Gifts Wills and Trusts Outline

AA, GWATS, Cafferata, Fall 2014 1
Gifts, Wills, & Trusts
Table of Contents
INTRODUCTION.............................................................................................. 2
Policy and Preliminary........................................................................................................................... 2
Testamentary Freedom and Its Limitations.................................................................................................. 3
INTESTATE SUCCESSION (no valid will)...................................................................5
3 Ways to Distribute Property – per stirpes, per capita, representation, etc............................................................5
2 systems for NonIssue Inheritance: Parentelic v. Gradual Diagram..................................................................6
Ways for Spouse to Inherit...................................................................................................................... 8
Children............................................................................................................................................. 9
Disqualification for Misconduct, Divorce.................................................................................................. 10
Advancement, Assignment, & Disclaimer................................................................................................. 11
PROTECTION OF THE FAMILY..........................................................................12
MARITAL PROPERTY LAW............................................................................... 13
History and Policy.............................................................................................................................. 13
Illusory Transfer Doctrine..................................................................................................................... 15
Marital Property States........................................................................................................................ 15
Community Property States................................................................................................................... 16
Marital Property Agreements................................................................................................................. 18
Omitted Spouse/Children...................................................................................................................... 19
GROUNDS FOR CONTEST: Incapacity, Undue Influence, Fraud & Mistake...........................19
Testamentary Capacity......................................................................................................................... 19
Delusion.......................................................................................................................................... 20
Undue Influence................................................................................................................................. 21
NoContest Clause.............................................................................................................................. 22
Fraud & Duress (Tortious Interference).................................................................................................... 22
WILLS......................................................................................................... 23
Formalities of Execution...................................................................................................................... 24
Signatures.................................................................................................................................... 24
Courts’ Power to Salvage Wills.............................................................................................................. 25
Power of Attorney........................................................................................................................... 26
Burial Instructions.......................................................................................................................... 27
Holographic Wills [MAJ/CA]................................................................................................................ 27
What Constitutes a Will?...................................................................................................................... 28
Codicils....................................................................................................................................... 28
Incorporation by Reference............................................................................................................... 29
Revocation & Amendment.................................................................................................................... 30
Amendment................................................................................................................................... 30
Revival........................................................................................................................................ 30
Contractual Restrictions: Joint & Mutual wills....................................................................................... 31
Interpretation of Wills.......................................................................................................................... 32
Extrinsic Evidence.......................................................................................................................... 33
Changes in Property Holdings........................................................................................................... 34
Lapse & AntiLapse......................................................................................................................... 36
GIFTS......................................................................................................... 38
Real Property.................................................................................................................................... 38
Personal Property............................................................................................................................... 39
Compare: Wills v. Trusts...................................................................................................................... 41
LIFE INSURANCE........................................................................................... 41
TRUSTS....................................................................................................... 42
Introduction...................................................................................................................................... 42
Contractual & Survivorship Arrangements................................................................................................ 46
Totten Trusts (~POD)...................................................................................................................... 47
Alienability/Assignability of a Beneficiary’s Interest................................................................................... 47
Spendthrift Trusts........................................................................................................................... 47
Discretionary Trust......................................................................................................................... 48
SelfSettled Spendthrift Trusts............................................................................................................ 49
Asset Protection Trusts..................................................................................................................... 49
Special Needs Trusts........................................................................................................................ 49
Termination of Trusts.......................................................................................................................... 49
Ways to Terminate.......................................................................................................................... 50
Introduction.................................................................................................................................. 52
Enforcement of Charitable Trusts........................................................................................................ 53
Cy Pres & Change in Charitable Purpose............................................................................................. 53
Honorary Trusts............................................................................................................................. 54
THE PROBATE PROCESS: Administration of Estates & Trusts.........................................55
Jurisdiction/Location of Probate............................................................................................................. 56
Formal Probate Process........................................................................................................................ 57
Informal Probate................................................................................................................................ 59
Fiduciary Roles.................................................................................................................................. 61
Executor Duties................................................................................................................................. 63
Enforcement Mechanisms For Fiduciary Duties...................................................................................... 67
Delegation by Trustee...................................................................................................................... 67
Liability....................................................................................................................................... 68
Distribution to Beneficiaries.................................................................................................................. 69
3 Types of Distributions to Beneficiaries............................................................................................... 69
Duty to Balance Income & Remainder Beneficiaries................................................................................ 69
Allocating Principle & Income........................................................................................................... 70
Pay Outs...................................................................................................................................... 71
FUTURE INTERESTS....................................................................................... 72
Introduction...................................................................................................................................... 72
Rule Against Perpetuities...................................................................................................................... 73
DIGITAL ASSETS........................................................................................... 75
TRANSFER TAXES.......................................................................................... 75
Gift Tax........................................................................................................................................... 75
Estate Tax........................................................................................................................................ 77
Generation Skipping Transfer Tax.......................................................................................................... 79
Valuing Property................................................................................................................................ 80
MEDIATION.................................................................................................. 83
Will Drafting Exercise & Achilles’ Will.....................................................................84
INTRODUCTION
Policy and Preliminary
Why the Inheritance and the Probate System is in Place
- Crucial to the maintenance of social status quo for private individuals to pass wealth on at death.
- Benefits:
o preservation of family business/farm income (way of life)
o discouraging waste near death
o making the next of kin sensitive to the needs of the elderly
- Drawbacks:
o persistent inequality
o failure to promote merit
o failure to promote work
o allowing the imposition of foolish conditions.
- Freedom of testation: gives people the right to decide who takes their property after death.
o Any restrictions on this are read in their narrowest terms.
- Protect against fraud
- Need a mechanism to remove legal tieups when removing a deceased’s name from property at death.
The Probate System and Wealth Transmission Process
 Probate is left to states. Federal courts don’t really deal with it
 Probate: When there is a will. Judicial proceeding to determine the validity of one or more instruments as the
decedent’s will (judicially supervised estate administration)
 Intestate: Person dies w/o will (80%)  look to the state’s inheritance rules (usually wife  issue  other relatives)
 Testator: Person who drafts a will
 Difference: Executor/Administrator: Person who follows through w/ the directions in the will.
o Executors are named in the will. –versus
o Administrators: appointed during intestate probate; states determine who can act as executor
 Effective Will: A will is ambulatory (not effective until death). A will is effective when it clears the probate system
 a will needs to go to Ct. to have a legal effect.
 Each state has its own probate statutes.
 Administration has 3 basic functions:
o Collecting assets of the estate
o Paying expenses, creditors’ claims, taxes, and other charges
o Distributing the remaining assets to the successors
 Uniform Probate Code (UPC) (1969, and amended in 1990) – about 1/3 states have adopted this
 Estate: all property owned by decedent at death
which is capable of being transferred by will.
 How to avoid probate:
o Hold property in nonprobate assets
 ex: Trusts, life insurance, pension
accounts, joint property w/ right of
survivorship, POD accounts
o Gifts often taxed less during lifetime
o Estate taxes – pretty weak; lawyers can help
you avoid these
o Impact: (1) Easy administration & (2) Costs
loss b/c pay less in death tax
 Note: Death Tax as Misnomer: only taxed
at death for things you own, no tax if own
nothing.
Testamentary Freedom and Its Limitations
Limitations: Is there a constitutional right to devise property?
- [ENG]: Surviving spouse/child can file petition to have estate plan be adjusted; Ct. determines what decedent
OUGHT to have done.
- Hodel v. Irving (SC 1987): Challenged statute’s escheat provision that gave Indians the right to transfer their
land during life, but after death the land went to the tribe Provision designed to terminate the endless fracture
of Indian land. Held: unconstitutional taking under the takings clause. Strict scrutiny not met.
o Eliminating even one right (rt. to devise) from the property rights bundle is still a taking.
 The right to inherit is not an inherent right, but one created by the states.
 Individual property rights outweighs other benefits of consolidation
o Note: statute only applied to intestate/probate; loophole= trusts.
- Limits on Wills:
o Ability to transfer property at neat is a positive law (not a natural right), so legislature may place limits on it
o Must meet FORMALITIES.
o Cannot take rt. to devise completely (Hodel)
o Default Rules (can always be workedaround)
 NOTE: can (and usually should) always Karound default rules!
 Even if have a will, sometimes default rules used anyway, if— for example
 will is poorly drafted –or
 certain assets are not included in the will –or
 inheritors named in will die first –or
 a condition in the will is not satisfied
o Can Tax
 Federal Income Tax: An excise tax on the testator’s right to transfer an estate at
death
 State Death Tax: An excise tax on the testator’s privilege to transfer estate at
death
 Reaches a greater # of estates that tan federal tax b.c the taxable threshold is much lower
 Federal Estate, Gift, & Generationskipping Transfer Tax (inheritance tax)
 Fed. Estate: imposed on the transfer of a decedent’s taxable estat
 Gift: Imposed on all taxable gifts made by a living donor each year $10K free per done
 GenerationSkipping: means of limiting inherited growth
o Passing it to a person 20 years younger is not taxed
 Original theory was one of redistribution of income (reason why cts were so
hostile to it), but now it is a very big revenue raiser (why efforts to get rid f it haven’t gone that far.)
o Can Protect family:
 If surviving spouse/child is ommitted, then can require a gift.
 Leg. View: not a “limit,” just “correcting a mistake.”
 Pensions can ONLY go to surviving spouse/children.

o Subject to Duration Limits— Rule Against Perpetuities (RAP):
 Rule: Any gift must vest w/in 21 yrs after lives in being at the time gift was max:
 Note: Some States allow up to 100 yrs.
 Policy: Avoids dynasty and deadhand effect
 Old documents deteriorate physically & Legally: things change over time; hard for ppl to
adjudicate.
 Not Subj. to RAP: Charitable gifts/trusts; run indefinitely
o Conditions in Wills: Wills can attach a lot of strings to ppl.
 Heirs do not have a right to inherit.
 US National Bank of Portland v. Snodgrass : Daughter could only inherit if she
did not marry a catholic before age 32.
 Characterized as testator’s private action, then court will enforce.
 $ is Father’s to give; Daughter is not ENTITLED to the $.
 Held: Provision is legal, although repugnant.
 BUT: If characterized as state action, then court will refuse to enforce.
 In re Liberman: trust for a daughter forbid her to marry w/o consent of cousin,
who was next in line if she violated the condition. Court held: the condition void as an
unreasonable restraint on marriage that would promote celibacy or adultery.
 GEN: Cts. interfere if provisions are (a) illegal (or becomes illegal) or (b)
unreasonable due to public policy (i.e. must marry 1 of 6 men)→ In practice, strike offensive
provision & keep the rest.
 [RST3/MIN]: Cts. should be much more willing to invalidate repugnant
provisions. “Capricious” instructions that are destructive and benefit no one are invalid.
 Policy: world is for the living, cannot control living from the grave.
Options when there are racially restrictive covenants
1. Fed Ct Issues a permanent injxn against state ct. enforcement
2. Apply Cy Pres to eliminate the racially restrictive part
 Cy Pres – If a condition cannot be preformed as written, & the donor has a general
charitable intent, ct. will apply that trust property to the next nearest of charitable purposes.
 Only applies to charitable trusts
3. Substitution of private trustees is inadequate  order desegregation order.
4. Revert back to the heirs of the grantor (RARE).
INTESTATE SUCCESSION (no valid will)
 Intestacy occurs (by an administrator) when the property is not effectively disposed of by will (no will or faulty will)
o 80% of people die w/o wills. Why? No assets, don’t consider risk of dying, hassle, no dependents, informal
agreements, no lawyer
 State Intestacy Statutes: If no will, state statutes determine how property will be distributed via intestacy
o Rare: Escheat – goes back to state  Last case scenario (can look like a Taking)
 [POLICY] Considerations for Intestate Succession:
A. Easy to understand/apply
B. Support/protect the deceased’s family; especially spouse/children:
 Favor family: Why? (1) a return to family b/c family helped create the estate (2) Need to continue
supporting family b/c decedent supported family during life.
