelppayfortaxes?besttojustbesilentontaxes;usually
defaulttaxruleisthatwhoevergetsthegiftpaysthecorrespondingestatetax
o Maybejustletresiduepayfortaxesonnoncashpropertyyougiveaway(likeaguitar)

Achilleswill
Howwouldyouattackthiswill?
o Violatespublicpolicy
Racistclauses
o Impossibleconditions
o Capacity
Knowyourstuff
Knowwhatwillis(relationofstuff)
Shewrotethisallherselfsosheprobablyhascapacity
o UndueinfluencebyShakerSociety
SusceptibleY
OpportunityN
MotiveY
TermsN
o Mistakecannotmeetconditions
Abunchofillegalprovisionschanginghermomswill,nopolice/doctorstouchherbody,etc.
o Delusional
Beliefthathasnobasisinfactfearofbabies;babiesareharmful
Doeswillmentionthisdelusion?
o Shegivesgifttomom,butdidntmomhavesextobeabletogivebirthtoher?
o Becarefulinthiscasebecauseifthepeopleopposingwillhaveevenasinglereasonabletheory,judgemay
wanttohelpthemthrowoutthewilljustbecauseshewassoracistandweirdrealcasesettled
93

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H: probate estate: 120K

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