 Order of priority: spouse > issue > other relatives (parents, siblings, etc.)
 [UPC] Intestate Share of Spouse see below.
 Issue: [ALL Jx.] If issue exist, they take to the exclusion of other relatives.
 Other relatives: only inherit if there is no spouse & no children.
o [MAJ] If no spouse/children, Parents > all other relatives.
 Lineal descendants: Grandparents, parents, kids
 Collaterals: Siblings, aunts/uncles, cousins, nieces/nephews
 Determining the degree: Counting down the # of generations from one collateral up to the nearest
common ancestor and then down to the other collateral.
 Does not consider nonfamilial friends you may want to leave something to (too difficult to prove intent)
 Representation in Intestacy
o Permits a predeceased relative’s descendants to represent their predeceased ancestor for purposes of inheritance.
 Ex: X dies. Before X died, X’s brother Y died. Y’s kids can “represent” Y and inherit from X.
3 Ways to Distribute Property – per stirpes, per capita, representation, etc.
Three Systems
[PRACTICE]: put in doc, which of these 3 systems you want to use.
General Rules that apply to all 3 systems:
1. Any Living ancestor between the decedent and the relative hoping to inherit, cuts off that relative.
2. No allocation to person who is deceased w/o living issue.
3. Shares are allocated for each living person in a generation and each person who is deceased but has living issue.
Pure representation (or per stripes)
Starting at the very next generation of the person who passed away,
divide everything equally WHETHER THEY ARE LIVING OR NOT.
Then move it down to the next living and divide each parent’s share
equally
If everybody died in the order they were “supposed to,” this is how
the money would naturally flow.
Generally, lawyer’s favorite.
Per Capita System (THEN representation)
[CA/ TODAY] Go to the first generation with someone living and
THEN divide equally. If no kids are alive, divide equally amongst
all grandkids. THEN it goes to per representation [see above].
Careful!: sometimes State calls this “Representation.”
Compare: like Pure Rep., but do not do any division until you get to
a generation w/ somebody alive.
If O was deceased, he would not inherit, and D and E and so
forth would get 1/5. Once you’re dead you don’t inherit/count.
Per Capita at Each Generation: [MIN/UPC] 1/3 of states
Count up first living generation and give everyone equal amounts.
THEN go down to the NEXT generation and divide all of what’s left
equally. (So if one grandkid is dead their share gets split equally
with all the rest of the great grand kids)
Promotes family disharmony; not a complete equality of result.
Steps: Take the shares that would go to dead members of gen.,
combine and divide by # of people in next gen.
Combine 3 X 1/6 = ½ and divide by 6 
2 systems for NonIssue Inheritance: Parentelic v. Gradual Diagram
Parentelic: priority is given to heir w/ closest common ancestor.
 Grandniece takes priority in a parentelic system
 Both [D] & GN related to D’s Parent.
Gradual: preference to heir w/ least # of steps to decedent.
 Aunt takes priority in a gradual system
 Gradual counts each general as a degree of separaton.
 Child/ Grandparent: 2 degrees
 Niece/ Uncle: 3 degrees
 1st cousin: 4 degrees
Limits on Inheritence vary by Jx.:
- 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: tells how many steps a fam. mem. is away.
Who Takes and Who Doesn’t
Once a family line has a living person, people below don’t take.
[ ]: deceased; $: inheriting; others: supposedly inheriting from parents.
 Chart: tells name of certain relation.
[POLICY]: Reasons to LIMIT representation to siblings:
- Wendell’s Estate (1932): Held: Standing—the closest relative has standing to challenge a will to the
exclusion of everyone else.
o If you allow representation, decedent’s money may get spread amongst ppl. w/ whom he/she
had no relationship.
o D dies w/ no known relatives and a will leaving property to
Standing to challenge a will:
charity. 1. Ppl mentioned in the will at
o >1600 people claim will invalid due to lack of mental capacity. issue
 Diagrams: Cts. required these to show 2. Ppl mentioned in a prior will
closest relation. 3. Intestate successors
 Required proof of relation, not just diagram.
- Laughing heirs: Remote relatives, but going to take by intestacy
o By statute: inheritance cut off after 5th degree of relationship
o Better: don’t cut off inheritance rights but cut off rep. beyond 5 th of relationship
Ways for Spouse to Inherit
UPC Intestate Share of Surviving Spouse
[UPC]= 1/3 of states [CA]= [UPC] hybrid
Who Survives: What they inherit:
(1) Spouse + no surviving parents or other descendants Everything
(2) Spouse is parent to all of the decedent’s
descendants
Spouse and parents – but no descendants Spouse gets 300K + ¾ of estate
Parents get remaining ¼ of estate
[CAFFERATA]: UPC wrong b/c parents do not need $.
Spouse and descendants – but spouse has other kids Spouse gets 225 K + ½
[CONCERN]: SS would split $ between decedent’s kids & her
own kids, but decedent might want to provide more for his/her
own children.
Spouse + descendants who are not spouse’s kids Spouse gets 150K + ½
[POLICY]: Surviving spouse may not treat
his/her step kids as kindly as the decedent would have; need to
care for stepchildren.
Simultaneous death – X must outlive Y by at least 120 If <120 hours: Treat as if each spouse PREdeceased
hours to “survive” Y. the other. H’s skips W and goes on and W’s property skips H
and goes on. Effectively passes everything down to children.
[In practice]: K around most docs have 90 day If >120 hours: Pass to spouse according to rules above.
survivorship requirement. [POLICY]: For passing straight to kids:
avoid double probate costs
Note: use doctor’s TOD on death certificate. spouse not living long enough to get use/enjoyment out
Note: Rules still apply even if H/W die in different of property.
manners. Ex. Cancer & Car accident 2 days later. simplify administration when it is unclear who died 1st.
avoid double taxation.
UPC Intestate: No spouse
No Spouse Estate goes to descendents
No Spouse and No Descendents Parents  Parent’s Descendants  GP  GP’s descendants
Who is a Spouse?
- Traditional: civil or religious ceremony
- [Common Law]: [not in CA]
o in general, parties live together and hold themselves out as husband or wife.
o In some jx they must also specifically agree or consent to be married.
- Putative Spouse
o Went through the motions of marrying, but for some reasons there was a technical defect
o Ex: married in Mexico, mistake in paperwork, etc.
- Palimony Claim: unmarried cohabitants  [CA]: closest thing to a common law marriage
o Oral Agmt: Agreedfor exchange or detrimental reliance; Ex: I’ll take care of you, you can quit your job
o K Agmt: On a contract basis, this could constitute the right to receive a living expense at death
o This is not an agreement for inheritance, but possible for a benefits program NOT Intestate Share of Spouse
o You got only what you were promised, still not treated as a spouse
o Marvin case
- Same Sex Couples
o Okay in states that recognize it
o DOMA (federal) – other states do not have to recognize other state’s marriages?
o Advice: (1) write a will, OR (2) adopt your partner
Children
Adopted Children:
- Adoption moves child from biological family to adopting family.
o Hypo: Adopted Twice— adoption after adoption = same rules apply.
o To avoid this, make a will
o StepChild Exception: can be adopted by stepparent w/o severing the relationship w/ natural parent.
o In Re Estates of Donnelly (1972): The chain of inheritance is broken upon a child’s adoption. An
adopted child may not inherit from his/her natural grandparents.
 Stepdad adopted stepdaughter, which took her out of her natural father’s
inheritance line.
 Probate Better: Could have been avoided if inheritance written in will & not via
intestacy!
 [MAJ]: Better: adopted stepchild can still take from natural parents and
relatives if adopted by other natural parent’s spouse .
 [Some Jx.]: ONLY keep adopted stepchild connected to its biological parent’s
line if that parent died before adoption.
 So: Ok to keep connected if biological parent gone b/c of death, but not divorce.
- [MAJ]: Adoption is required to occur during minority (<18), unless there is a legal barrier to adoption; such as:
natural parent’s lack of consent.
- [Jx. Split]: Doctrine of Equitable Adoption: if you act like the adopted parent; then equitably adopted child can
inherit from you, but you cannot inherit from them.
- Adult adoptions: outcome for inheritance purposes: treated the same as adopted children for intestate distribution.
Adult adopted children adopt before parents.
o Possible option for samesex couple
o Easier just to leave it them in a will
- Class gifts for adult adoptions: brought into class if:
o Done during giftor’s lifetime, AND
o Adoption occurred during minority
- Hypo: Grandparents adopting grandchildren:
o GP has 2 children: C1 & C2. C2 has 2 children: GC1 (4yo) & GC2 (18yo). C2 dies & GP only adopt GC1.
o When GP dies, C1 inherits 1/3 of estate; GC1 inherits 1/3 (as C3); & [C2] inherits 1/3, which passes
directly to GC2.
Children born outofwedlock: legal & social attitudes have changed.
- [CL]: No inheritance rights.
o [POLICY]: hard to determine paternity.
o Constitution: initially no inheritance rights, then required to give mother a reasonable time to prove
parentage as to who the father is.
- If man & woman are married presumption that the husband is the father of the child (even if not necessarily
true).
- [MODERN TREND]: DOWNWARD inheritance: marriage is irrelevant for inheritance from parent to child.
- [CA]: UPWARD inheritance: For parent to inherit from child; Requires parent to (1) acknowledge child & (2)
contribute to supporting child ($)
Assisted Reproduction:
o Husband, not sperm donor, is parent; UNLESS: Husband contests w/in 2 yrs of birth.
o Woman who carries child, not egg donor is mother.
Posthumous Children born after one of the parents dies
- Child conceived before death is considered issue.
- [CL]: Can child can inherit if born 9 months after the father passes away
o NOW: There are problems due to ability to preserve sperm.
- Woodward v. Commissioner (2002): In certain limited circumstances, a child resulting from posthumous
reproduction may enjoy the inheritance rights of “issue”. These limited circumstances exist where, as a
threshold matter, the curing parent or the child’s legal representative demonstrates a genetic relationship
between the child & the decedent.
o A woman conceives child through artificial insemination from deceased husband’s frozen sperm.
o Determine right to inherit: (1) did decedent affirmatlively consent to posthumous conception (2) did
decedent consent to support any resulting child?
o Note: Time limitations may preclude a claim for succession rights.
- Uniform Parentage Act: Requires decedent’s consent to be a parent in record.
- UPC Rules: Posthumous child can only inherit if:
1. Child must live 120 hours
2. Decedent provided egg or sperm
3. Parental rts. not terminated
4. Written consent to conception
5. Judicial procdeding w/in 3 yearsof death AND before estate distributed.
Disqualification for Misconduct, Divorce
Breach of Parental Obligations: Dead beat dad scenario Tupac: Born out of

- Breach Parental Fiduciary Duty – failure to support a child wedlock. Mother
raised him. Father
- [UPC] § 2114(c): Natural parent will not inherit from deceased child unless parent:
once acknowledged
o 1) Acknowledged the child 2Pac as his son,
o 2) Supported the child or did not refused to support the child bought him candy and
o Note: The right to inherit will be lost if parent has breached other parental movie tix. Held:
obligations (i.e. neglect, abuse, abandonment). Father did not
sufficiently support or
Spouses Losing the Right to Inherit
  Divorce lose rt. to inherit.
o [UPC]: Invalid divorce:
 If H initiates divorce & wife passes away  Valid divorce for husband; Result: H does not inherit.
 If H initiates & he passes away  Invalid divorce for wife; Result: W still inherits H’s property
unless she remarries.
  Remarriage lose rt. to inherit.
  Abandonment, refuse to support or mistreat/abuse lose rt. to inherit.
  Adultery  Traditionally: lose right to inherit; NOW: KEEP right to inherit.
  Separation KEEP right to inherit.
Slayer Statutes
- Does not allow someone who has murdered another to benefit under their will or intestate succession
o [MAJ]: also bar the killer from taking assets owned jointly.
- [CA/UPC]: “Feloniously and intentionally kills someone and is proven by preponderance of the evidence”
o Civil; Std. of Proof = more likely than not.
o Any ct, even probate ct, can make a guilty determination to prevent the other person from inheriting
- [POLICY]: thought to reflect testator’s wishes; serves Instrumentalism: deters murder.
- In Re Tarlo’s Estate (1934): Because the father was never convicted and sentenced due to his suicide, he
cannot be barred from his daughter & wife’s inheritance.
o Double murder of wife and daughter by husband. Husband then committed suicide.
o Statute prevents only those who were “finally adjudged” to have committed murder.
o Given a narrow (“unfortunate”) reading of statue b/c courts favor freedom of testation.
- If you are disinherited under a slayer statute, you are treated as predeceasing decedent.
o If murderer= minority issue (kid <18 yo): Treated as if there is no surviving issue.
- Slayer statutes usually APPLY TO: intestate succession and wills, but DO NOT APPLY TO: benefits, qualified
plans, ERISA  federal code preempts inheritance instead.
- Life insurance: usually includes exclusionary instructions as to murders, homicide, etc.
- Constructive Trust: An equitable remedy and not really a trust at all
o Killer receives property w/ the enforceable obligation to hand it over to another beneficiary.
Additional Ways to DQ Inheritance
- Elderabuse
- Theft from decedent
- Undue influence or fraudulent will
Advancement, Assignment, & Disclaimer
Advancement:
- Definition: Prepayment of intestate share
o A gift of property made by a parent to a child during life in anticipation of the child’s intestate share.
o If advancement & not gift: subtract the value of this gift from child’s intestate share @ time of
death/distribution.
 Valuing gift – valued at time of gift, not time of death.
- Requirements: Contemporaneous writing by donor OR (written) acknowledgement by heir at any time.
o Common Law  Presumption of advancement if inter vivos transfer to child
o Modern Rule  Modern statutes require the writing described above
o [MAJ]: By statute; require a written formalized document describing the gift before it is advanced.
o [MAJ] w/o contemporaneous writing; assume transfer= gift, not advancement.
 Result: Child’s intestate share is not affected. Gift is just a bonus on top.
- Example: A is advanced $30K. B is advanced $20K. C does not get anything. X dies w. $130,000K:
o Add estate + amounts advanced  Hotchpot= $180K
o divide by # of beneficiaries  $60K per decedent
o Subtract what was advanced & heir gets the net
 A: $60K $30K = A gets $30K
 B: $60K $20K = B gets $40K
 C: $60 – 0 = C gets $60K
- If the advancements outweigh the intestate share: Overrewarded heir does not inherit @ death/distribution &
divvy up the distribution among the rest of the heirs. Heir does not need to pay back any of the extra.
o A is advanced $90K; B is advanced $20K; C is advanced nothing X dies with $130K
o Hotchpot: $240K  each gets $80K
 A: $80K $90K = $10K (take A out of equation)
o Redo calculations
 $130K + $20K = $150K  each gets $75K; B: $75K $20K = $55K; C: $75K
o Note: time value of money is ignored
Assignment: assign your expectancy to somebody else.
- Consideration is required in order for assignment to be enforceable.
- Assignee basically steps into assignor’s shoes & gets what assignor would have gotten.
o Ex.: If assignor disinherited, then assignee is also disinherited.
- Risks: if assignor (person who assigns their expectancy) predeceases the decedent or has a larger/smaller share
than expected
- Can also do it if decedent is already dead and inheritance rights are locked in
- There are special inheritance advancement services for this
- Contract Law
o If it s a gift  not enforceable. Requires consideration!
o Value that can be assigned is limited to what A will get; presupposing A survives X.
 A cannot assign more than his expectancy.
o If A predeceased X  inheritance expectancy extinguishes.
Disclaimer :
Reasons to disclaim:
- Decline to accept gift or bequest. 1. Bypass personal creditors when liabilities >
- [UPC] requirements: assets. [Jx. Split]:
 cannot accept, exert control over, assign, or a. Involuntary Creditor (hit someone with
use property car): disclaimer not permitted.
 in writing b. Voluntary creditor (Visa): disclaimer
permitted.
 who (describes you)
c. Federal tax lien: disclaimer not permitted.
 describes interest  can disclaim all or d. [MIN]: allow ANY creditor to defeat a
part discliamer (Why? Moral grounds.)
 Signed by disclaimant 2. Avoid a gift tax/tax reasons
 delivered to trustee or personal rep. a. Aunt to me (estate tax), me to child (gift
(executor) tax)
 within 9 months of interest’s vesting b. Aunt to me (estate tax), I disclaim, given
to child instead (no tax!)
 be careful, might vest before you 3. Eligibility for public assistance- need-based
think systems.
 minors: have 9 months after 18 y.o. a. Medicaid: Move assets to kids in order to
regardless of vesting date) still qualify.
- Entire generations can disclaim, so $ easily b. Risk: may treat as if you accepted & base
moves to minors. eligibility off of inheritance anyway.
4. Environmental issues/ problems with the
- [UPC]: Disclaimed share of property travels via
property
pure representation.
5. Don't need the money (follow will/law to see
PROTECTION OF THE FAMILY
… the greatest limitation on the freedom of testation
INTRODUCTION
Protection of Surviving Spouse
- Common Law Property: Treats each spouse as owning whatever property is titled in their name w/ full power of
testation.
o See Statutory allowances
- Community Property: Reflects the concept of marriage as a partnership, giving both spouses equal concurrent
interest in all property earned during marriage (~9 states including CA have this)
- Transfers during marriage: There is nothing that really protects against transfers made during life
Protection of Children: there is no real protection for children as there is for surviving spouses.
Exception: Louisiana has forced heirship, civil law state based on French law.
STATUTORY ALLOWANCES
- Allowances – paid to family during administration of the estate.
- Don't count against gifts
- Even if estate is insolvent (have money but owe creditors more)
Homestead Allowance
- Prevents conveyance of homestead to anyone but the surviving spouse.
- Statutory amount for spouse or minor dependant children over and above anything else they’re entitled to
o Default= $22.5K
- Priority: Ahead of all other claims – ahead of creditors
Family Allowance:
- A reasonable allowance for the family’s maintenance during the course of the administration
o No time limit per se up to the judge
o BUT: IF THE ESTATE IS INSOVLENT: capped at 1 year
 If not, then it can go as long as the administration of the estate continues
o Does not count against testate/intestate share for spouse or minor/supported children.
- Priority: Ahead of all other claims except homestead!
Exempt Property:
- tangible personal property in excess of secured interest there to surviving spouse or, if none, to children.
o Default= $15K
o If there is not enough personal property to hit $15K, you can get it from other property, but then you cut
into other allowances.
- Priority: Claim cedes to family and homestead. This claim comes last in terms of prioty.
Social Security
- Most families have little to no accumulate wealth.
- Statutory allowances are thus meaningless and social security does the most.
MARITAL PROPERTY LAW
History and Policy
1. Why marital property system?
- Good if spouse is bringing talent, not inheritance.
- If married for just a short period of time, will reflect that in how much $ you should get.
2. Why community property system?
- More fair, separate property remains your own
- What you build together is what you share, no matter how long you’ve been married.
- Better for inherited wealth b/c spouse can’t reach that inheritance.
* Old dower & courtesy  elective share  augmented estate (attempt to improve elective share)
[OLD] Dower and Courtesy
- Do not mention DOWER or CURTESY  not used in US
- Dower: wife gets 1/3 life estate in husband’s land.
- Courtesy: husband gets life estate in all of wife’s land if children born of marriage.
- Problems?
1. only deals with real property
2. LE= cloud on title; hard to convey land
3. For wife: 1/3 of H’s estate may not be enough to support her
4. Does not look at surviving spouse’s separate property
5. Forces multiple ownerships of property until both are dead
6. Not fair b/c dependent on gender. [TODAY/MAJ]: ELECTIVE SHARE [see below]
[MAJ] Elective Share … Principal protection for the surviving spouse
- Marital Property Jx. ONLY! NOT Community Property.
- AT DEATH: Surviving spouse who does not like what they were given by decedent may elect to receive their
statutory share, often on the condition of renouncing the will.
o No kids: spouse gets ½ of the estate.
o With kids: spouse gets 1/3 of the estate.
o [UPC]: Expanded elective share to cover some nonprobate assets (“augmented esate”)
- How it works:
o Within 6 months of the death, the spouse must give notice of intent to take elective share. Must first
renounce will.
o The share, in the original form, applies to the NET estate.
o Lump sum paid, usually after sale of assets
o Does not consider property of surviving spouse, life insurance, joint tenancy, trusts, payondeath accounts
- Does not distinguish between separate and marital property

Augmented Estate
- Marital Property Jx. ONLY! NOT Community Property.
- Used AT DEATH.
- [UPC]: ADDS to estate: POD accounts, life insurance, living/revocable trusts, retained possession or
property/income, joint tenancy, gifts of $3K+ w/in 2 years of death.
o But, doesn’t include surviving spouse’s property.
- Revised [UPC]: Surviving spouse is entitled to a % of BOTH spouse’s property based on years of marriage.
o Basically: deduct what the wife has already received from this property and then divide pro rata amongst
the other beneficiaries until wife receives her elective share.
- Policy: Encourages community idea of marriage – look at ALL H&W’s property in one pot, then determine what
surviving spouse is entitled to.
- SPOUSE: gets 50% of Marital Property (which is a % of estate based on # yrs married  15 yrs = 100%)
H: probate estate: 120K
- To wife: 20K
- To Charity: 100K
How to: Calculate H: POD account: 30K
- To wife: 30K
1. Calculate Augmented Estate H: Revocable Trust: 300K
o H – Probate Assets $120,000 - To Nephew: 300K
o H – POD Account $ 30,000 W: assets: 150K
- 100% of the wife’s
assets goes into the
augmented estate
15 years of marriage
o H – Revocable Trust $300,000
o W – Assets $150,000
$600,000
2. Calculate share % based on years of marriage
o See table on pg. 15657.
o Wife’s share 15 year marriage 50% = $300,000
o 1 year 3%; 2 years 6%
3. Fund share %
o Gifts from deceased spouse But do 50% of this
 Gifts to Spouse %
 Will $20,000
 POD Account $30,000 Years
%
o 2x share % of surviving spouse’s property
0 3
 50% Wife's own assets x 2 = $150,000 1 6
(50% of 150K x 2) $200,000 2 12
To be made up = $100,000 3 18
(to reach her 300K) 4 24
5 30
o Other transfers proportionally 6 36
 Nephew $300,000 7 42
 Charity $100,000 8 48
$400,000 9 54
 Nephew ¾ x $100,000 = $75,000 to wife 10 60
300,000/400,000= 3/4 11 68
12 76
 Charity ¼ x $100,000 = $25,000 to wife
13 84
100,000/400,000= 1/4 14 92
$100,000 to wife 15 100
 Nephew (300,00075,000) = $225,000
 Charity (100,00025,000) = $75,000
Illusory Transfer Doctrine
- Tests: (1) whether H transferred his property before he died in good faith or (2) whether H transferred in bad faith
to get out of giving wife’s elective share.
- Newman v. Dore (1937): Held: transfer was illusory & all property still subject to wife’s elective share
rights. The deceased never intended to divest himself of the property and the evidence illustrated that was
he was unwilling to divest himself of his property even when death was near.
o Young Wife filling for divorce, old rich Husband creates a trust and conveyed all of his assets so the estate
has nothing. Thus, W’s statutory share would be nothing  H’s intent was to disinherit wife. Competing
petitions for divorce before H dies.
o H retained too much control H receives income, controls, and has power to revoke/amend.
- [Today]: Revocable living trusts are standard and NOT considered illusory.
o Davis v. KB&T (1983): Held: trust was valid & not illusory.
 Married, sign reciprocal wills leaving assets to each other. Wife is incapacitated.
 Husband created a trust in which he receives income, its revocable, amendable, bank is trustee
 Ct. looked at outside facts: Wife was incapacitated & Husband was clearly trying to take care of wife.
She is left interest in trust income, not trying to defeat her property rights.
 By this time, living trusts were more common and accepted
- Boils down to Motivation: good faith versus bad faith.
o Most courts say they aren’t looking at motivation b/c that test is judicially hard to administer.
 BUT: In effect, still looking at motivation anyway.
o Problem: these trusts are completely valid by law, so HAVE TO look at intent.
Marital Property States
[CL] Marital Property States
Property held by a married couple is characterized as either separate or marital property
Death & Divorce have different results.
@Death: title controls; See divorce below.
Eligible for elective share & augmented estate. [see above]
Separate Property Marital Property
Property held before the marriage + gifts/inheritances All property acquired during the marriage (other than
received by the spouse during marriage gifts/inheritance)
Mostly in the east; English basis
Divorce
 “Equitable Divisions” Divorce: marital property is equitably divided based on facts (see below).
 Note that “equitable” is not always “equal.”
 Separate property of each spouse is NOT subject to division; only marital property is divided
 Factors for equitable division @ divorce:
(1) The length of the marriage.
(2) Any prior marriage of either party.
(3) Health
(4) Income
(5) Skills
(6) Education
(7) Increased earning powers.
(8) Future assets.
(9) Contribution to property during marriage.
(10) Value of separate property.
(11) Tax ramifications.
(12) Children.
(13) Spousal maintenance or alimony obligations.
(14) Premarital agreements
(15) Liquidity of marital property
(16) Future financial need and liabilities
Death
 Title controls ownership
 Statutory Minimum Inheritance
Equitable Division: not equal division and will vary among the pieces of property being divided.
- About fairness: if H & W have significant wealth disparities in separate property; marital property likely will be
allocated in a greater proportion to the less wealthy spouse.
Divorce: does not affect an irrevocable trust
Community Property States
Community Property States
Death & Divorce have same result.
NOT eligible for elective share & augmented estate.
Separate Property Community Property
(1) Property owned before marriage Spouses coown property acquired during marriage.
(2) Earnings on separate property Title doesn’t matter.
(3) Gifts and inheritance, during marriage 50/50 divide, but both spouses have a right in 100% of
property.
 Note: Some Jx. will put earnings of separate property
back into the community bucket, especially if Quasi CP: H&W live in CP state, but also own property in
community property is invested (income, labor). nonCP state. That property will be treated as CP anyway.
 Item Theory: Each spouse owns ½ of each community
asset
Divorce:
 each spouse keeps separate property
 each spouse gets half of community property. Once judge decides property is community property, there is
no discretion w/ regard to its division: straight 50/50.
Death: when one spouse dies, ½ of the CP passes by will or intestacy to the beneficiary (which may or may not be the
surviving spouse) and the other ½ belongs to the surviving spouse.
 Retain separate property
 Death and divorce usually have the same result!
 No elective share in CP states
 Allowed to disinherit surviving spouse.
Community Property JX
o Origin from Spanish Law; used in Europe, South America, … a lot of places
o 9 states (mostly western): Arizona, CA, Idaho, Louisiana, NV, New Mexico, TX, Washington and Wisconsin
(+Alaska can optin)
o CA Community Property state, surviving spouse’s regulations
o Any property acquired during the marriage is owned ½ by each of the spouses with the exception of property
acquired through gift or inheritance
o Basic distribution rule: When spouse dies, ½ of the estate is the surviving spouse’s
o [POLICY]: Upholds expectations; predictable; you know what’s going to happen.
o Great when you marry someone who will earn a high salary while married
Community Property Example
- Unlike Marital Property, no factors to look at.
- On Date of Marriage
o H – Stocks $200,000
o W – House $500,000
- On Date of W’s Death
o H – Stocks $400,000
o W’s House $800,000
o Joint Savings $200,000
o Vacation Home $300,000
- Calculations
o W’s SP = House $800,000
o H’s SP = Stock $400,000
o Community Property: Joint Account $200,000
Vacation Home $300,000
$500,000
o H’s ½ = $250,000
o W’s ½ = $250,000
Business Interests:
- Adequate Compensation: CP is entitled to the value of work either in salary or return of business during
marriage
o How do you compute the interest of the community in the business?
 Depends on the nature of the business
 If capital is the driving force, the community receives the equivalent of the salary. If the spouse
didn’t get a salary, figure out what that salary should have been + interest and give that to the
community.
 If work of spouse or special skill drives the business, then look @ value before the marriage
and at the time of divorce, and that increase goes to the community.
- Family Business: If the spouse works in the business but doesn’t receive any pay, but there are dividend shares,
then the community will receive some share of the business.
o BUT: if you do receive a salary and that salary matches the market then the community has already been
compensated and does not get extra
- Divorce: If there’s a divorce, they’ll look at the relationship and try to allocate a portion to the community.
- Texas: earnings of separate property is part of community; most other states keep it separate
Estate of Bray (1946): surviving spouse can recover ½ of nonconsented gift after death of gifting spouse.
- Decedent’s joint tenancy accounts, purchased w/ community funds, were distributed to son. 2nd Wife wants ½.
- Right to 50% attaches at the time the money is earned.
- While son was working and receiving a salary (no dispute he did the work), Community was receiving benefit of
his work = adequate consideration.
o But the accounts that got set up and transferred looked a lot more like gifts than salary (who agrees to bonus
systems where you get paid when your boss dies?)
 B/c this came from community funds, wife entitled to half
 Better: put gift in a will.
- H or W can not UNILATERALLY divide an account into SP BUT they can TOGETHER divide it up into SP
- Statute of Limitations: challenge the unauthorized gift w/in either:
1. one year after spouse learns of gift OR
2. three years after the gift was actually made.
Remedies for unauthorized gift of CP:
1. If both are still alive  void gift & recover all of it.
2. If one spouse passed away  surviving spouse can recover half and it comes back as CP.
Marital Property Agreements
K before marriage that determines the rights the spouse will have upon dissolution of marriage
o Way to K out of marital v. community property designation in Jx.
o Can waive all rights including: elective share, allowances, intestate share, gifts under prior wills, CP rights,
spousal support (only some Jx)
 Cannot waive: child support
“Opt Out Rules”
[UPC]: Waiver of rights is valid unless: (1) involuntary, or (2) was unconscionable when signed
- Unconscionability:
o Some states also look at time of enforcement, especially for waiver of support
o No fair and reasonable disclosure of assets
o No written waiver of disclosure of assets
o Party did not or could not have reasonable knowledge of assets
o Basically: did not or could not know all the information
- Problem = Moving States after Marriage: Parties to the agreement may be resident of one state when the
agreement is signed, but resident of another state when there is a divorce.
o Choice of Law: Under general principles of contract law, the parties can include a choice of law provision
requiring that the agreement be governed under the laws of the state in which it is signed, but the court of
another state under some circumstances may disregard that provision.
o Best Practice: The parties should be represented by counsel licensed in the state in which they reside at the
time of the marriage as well as the state in which they intend to reside after the marriage if different.
o In general, however, an agreement drafted and executed in accordance with the rules above should be
enforceable in all of the states.
- PRENUPTIAL AGREEMENT (Signing it BEFORE Marriage):
o Hook v. Hook: An antenuptial agreement divesting ∆ of any interest in the decedent’s estate was valid
and binding. An agreement is valid if voluntarily entered into, is fair & reasonable.
 Prenupt morning of wedding, each spouse signed saying had no interest in other’s property and
signed reciprocal wills saying “give spouse everything.” H died while filing for divorce and left wife
nothing.
 Here: Ct. looks only to one issue: whether spouses revealed to each other the extent of their resources.
Thus, rendering the CA requirements unnecessary.
 Court: If she didn’t read the agreement, that was her fault. The husband said “What’s mine is mine
and yours is yours.” She knew what the agreement meant. Further it was just 26k more so it wasn’t
substantial enough of a difference; fair enough at the time.
o Tip: If you are looking for hidden money, ask for a prenup
o Note: Some rts. cannot be waived BEFORE marriage & instead spouses need to sign an agmt that says “will
waive these rts. after marriage.”
o Limited to fourcorners: Cannot look to extrinsic evidence to see what doc is doing.
o [CA] Prenuptial Additional Requirements:
1. 7 day waiting period (between showing spouse the complete agreement and signing it)
2. Disclosure of assets (get an appraisal!) or waiver of disclosure (we might be wrong!)
3. Separate representation or plain explanation of agreement
Omitted Spouse/Children
Omitted Spouse
  Problem arises when spouse if not included in a will that was written before marriage even happened
  [CL] marriage revokes prior will.
  [Early UPC]: Spouse gets intestate share unless omission was intentional or there is a provision somewhere
outside the scope of the will for the spouse to be taken care of.
  [Revised UPC]: Spouse’s share is relative to the assets, which are not going to decedent’s children from before
the marriage.
o BUT: Spouse gets no share if:
 will already contemplated marriage
 will was expressly effective in the case of marriage
 spouse provided for outside of will.
 If any of these 3 is the case, then will stands as is w/ spouse omitted.
  If spouse is qualified as omitted, can choose elective share or omitted spouse rules
Omitted Children
- [UPC]: A child born/adopted after the will is drafted gets a share if: (1) the omission does not appear
intentional and (2) the child is not otherwise provided for.
o The child gets the intestate share unless substantially all of the estate goes to the child’s parent who
survives.
o If decedent had other children, then the omitted child gets exactly the same share as other children.
Provides for equal distribution w/ same terms for distribution for each child. Omitted child’s share abates
from other children proportionally.
GROUNDS FOR CONTEST: Incapacity, Undue Influence, Fraud & Mistake
All of these apply to both trusts AND wills
Testamentary Capacity
Testator must know: 3 requirements—
 1. know the nature/extent of his property
 2. know natural objects of his bounty (heirs)
 3. Understand the testamentary act
 Able to relate these elements to form an orderly disposition of property
 Lower than capacity required for making contracts
[CA] Capacity:
 Ability to communicate (verbally or by any other means) the decision, and to understand and appreciate, to
the extent relevant, all of the following:
o Rights, duties, responsibilities created/affected by the decision
o Probably consequences for decisionmaker and persons affected by decision
o Significant risks, benefits, and reasonable alternatives involved in the decision
Ways to establish Testamentary Capacity:
 Experts: doctors
 Testimony of other witnesses
 Psychiatrist
 Medical Records
 Rational basis for excluding heir absent delusion:
o Barnes v. Marshall: father excluded worthy daughter. Held: father of unsound mind, lacked
testamentary capacity; and will invalid. [see below]
 willdrafter
 spouse
 will witnesses 2 ppl who signed thinking testator was of sound mind
 ask open ended Q’s: easy to figure out whether a Q should be answered yes/no.
Burden of Proof
- If will is witnessed  presumed capacity.
- [MAJ] allow a selfproving will: W says under penalties of perjury that the deceased had capacity & will
considered valid.
- But: if the contestant can show enough evidence that there was incapacity  BoP shifts to proponent to put on
evidence of capacity.
Barnes v. Marshall (1971): Based upon the evidence given, the jury could have found the testator was of
unsound mind and lacked the mental capacity to make a will. Capacity is a question of fact.
- The challenger presented antidotal evidence of isolated events to prove insanity
o Letters and statements showing his views went beyond eccentricity.
- Two doctors also gave their a opinion that the testator was crazy
o No special weight is given to the psychiatrist’s testimony  not binding on ct.
Delusion
  belief of facts that have no real existence … that causes disposition testator would not otherwise make
 distinct from a mistaken inference
 In Re Honigman’s Will (1960): The decedent, at time of making his will, was suffering from an
unwarranted and insane delusion that his wife was unfaithful to him, which condition affected the
disposition made in the will. This made the will invalid.
o Husband believed wife of many years was cheating on him. Left her only elective share in the will.
o Ct. said this belief had no rational basis making it a delusion that impacted the disposition.
o Dissent: Unsound reasoning does not equal delusion. Testator has a right to dispose of property
according to his beliefs.
 Problem: delusion can be a selffufilling prophecy
o Testator reaches delusional belief & then looks for things to confirm that belief and discount
contrary information.
 So: look at the moment the delusional belief begins— is there a rational basis to confirm that belief?
o Takeaway: Need a rational basis to support disposition; does not matter if underlying facts are not true:
o Matter of Estate of Bonjean (1980): Siblings had the burden of proof that testatrix’s disinheritance
of them was a result of an irrational belief. The facts that fostered the hostility toward her siblings
had a rational basis and hostility was not the product of imagination.
 Bonjean disinherited her siblings because they tried to have her committed against her will.
 Resentment towards the family forms a rational basis for disposition
 In Practice: In order to ensure someone is not incapacitated  Have him state rational reasons for the
disposition he wants
o Necessary capacity to make a will is a pretty low threshold
o Make a Will < Make a Gift < Make a K
 POLICY: This std. allows older people to successfully make wills
Undue Influence
EXAM: Always argue diminished testamentary capacity with undue influence
ELEMENTS
2 ways to prove UI: presumed or traditional
Presumed Undue Influence Traditional Undue Influence req. proving all 4 elements
1. Confidential Relationship: caregiver, clergy, 1. Susceptibility: age or ignorance, usually diminished
doc/patient, spouse, FD: conservator/guardian/trustee capacity
2. Participation in Drafting or suspicious 2. Opportunity to influence: person has to be present or
circumstances have some proximity to drafting (ex: living together)
3. Undue Benefit from document: terms of the will a. Does not necessarily have to physically be in
reflect influence. Perhaps a peculiar dispositive the room when the document is drafted.
pattern 3. Beneficiary Inclined to influence: lots of $ (often
presumed)
4. Terms of document reflect influence
Invalidating Will b/c of Undue Influence:
Cts. can invalidate a will on whole or merely the part that displays undue influence/tainted provision.
- In re Will of Moses (1969): A rebuttable presumption exists when there is a confidential relationship btwn
the decedent and the influencer/beneficiary. There was not enough evidence to overcome presumption of
undue influence. Held: atty did not conduct an adequate independent review; will was result of undue
influence.
o Old lady, young atty lover.
o Lover atty recommended independent attorney to draft will.
o Independent atty didn’t do indepth inquiry as to why the older woman was leaving $ to atty.
- Dougherty v. Rubenstein
o Cantler’s Personal Care Home Nurse???
o Son and father were estranged.
o Sister removed father from nursing home and took him back home.
o Father had dementia, accused son of stealing from him and removed him from will.
o Son challenged new will because product of insane delusion.
o Held: Father could take care of himself for 6 years before death. His delusions of son stealing money were
not from insanity but eccentricity, and personal beliefs of betrayal from being put in nursing home.
Attorneys & Undue Influence:
- Leaving money to an Atty:
o For an atty to be left money, he/she would have to advise client to consult another atty for independent
advice and assistance in drafting the will
o Atty as trustee or executor
o Not as unnatural or unreasonable  trusted with knowledge of the estate
 In CA: burden on atty to prove why he should be a trustee
- Conflicts of Interest in Representing Testator/Bens:
o Haynes v. First National State Bank of NJ (1981): Where a presumption of undue influence arises as
a result of a professional conflict of interest on the part of the attorney, coupled with the presence of a
confidential relationship btwn the beneficiary and the decedent, clear and convincing evidence is
required to rebut the presumption.
 Daughter’s personal attorney had a conflict of interest that he did not cure before drafting the
mother’s will (multiple times). Thus, will is highly suspect due to confidential relationship (btw.
mother/daughter; daughter is beneficiary) that created a presumption of undue influence.
 Mother went to go live with daughter, daughter told mother she needed to have her will changed, &
took mother to her personal attorney  other 2 grandchildren received $10K & daughter got the rest
instead of prior 5050 split will written by her own longtime attorney.
o Note: an attorney CAN represent many generations, but needs to be CAREFUL!
[CA] factors:
 Victim’s vulnerability: incapacity, illness, disability, injury, age, education, impaired cognitive function,
emotional distress, isolation, dependency, did influencer know of the victim’s vulnerability?
 Influencer’s apparent authority: evidence may include status as fiduciary, family member, care provider,
healthcare professional, legal professional, spiritual advisor, expert, etc.
 Influencer’s conduct: controlling necessaries of life, medication, interactions with others, access to info, sleep,
affection, intimidation, coercion, use of haste or secrecy, initiation of changes in personal/property rights, etc.
 Equity of challenged result: economic consequences to victim, diverging from victim’s prior intent or conduct,
relationship of value received vs. value fo services, appropriateness of change in light of length/nature of
relationship
CA Void Transfers
 Drafting attorney, partner or relative
 If appointed fiduciary, burden of proof on fiduciary in removal petition
 Certificate of independent review by attorney cures
NoContest Clause
- [Old rule]: anyone who contests the will, forfeits their share hereunder
o It is possible to put one in a will where you anticipate a contest
o Tip: give someone money in the will so they will have something to lose by contesting the will
 Will they risk $10,000 (in will) for $2 million (intestacy)? For $50,000?
- New procedure: ask court to determine if what you filed was a contest or not … created more work for courts
- Replaced by: ([MAJ]&[CA]): if you have probable cause & contest in good faith, then you will NOT lose your
gift even if you lose the contest.
Fraud & Duress (Tortious Interference)
Fraud:
 Requirements: (1) False representation with (2) intent to lead testator to make deposition that is not his true intent.
 Ex: son tells dad sister is not coming to dad’s bday party because she doesn’t care … when he knows she
is really on her way.
 NOT fraud: a true statement that leads to an incorrect inference.
 Ex: son only tells dad that sister is not there, dad concludes on his own that she doesn’t care
 Do NOT need to prove vulnerability of the testator.
    2 Remedies for Fraud:
1. If fraud permeates the entire document, probably invalidate the will/trust.
2. If fraud only effects one gift and can impose constructive trust that forces wrongdoer to transfer $ to
victim of fraud.
 Use constructive trust, especially if victim of fraud would not inherit under intestacy.
Duress is 3rd party tortious interference w/ inheritance or expectancy.
 4 Requirements:
1. existence of expectancy can expect under residual, intestacy, unsigned doc
2. intentional interference w/ expectancy:
 Father Divine did not convince someone NOT to make the gift, he only prevented her from getting
to the atty to make the gift. No undue influence, but still a tort
3. tortious conduct & causation: expectancy would have been realized absent interference; fraud/duress/UI
4. damages (value of expectancy)
5. not available if other remedies available
 usually those with standing to contest will (probate remedies available) cannot claim this tort
 tort is hard to prove so you would prefer other remedies anyways
- Latham v. Father Divine (1949): Where devisee or legatee under a will already executed prevents the
testator by fraud, duress, or undue influence from revoking the will & executing a new will in favor of
another, the devisee or legatee holds the property in a constructive trust for the intended devisee or legatee.
o Woman gave estate to cult leader, associates and businesses. She then expressed a desire to draft a new will
to leave some money to her cousins. The cult prevented her from executing will and had her killed.
o Cousins could not challenge the will in other ways because they did not have standing (someone was “heir
atlaw” ahead of them)
o Court: recognized the tort of intentional interference. This requires showing causation: A contest
alleging fraud must prove the fraud affected the disposition of the will
- [CA] Beckwith v. Dahl:
o MacGinnis was ill, had his will on computer, leaving property to lover Beckwith.
o MacGinnis’s sister Dahl knew of illness and delayed estate planning so he would die intestate.
o Dahl further hid probate process from Beckwith since he did not need to be notified as familymember or
as someone mentioned in older will.
o Beckwith sued for tortious interference.
o Held: Brent had not properly alleged the facts for IIEI but reversed to allow Brent to amend his
complaint.
o Intentional interference with an expected inheritance (IIEI) should be a valid cause of action,
requiring allegation of:
 expectancy of inheritance
 proof to a reasonable degree of certainty that but for thirdparty, P would have received
inheritance
 thirdparty had knowledge of P’s inheritance and interfered with it
 interference was by independently tortious means
 P sustained damages
- Anna Nicole Smith
case:
o stepson Pierce wins billion$ inheritance in TX
o Anna was sued in CA for sexual harassment, files for bankruptcy
o Pierce of testator sues for libel … and wants money from bankruptcy proceeding too … opens the door
o Anna claims tortious interference with her inheritance and argues it all again in front of bankruptcy court
and wins $100s of millions
o 9th circuit reverses (doesn’t fit within probate exception)
o SCOTUS reverses (bankruptcy court should not be litigating the tort)
o 9th circuit deals with another bankruptcy rule
- EXAM: Use tortious interference to recover a gift if you have a worthy beneficiary who is NOT an heir at law,
such that invalidating the will would not give the worthy beneficiary the gift through intestacy.
WILLS
Will Basics:
1. Does form satisfy formalities? [see below]
2. Does it dispose of all property?
3. Does it address all potential circumstances?
4. Are there any ambiguities?
Formalities of Execution
Policy behind formalities
- Ceremonial/Ritual function: make testator understand the gravity of the action. Finality – not just a
preliminary draft.
- Evidentiary function: Evidence of what the testator wants done. Increase the reliability of the proof presented.
- Protective function: Safeguarding at the time of making the will from undue influence or other forms of
imposition; witnesses to protect against influence. Verifying capacity of testator.
- Channeling function: Tend to reduce the costs of routine probate administration.
- Prevent forgery
- Normal contract parties are usually still alive if it is litigated, but testator is not
- Criticisms: Most wills do not need these elaborate safeguards and it may lose sight of the testator’s intent
Will Formalities:
Traditional [UPC]: relaxed formalities
Required: 1. signed at the end or mark 1. Testator can sign anywhere
2. Testator can sign in presence of witness or just
acknowledge (testator goes to witnesses &
2. 2 witnesses acknowledges that this is his will & sign).
3. Witnesses & testator sign in 3. Witnesses can sign w/in a reasonable time, even
each other's presence after death of testator.
Optional: Date (good idea)
2 sets of laws to check formalities:
1. State of Residency
2. State of Signing
3. Usually if you met formalities in state where signed, it will be valid elsewhere, unless there is strong public
policy for having different rules.
Signatures
- [Traditional]: Testator must sign will at the end to execute it.
 Longhand signature not necessary, testator’s mark is sufficient.
o Also ok: mark of a 3P at the direction of the testator if testator cannot sign himself.
o Also ok: Conservatorship—
 conservator can make will or codicil on behalf of conservatee
 MUST explain WHY this is the will the conservatee would make.
 [Jx. Split] Remedy: Either invalidate entire will or just material after the signature.
- [UPC]: Testator can sign anywhere to execute it.
- [Nevada]: permits electronic signature.
- Timing of Signatures
 [Traditional]: Testator HAS To sign first. Witnesses attest that the testator signed the document with the
testator’s own signature. Witness’ signatures are what is necessary for proving probate. Witness’ signatures
proves testator’s signature.
 [Best Practice]: Be sure that you have a second example of their handwriting to prove witnesses signature.
- Burns v. Adamson (1993): Will failed when it did not adhere to formalities required by law. Failed
presence test: the subscribing witness(es) signed their name(s) to the will before and after the testator
signed, not at the same time. The will was not executed in compliance with the law so it was invalid.
 [Today]: Cts. more lax, and some do away with the necessity of timing.
 UPC: Possible to sign after death, but must be w/in reasonable time after signing or death
Witness Requirements (usually need 2, sometimes 3)
- Witness must be:
in testator’s presence (see/hear),
be able to recall/narrate the events,
know it is the testator’s last will & testament.
18 y.o.
Criminal record is no problem.
- Execution Ceremony
 Bring W into same room as testator. Explain the document, confirm w/ testator (so W can hear) that this is
his intent.
 Don’t let anyone leave the room until everyone has signed the document in the proper part
 Can introduce habit as evidence that formalities were adhered to in case there is a question re: formalities
 Best Practice: keep will signing ceremonies very routine, so that recall is high. Do not have to remember
specific details of a signing if they’re all done the same.
- Presence Requirement:
 Takeaway: if testator cannot reach fingertofinger w/ witness, then probably fails presence test.
o Problem: big bank lobbies.
 Acknowledgement Rule (some jx): W does not have to actually see the testator sign, as long as the
testator acknowledges the signature is his.
- SelfProving Wills:
 Witnesses sign selfproving affidavit at time of signing the will that says “Witness declares under penalty
of perjury that testator signed will & was of sound mind.”
 Therefore, witnesses won’t be called into Ct. to testify b/c recollection is recorded at moment of signing.
 Affidavit is evidence in and of itself that will was valid.
 [MIN] req. witnesses & notary.
 [CA]: require signed affidavit, can’t just go to probate ct. and swear under perjury.
- Note: if actually need to bring witnesses in to probate to testify:
 ST only 1 can be sufficient, if can only find 1.
 If both Ws are dead, then need to use other sources of proof.
- In re Estate of Weber (1963): Need to be in actual view of the SIGNATURE.
 Testator was sick, drives to bank to make will, waits in car for the bank manager, signs will in the car with
employees watching from bank, manager goes inside, employees sign, but bank window is not low enough
for testator to see actual signature.
 Note: goes both ways! Testator needs to see witness sign & witness needs to see testator sign.
Interested Witnesses (a witness who takes a benefit under the will)
- Benefit may be direct or indirect
- [CL]: will is void for lack of a competent witness
- [TODAY]: do not need to invalidate ENTIRE will.
 Purging statute: just eliminate the witness’s gift, then no longer have a conflict of interest.
 Modern Statutes limit an interested witness’ gift to lesser of will gift or intestate share.
 [UPC]: allows interested witnesses to sign & relies on other safeguards to protect will’s integrity.
 [CA] interested witness creates a presumption of undue influence
o Issues w/ caregivers who become part of the estate. (Ex. lawyer in Leisure World.)
 Either:
1. void lawyer’s gift
2. lawyer can keep gift if gets a certificate of independent review from a noninterested lawyer.
3. What if lawyer just disclaimed gift? NO! Analysis is done at the time will was signed, so a later
disclaimer will not fix the will. Still need to void out that gift.
- In Practice: This is why having 3 witnesses is sometimes better than 2—
 if you only have 2 witnesses and 1 of them is interested, then you have a problem.
 If there are 3 W and only 1 is interested, the interested W need not forfeit share b/c the will can be
supported by other 2.
- In re Estate of Watts (1979):
 3 interested witnesses signed each other’s wills.
 Held: Round robin style of witnessing is not valid. WILL VOID.
- Note: Spouse can be considered an interested witness if spouse acts as witness.
Courts’ Power to Salvage Wills
- Courts have limited power to fix a will
- Substantial Compliance – judiciallycreated doctrine; focus on attempted compliance with formalities
 If the document met the purpose of the formalities, a court may allow it to move forward even if not every
formality is met.
 Ex: didn’t sign on the last page of a will.
 Q’s to ask:
o Purpose of formality?
o What did parties actually do?
o Was that action close enough to serve the purpose?
- Dispensing Power [CA] — statutory power, broader than substantial compliance; focus on INTENT; determine
whether testator intended document to be a will
 Is the writing intended to be part of the will? If yes, let the will move forward
 Requires clear & convincing evidence to show intent (heightened burden)
 Ex: What if someone found a will online, printed it out, signed it only themselves, kept with (without other
formalities)? Use dispensing power to get the will in. Substantial compliance will not help because no real
effort to comply, let alone substantially
- Policy for Excusing Harmless Errors
 With the rise of the nonprobate system, cts already do it in trusts, etc.
 It is embarrassing how failure to correct harmless errors leads to unjust enrichment
 Spares attorney from needless malpractice liability.
- In re Will of Ranney (1991): Although the signatures on the selfproving affidavit did not comply with the
req. of law, probate was proper, where an instrument “substantially complied” with requirements of law.
 Witnesses did not sign the will, but rather just the selfproving affidavit
 [UPC & CA]: Combine will & affidavit into single language so that witness only needs to sign 1 place.
- Matter of Estate of Ehrlich:
 50 year estate planning attorney wrote his own will
 found only unsigned copy of will in messy home office
 note said a deceased friend had original
 Held: upheld probate of unsigned will. To be admitted to probate, the proponent of the will must establish
by clear and convincing evidence that the deceased intended it as his or her will.
Mistake
- Matter of Snide (1981): H&W mistakenly signed each other’s will. The husband's will should have been
admitted for probate because: (1) although the husband mistakenly signed the will prepared for the wife,
the dispositive provisions in both wills were identical; (2) the significance of the only variance between the
two instruments was fully explained; (3) the will was undoubtedly genuine; and (4) the will was executed in
the manner required by law. Will admitted to probate.
o Husband and wife were trying to execute reciprocal wills, but they each signed the wrong will.
o Takeaway: type name under signature line.
- Extrinsic Evidence: ST used to interpret ambiguous language in a will
o The process involves discovering the meaning of the terms, not altering or supplementing them
International Wills
- Notary equivalent is done by a lawyer. (signature)
- Req. 2 witnesses.
- Can be probated anywhere.
Conditional wills  usually written by ppl afraid of dying while abroad – military, traveling parents
- If the will appears conditioned on a particular event that does not actually occur (return home safe instead of
dying) cts usually view the possibility of death during the journey as “the occasion and inducement” for making
the will rather than as a specific condition precedent.
o Will stands as valid even if condition not met. The condition is just ignored.
o Going off to war, if I don’t make it, do XYZ. If he DOES come back but dies later, the condition is ignored.
Power of Attorney
- Generally: revocable at any time
o Can give atty power for specified limited time (requires 2 witnesses)
o If testator is incapacitated, then atty’s power is revoked.
- Compare to: Durable Power of Atty
o Power remains effective even if the person becomes incapacitated/incompetent
 Springing power: activated by incapacity
 Must expressly say sustained power if that’s what you want.
o Requirements
 Must specifically authorize the person to make decisions
 Contain date of its execution
 Be witnessed or acknowledged in front of a notary
o 2 kinds of power
1. Asset Management: Dealing w/ personal, tangible and real property, bank accts., etc.
2. Health Care Provisions: Decisions based on how far you want healthcare to go
 Usually address:
o who should make decision if you can’t
o what specific wishes you have about care
o what about organ donation/autopsies
 Best Practice: Use state’s Med. Assoc.’s preapproved form: easier for officials and less chance
of it being challenged
Burial Instructions
- General rule: Burial Instructions in will are enforceable
- Problem: Burial usually occurs before opening of the will
o Funeral Home will usually do what the family wants over the instructions.
o Deceased is not around to contest the procedure.
Holographic Wills [MAJ/CA]
Requirements
 Written entirely in the testator’s handwriting
 Signed by testator
 Dating may or may not be required:
o w/o Date: priority may go to formal will unless holographic can be proved to be dated later.
 No witness/attestation is necessary
o Policy: idea that it is hard to forge an entire will
o Evidentiary function: intent is satisfied b/c the testator wrote it
o As long as there is an indication of testamentary intent on will’s face, Cts. readily consider extrinsic
evidence
 Why? Good for people who don’t want to go to an attorney
 Safeguard is that it requires handwriting
[Jx. Split]: HOW MUCH HANDWRITING REQUIRED?
- [MAJ/CA] doctrine itself is concentrated in the West
- [MIN/UPC] Material terms must be handwritten
- [CL]: any printing whatsoever invalidated will; even letterhead
- Surplusage: ignore printing, look only at writing, admit if still intelligible.
- Material terms: may go as far as to allow completetheblanks forms.
 [MIN] In re Estate of Muder (1988): Held: a valid holographic will was created because the signature
& the material provisions were in the handwriting of the testator.
 Handwritten sections and signature on a preprinted Wollcotts will form, notarized, one witness
 Pertinent, material parts were in testator’s handwriting
 Intent of testator was clear
Handwritten Letters
- Letters may get treated like will if it meets these requirements:
o 1. Must have operative transfer language: “When I die, I want you to have X.” or “If I don’t survive …”
o 2. Must have notation of the special importance of the document: “Put this in a safe place.”; “Make sure you
keep this.”
o 3. Reference death
o *4. INTENT be a will— Cts. will ST look for extrinsic evidence.
o Was it a will or just instructions?
- War Letters: Regardless of circumstances of death, a letter/will from war stands unless it is clear that it only
applied to if died in war.
- In re Estate of Kuralt (2000): The letter was a codicil to the deceased's formal will, as a matter of law,
because it made a specific bequest of property and it did not purport to bequeath the entirety of the estate.
o Decedent tired to give part of his estate to 30 yr mistress through a letter discussing intent to speak to atty
o Evidence of a transparent sales transaction
o Argument against: letter is not meant to be a will, just letting her know he will go see lawyer
o Court focuses on his intent to legally bequeath land to mistress, referenced by his speaking to atty
o Court gives her land based on dispensing power and holographic will theories … kind of gets it wrong.
Oral Wills:
- [Jx. 50/50 Split]: Ok if 2 witnesses; personal property only; testator unable to write out will.
- Generally recordings and videos are not considered valid.
Emailed Wills/Letters:
- If Kuralt had emailed his mistress, it wouldn’t even qualify as holographic
- Tough for substantial compliance
- Dispensing power is a better chance (testator’s intent), but still not strong
What Constitutes a Will?
Integration
- Integrate several documents, then documents taken together are meant to constitute the whole will.
- Extrinsic evidence proves intent to integrate.
Codicils
- Amendments to a prior will; not a complete new will in and of itself.
- Republishes prior will ( = new execution date for will)
o BE CAREFUL: this can affect possible omitted spouse/child claims for child born between will and codicil
- But: the NEW WILL is the combination of the referenced will + the terms of the codicil
o MUST meet formalities of formal/original will or holographic will:
 can mix & match: holographic/ formal will/ codicil
o can cure prior defects if it meets formalities; codicils do not need to refer to which defect it is curing
 execution
 interested witnesses: cured w/ proper witnesses
 omitted spouse: executed after marriage
 omitted heirs: executed after birth of previously unborn child
 ademption: names replacement property
o creates new execution date; the date of the codicil (can cause problems for omitted children/spouses)
- Difference btw. codicils & revocation by written instrument:
o Gilbert v. Gilbert: Testator had a formal will, but also wrote a holographic will on the back of a business
card and a holographic will on the back of a paystub. All 3 docs were placed together in an envelope.
Held: HWs are codicils and amend the formal will. The alternative would be for the HWs to constitute the
entire will and revoke the formal will, but here no evidence of intent to revoke.
o If no INTENT to revoke, then codicil and NOT revocation by written instrument.
Incorporation by Reference
o Writing outside of will that is referenced by will
 usually is a list of gifts
o NOTE: not allowed in all states b/c escapes will formalities (no witnesses required) (NY does not allow this)
o Requirements:
1. writing must exist when will is signed (not later)
2. writing must be clearly identified
3. INTENT to incorporate must be clear
o Weird: even holographic wills can utilize incorporation by reference, even though it kind of defeats the purpose.
o Clarke v. Greenhalge (1991): Painting named in notebook, but executor refuses to distribute.
 Woman had a ‘72/’76 memo, a ’77 will, and a ’79 memo/notebook, which identified a list of tangible
personal property gifts. ’79 memo/notebook would have been inadmissible but for a 1980 codicil. ’80
codicil republished ’77 will & ’79 memo. Memo now incorporated under conventional rule and correct
party gets the painting that executor tried to keep.
 Takeaway: If a codicil recognizing outside document is signed after the existence of a document outside
the will, then the outside document is treated as in existence at the time the will was signed. CURED!
o [UPC] Tangible Personal Property Memo:
 Tangible Property memos can be created or changed before OR after a will is signed.
 Requirements:
 Limited to tangible personal property ONLY.
 Memo MUST be referred to in will.
 Effect: Makes Clarke distribution just a little easier; memo itself (if named in will) would have made
notebook binding.
Facts of Independent Significance
- Reference in will to facts outside of will to determine property that is given or identity of recipient.
 Changing facts/circumstances determine the distribution.
 Ex: Gift of “my residence” or Gift to “each of my Employees” can change, but be determine at TOD
- You are basically changing your will without satisfying formalities (you just move to a new residence, etc.)
- ALLOWABLE IF fact has significance independent of testamentary disposition of the property.
 Generally: naming anything other than place of storage can satisfy this requirement.
 Ex: “Contents of my safety deposit box” has no significance indep. of testamentary disposition of property.
 When dealing with contents, contents can be too easily shuffled.
 Changing resident is okay because there is a lot of other significance.
Revocation & Amendment
Methods and Effects of Revocation – revocation can be COMPLETE OR PARTIAL; 3 ways
Revocation by Revocation by [Jx. Split]: Revocation by
Written Instrument Physical Act Operation of Law
A) Express: "I A) Tear or Burn Includes: Marriage, divorce, preterrmited heirs, death of beneficiary;
revoke…" alienation.
B) Write cancelled across Does not include: Separation
B) Later document's will
Inconsistency Marriage: [CL/MIN] revokes will; [MAJ/TODAY] does not revoke
C) Cross out part of text will b/c of other protective measures (omitted spouse, elective share)
C) Revocation may
be complete or just D) REQUIREMENTS: Divorce: [MAJ] Divorce revokes will provisions for former spouse;
partial for minimal original will; done by or [TRAD] limited to will gifts, not life insurance, joint tenancy, etc.
inconsistencies. in front of testator; does [UPC] Divorce revokes: gifts to spouse in will, gifts to spouse in non
not require witnesses. probate transfers, and any gifts to spouses relatives; Spouse filing
divorce has advantage b/c can change beneficiary provisions prior to
See Harrison v. Bird case filing divorce— unless in Jx. that requires spousal consent to change.
below. - If remarry same person, will comes back to life.
- Note: ERISA & retirement plans  wife may still get this if you
haven’t changed it. Court may try to help but still unknown.
See Clymer v. Mayo case below.
Physical Act
o Note: avoid making duplicate originals of will
o Harrison v. Bird: If original will was in testator’s possession, but at death the will cannot be located, then
presumed to be revoked by physical act.
- Atty “revoked” will at testators request while on the phone by ripping up, but not in front of testator.
(Not revoked at this point.)
- Atty sent pieces of torn will to testator, but at death could not find pieces.
- Held: revoked.
Operation of Law
o Clymer v. Mayo : W create trust for H, they divorce, wife dies 3 years later, exH tries to claim trust. Wife
changed insurance policies and annuities but not the living trust created to get marital deduction. Second trust
was for H and all nieces and nephews (including H’s) with remainder to Boston U.
 If UPC, exH absolutely does NOT take.
 Here, CL, court treated trust as if created by will & used statute to revoke will & trust.
 Court was looking for ways to keep ex away from former spouse’s property! An ex cannot be
beneficiary of anything attached to a will that has been terminated upon divorce.
 H’s nieces and nephews keep their gifts because statute doesn’t mention them.
Amendment
- Do they have power to amend?
o Will you can always amend your will, assuming you still have testamentary capacity.
o Trust – do they retain power? First look at trust instrument if you can. Then, look at state rules.
- What formalities required to be effective:
o Will – Will, Codicil, or Holographic formalities?
o Trust – look at trust instrument for imposed formalities. If not, look at state statutes.
Revival
- Revoking a Revocation: Is a revoked will revived if the instrument that revoked the will is revoked?
 [CL]: Yes; automatic revival when revocation is revoked.
 [Ecclesiastical courts]: No, unless evidence of testator’s intent to revive.
 [Wills Act]: revival only by reexecution or codicil that shows INTENT to revive.
 [UPC] Revival if subsequent Document is revoked by PHYSICAL ACT:
  Default rules different depending on whether prior will was entirely or partially revoked.
  Entirely Revoked: No, unless evidence of INTENT to revoke.
o Revocation of will that completely revoked prior will does not revive prior will UNLESS
circumstances indicate an intent to revive.
  Partially Revoked: Yes, unless evidence of INTENT NOT to revoke.
o Revocation of a will that only partly revoked a prior will revives prior provisions unless
circumstances indicate intent not to revive.
- EXAM:
 Written Revocation: default= does not revive; unless express revival.
  Best Practice: write in whether or not you want prior will revived
 Physical Revocation:
  Revoke All: default= not revived, unless ev. of intent to revive
 Revoke Some (codicil): default= revived, unless ev. of intent NOT to revive.
Dependent Relative Revocation: Is revocation dependent on the validity of the new will or codicil?
o revocation of a will is dependent upon the effectiveness of a new will or codicil that is drafted at the same time???
 Low standard to revoke (can do alone, rip it up, etc.) but high standard for new will/codicil, so might not
have a replacement
o If the changed disposition is ineffective, no revocation.
o Presumption: Testator would rather have the original gift than no gift at all.
o Cafferata: Not giving effect to the revocation makes sense if the change is pretty small, but if the change is big
then not giving effect to the revocation. probably does not best reflect the testator’s intent.
o Incomplete Hologrpahic Change:
 Schneider v. Harrington (1947): Testator had 3 sisters (ABC), each to inherit 1/3. Intent to revoke
disposition to C, so she crossed out C’s 1/3 and changed A & B to ½ each. However, not a valid
holographic will b/c lacked a signature. Therefore, the change was ineffective and will was not revoked,
but stood as is. Court assumed she would rather have sister take 1/3 over 1/3 going to intestacy. It would
be different if there was proof of her intent. Might have come out differently if Jx didn’t require signature.
o Change & revocation are often done at the same time & linked if done by physical act or formal executed will.
o To apply, there must be some effort to write a new will (not enough to ask attorney to draft but not yet signed;
maybe okay if signed but no witnesses yet)

Contractual Restrictions on Revocation
o A testator may make a binding promise to execute a will w/ specified terms, and if its given for consideration,
enforcement is not against public policy.
 Usually between H & W matching/mirrored wills
o What if someone violates?
 If you are dead: Survivor cannot revoke & is bound to distribute the estate at their death in accordance w/
provisions set out in the will. Beneficiaries of contract can sue to enforce provisions.
 If you are alive: Parties are free to change will provisions or void mutual will altogether.
o Contract requirements:
1. be more than just mutual provisions
2. be stated in will
3. be a separate signed writing
4. reference to a K & extrinsic evidence of terms
5. does not invalidate will – just enforce contract
o Oral Agreement: requires “clear and convincing evidence” to prove it
 Note: Courts can declare a constructive trust to effectuate oral express agreements that otherwise fail SOF.
Contractual Restrictions: Joint & Mutual wills
Joint Will Mutual Will
Joint rep: anything you tell your atty, atty has to you're
your spouse too
One document executed by two spouses  limited to Separate instruments with parallel provisions
spouses. executed at same time.
May be offered for probate as the will of each.
Mere existence of a JW containing reciprocal
dispositive provisions is not sufficient to est. a K
restriction on suriving party’s power to revoke
/amend will after other’s death
Purport to bind the surviving spouse to not change how Courts are much less willing to imply a contract of
they dispense of property after the first spouse’s death. irrevocability with mutual wills as opposed to joint wills.
There must be evidence of contractual disposition.
Estate of Wiggins: Rare victory for decedent spouse, Ousler v. Armstrong: Spouses execute mutual wills
court held that Joint will was irrevocable when wife tried saying Wife will dispense husbands money after death to
to institute codicil changing joint wills provisions husband’s two kids from previous marriage. Court finds
no contract and values freedom of Testation for surviving
Ex: husband and wife make joint will. Husband dies. spouse.
Wife wants to gives $ to charity instead of niece. …?
In California there is a presumption of revocability for both types.
CA Divorce: there is an automatic 6 month stay to changing anything in your estate plan. Change first then divorce
Interpretation of Wills
Ambiguities Extrinsic Evidence [see below] When there is Ambiguity

[Jx. Split]
Patent – language of will is Info that relates to the interpretation of Some JX: will try to resolve the
ambiguous, ambiguous on face of the doc: ambiguity and follow the testator’s
Will. i.e. “ ½ to John, ½ to Jane, ½ 1. Used to resolve ambiguities intent.
to Sarah” 2. can not to vary plain mng of Will
Some JX: will strike the gift as
Latent – facts outside will show Note: Law of wills is less likely to invalid and property will pass via
ambiguity. i.e. “to my brother John.” correct mistakes than K law. intestacy
Brothers are Tom and Jim.
Includes: personal usage. [See
Once you’ve shown an ambiguity, Mahoney below]
then can bring in EE. But, w/o an
ambiguity, assume the plain meaning
is adequate.
Extrinsic Evidence
 evidence other than will used to understand will.
 Cannot be used to change the plain meaning of the will, just to understand ambiguous terms.
 May exclude testator’s statements; suspicious of testator’s agendas.
 Testator’s are often dishonest with their own family regarding their estate planning.
 EE can be used to resolve ambiguities … SEE TABLE ABOVE (“Interpretation of Wills”)
 Garrett v. Read (2004):
o Held: Extrinsic evidence is admissible in connection with the instruments themselves to show that
separate wills, which are mutual & reciprocal in their bequests and devises, were executed in
pursuance of an agreement btw the testators, notwithstanding the absence of recitals in the wills
designating or referring to such agreement. Such evidence may consist of writings, acts, &
declarations of the parties, testimony of other persons, and evidence of all the surrounding fact
and circumstances.
 H and W create wills leaving assets to each other and equally to each others’ 3 kids and 3 step
kids (to protect them). H dies and W inherits H’s kids and her own grandchildren. Lawyer
testifies to their original intent.
 Result: stepchildren can inherit, but purpose was not to protect her own heirs so her
grandchildren do not inherit
 Wills do not have expressly state that there is a contractual agreement for matching/mirrored
wills.
 Separate wills without mention of an agreement btw the testators may be contractual wills if
that interpretation is supported by evidence.
 TRUSTS are treated like K’s:
 must prove mistake
 wills are generally ineffective to amend trusts
 need to exercise power of appt first for changes to be effective & follow technicalities.
 ASK ABOUT THIS! relisten to lecture 1011.
Easy Ambiguities to Correct:
1. Will names only the executor w/ no other provisions. Result: all to executor.
2. Mess up fractions. Result: Ct. sets to equal shares.
3. Misdescription: Charitable gifts w/ wrong name. This is ambiguous and look to EE.
Hardest to Correct: forget somebody.
Mahoney v. Grainger (1933): If there is no ambiguity as to the language of the will, court may NOT look to
extrinsic evidence.
o Testatrix wanted estate to go to her 25 cousins, but lawyer wrote “heirsatlaw” so it was given to her longlost
aunt as true heiratlaw.
o Ct. looks at plain meaning of the word “heirs”, which means closest relative and not cousins.
o However, courts will apply extrinsic evidence to words of personal usage.
Estate of Russell : [leading
CA
case for ambiguities] Intended gift to testatrix’s dog was invalid b/c a dog (at the
time) could not be a beneficiary of a will. B/c will was clear and unambiguous, the lower court could not allow in
EE to establish the testatrix meant to establish a trust for the dog and not make the dog a beneficiary of the will.
Dog’s share goes to intestacy.
o To prevent a bequest from going to an unintended person, courts strain to find ambiguity so it can admit EE.
o Here: no ambiguity, he wanted it to go to dog but that’s not allowed, but it was still what he intended.
o Courts generally refuse to admit EE to establish the terms of omitted provisions or change a will’s words.
Estate of Duke: (Cafferata’s case?)
 Duke lived frugally in Hollywood dump but he had written large gift annuity checks to charity
 Holographic will – leaving everything to dead wife, $1 to brother, then if wife & he dies at same time it all goes to
charity
 Apparently he made investment a while ago and now was worth $5 million
 Wife predeceased him.
 Charity argued for ambiguity to fix the requirement that they die at same moment to include case of predeceased
wife
o Presume: if write will, intend to give away property
o Arguing 3 theories— note: req. ambiguity to engage in construction
 Patent Ambiguity: on its face; very rare that both H/W would die at once
 Latent Ambiguity: context of relation w/ charitable org.
 Implied provision that charities take
 His sister’s sons (nephews/Radins) argued for intestacy
o Radins point to Barnes case to argue that it goes to intestacy (die 1.5 years apart, not at the same
moment), so it should go to them
o Nephews depositions were horrible, just insulted the uncle, etc.
o Barnes – if husband survives me, everything to him. If we die close in time, then estate to nephew.
Nephew was not closest heiratlaw so he would not get it in intestacy. Husband dies first. Court
assumes she left it the way it is because she wanted it that way so they enforced the provision and
invalidated the will, so nephew lost to heirsinlaw in intestacy
 His statement to the charity was that his understanding of the will was that he was leaving money to charities
 Lower Court did not see the ambiguity, said it was bound by Barnes (“moment” is not ambiguous term, too much
time passed, not looking at any other evidence)
 Appellate Court – Barnes controls, but also no doubt what Duke really intended so invite CA Supreme Court to
change rule
 If this was a trust or contract, no problem, just introduce extrinsic evidence that document did not follow his
intentions
 CA Supreme Court granted review – whether you should be able to show by clear and convincing evidence that
will did not follow decedent’s intentions  waiting to see result
 Old rule existed so random relative didn’t just come and say “oh, btw, this was actually not their real intent”
Changes in Property Holdings
o 4 types of Gifts
1. Specific Bequest or Devise: identified property gift (can be real or personal property)
 Ex: “123 Main St.” or “Martin D28 Guitar” to Jane.
 Terminology: writing in will “a specific gift of $100,000” is not technically a specific gift.
 Need to ID what type of gift it truly is (general/demonstrative) and follow rules accordingly.
 Ademption: specific gift fails if testator does not own the property at death.
 If courts feel you just want to give gift’s value, may try to define it as demonstrative devise.
 [UPC] EXCEPTIONS:
o Balance of purchase price owed
o Unpaid condemnation award
o Eminent Domain: whoever was entitled to land gets value of govt check or its
remainder if already paid some during life.
o Unpaid casualty insurance
o Property acquired by foreclosure on specifically devised property
o Loans: you can either end up with the note or the real property that secures the note.
 If there is a note secured by real property & loan defaults & decedent forecloses
& gets property, then you get property & not the note.
o Replacement property for real or tangible property
o Property sold by a conservator up to one year after regaining capacity
o Value of property if INTENT of testator can be shown to be inconsistent w/ ademption.
o Stock Splits: does not change distribution b/c ownership interest is not actually changed
even if 1 share goes up to 23 shares, thus decreases price per share.
 Replacement Property: basically, even if the named gift is slightly different than what’s in
First 3 are
decedent’s estate, was the named gift intended as a replacement gift?
before debt, o If conservator sells, MUST replace gift w/in 1 yr of competence
usually tax-
free.
Residue pays
debt/ taxes
o Consider: 1. is subst. used in same manner? 2 guitars 2. similar value? 3. timing of
purchase? sold named guitar & purchased new guitar
o Deals Mostly w/ Real Property: land/cars/etc.
 DOES NOT APPLY TO: stocks/bonds/accts.
 Example: What if you gift D35 guitar but have a HD28 at death?
o If gift is general (“I give my guitar …”), makes it easier
o Factors to consider:
 Any reason decedent wanted to/had to gift this particular gift vs. another?
 If new item is of comparable value? Not always determinative
 Time of purchase – bought as a replacement? Owned at same time? Upgrade?
 Different body style? Acoustic vs. electric? Does it matter for purposes of gift?
o What if testator has many guitars at death, but not the named one?
 Maybe he mentioned he wanted you to get his best guitar
 What does he do with rest of collection? Is it spoken for?
 Estate of Nakoneczny: Father’s lifetime gift to son was 20 bar that he was forced to sell to
govt in exchange for bonds. He never revised will before dying. Court treats land as a
specific bequest. Ademption!?
o Possible arguments for son:
 Conservatorship – was a while ago
 Eminent domain – a long time before death
 Dad just wanted me to have $ value – no, you were running the bar, it’s a stretch
o Court: Beneficiary does not get replacement property b/c wasn’t a demonstrative gift.
o Testator intent No, if dad wanted son to get bonds he wouldn’t specifically stated bar
 Stock splits – keep $ value, not the # of stocks. Gets more difficult if testator buys more stock later.
2. General Devise: value from general estate assets, ex. $100,00 to Bob.
3.
Demonstrative Devise: value from an identified source, ex. $100,000 from Wells Fargo Checking Acct.
 If $ runs out: empty specific source & take remainder of gift from general estate.
 If no $: take all from general estate & gift is essentially a generally devise now.
4.
Residuary: share of what is left after gifts/debts … may be more/less at death than when will was drafted
Satisfaction  advancement but under a will
A legacy in an existing will may be satisfied in whole or in part (if testator so intends) by an intervivos gift
- All intervivos transfers are presumed to be gifts unless there is evidence otherwise treating it as satisfaction
- Requirements
 Decedent wrote that there was satisfaction at the time gift was made
 Writing can be informal – or even from the beneficiary
 Donee acknowledges satisfaction
Conditional Gift
Has condition been satisfied?
Are they true conditions?
Rule Against Perpetuities
See below.
Presumptions or Wait&See rule get you out of it?
Abatement: order for elimination of gifts when estate assets are insufficient to fund all gifts.
*Exam questions will only deal with DEBT not TAX
- When an estate is not solvent for all beneficiaries/gifts:
FIRST: executor always pays taxes. Afterwards, is is possible for nothing to be left & all gifts abate. [see
EXONERATION below]
 
Order of Abatement: order for elimination of gifts when estate assets are insufficient to fund all gifts.
1. Intestate Assets (those not disposed of in a will)
2. Residual Estate
3. General gifts & demonstrative gifts from a general source
4. Demonstrative gifts from an identified source.
5. Specific Gifts — most protected; only taken away if essentially entirely insolvent.
6. Note: occasionally combine categories 4 and 5.
 
Default Rules: but you can write your own rules if you don’t like these.
1.Gifts w/in the same class abate proportionally:
a. Ex: 2 General Devises of $100,000, but estate short $100,000. Each gets $50,000.
b. Residue divided into thirds, but 1/3 is short. Each share takes 1/3 reduction.
2.[Jx. Split] Prefer FAMILY! nonfamily gifts abate first within each class of gift.
 Example:
o House to A: $100K
o Guitar to B: $5K
o From Wells Fargo Account to C: $50K
o Cash to D: $50K
o Residue to E&F
o If net assets $250K, everyone gets their gift, residue of $95K
o If net assets $150K:
 A gets house: $100K
 B gets guitar: $5K
 C gets $45K if that much in Wells account
o If not enough in account, C & D split funds not in Wells account
Exoneration
- Exoneration of property subject to debt
- [CL]: Debt paid by estate’s general assets. Specific gift is not subject to debt. i.e. residue pays mortgage;
devisee gets mortgagefree prop
- [TODAY]: Beneficiary receives property subject to debt, unless clear direction to pay off debt.
o “Pay all debts” clause does not exonerate encumbered property.
- [UPC]: Rebuttable presumption that donee receives property subject to debt.
Lapse & AntiLapse
Lapse
If the beneficiary of a gift predeceases the testator, the gift fails and goes to the residue or intestacy.
- Void Gift: gift to person who is dead at the signing of the will.
 Gift fails to residue or intestacy
 2 times at which beneficiary can disappear: before/after signing = void/lapse.
 Difference between void/lapse gifts is the application of the antilapse statute! [see below]
- Class gift: gifts to named individuals or survivor do not lapse UNLESS all named persons are deceased.
 Share of predeceased beneficiary passes to surviving members of class.
 Note: must be designated as a CLASS, not just a group of [named] people that look like a class.
Antilapse statutes
 Redirects lapsed gift to surviving issue of beneficiary; otherwise would go to residuary.
 Some do not apply to void gifts (but UPC does apply): void gifts pass via intestacy
 Some do not apply to class gifts (but UPC does apply)
 
Limited to
RELATIVES
 [Jx. Split] Definition of Relatives
 [CA]: “kin” everyone except friends/neighbor/strangers.
 [UPC]: applies to grandparents & lineal descendants of grandparents w/ surviving issue (see
below)
 [RUPC]: applies to stepchildren, but NOT spouse to avoid children of other marriages.
 [UPC] Antilapse Statutes: applies broadly
 Relatives: applies to grandparents & lineal descendants of GPs w/ surviving issue
 Applies to class gifts: predeceased nephew w/ living children, his share goes to his children & not
other nephews.
 Members of class: include those who predeceased the will! Look at who was EVER alive
and if precedeased has issue, then it goes to their issue.
 Applies to void gifts: If Bob was dead, goes to Bob’s issue
Drafting to Overcome AntiLapse
 Naming an alternative beneficiary overrides antilapse statutes
 Jx. Split [CA & some other states]: any “requirement of survivorship” (ex: 90day) clause will overcome.
 [Other states]: require clear alternate gift or clear statement of lapse.
o Ex. “100K to A. If A does not survive gift fails and shall be part of residue”
 [Best Practice]: draft around antilapse statutes
 Example: T: to my siblings. Has siblings A, B, C. A is dead at time of will and survived by C. B dies after will
but before T and survived by Y. C is living at T’s death.
o If statute does NOT apply to class gifts, only C takes
o If statute applies to class gifts, but not void gifts, Y and C take.
o UPC: X, Y, and C all take.
 AntiLapse Special Case:
o “To A but if A does not survive, to B.”
o If A & B are both deceased, goes to A’s issue UNLESS B is A’s issue, then to B’s issue.
o A= favorite child, B= favorite grandchild.
o Testator tried to disinherit A’s issue other than B.
o Issues of overcoming antilapse statute require VERY CLEAR STATEMENT.
In re Estate of Burns (1960): If we have relatives, and doc does not specify what to do in case nobody survives,
then antilapse statute applies.
 X residuary to 3 sisters. If one predeceased X, then the other sisters divided up the residue.
 All 3 sisters predeceased testator.
 One sister had issue. 21 other heirsatlaw.
 Ct. gave sister’s issue the entire estate over the other 21 heirsatlaw who wanted estate to pass via
intestacy.
 Presumption: testator wants antilapse statute to apply, must show contrary intent.
Anti Lapse Example
T: Gift to my siblings, A, B, C
First: resolve if this is a class gift or to the individuals
A: void gift B: class gift C: living
Dies before will is drafted, B dies after will drafted, but before T dies,
survived by X survived by Y
1. If void gifts are covered by Depends on whether: C will receive something.
an antilapse statute: X gets A’s a) this is a class gift
share. b) Jx. applies antilapse to class gifts It depends on whether X
2. If void gifts are NOT and Y’s situations are
covered, then passes via 1. If this is NOT a class gift: Y gets B’s share. covered by the anti lapse
intestacy. 2. If this IS a class gift and in an antilapse state, statute.
3. Under UPC: antilapse which excludes class gifts: Y does not receive.
applies & X receives. 3. If this IS a class gift and in an antilapse state,
which includes class gifts: Y receives.
4. Under UPC: antilapse applies & Y receives
The gift will be split evenly between whoever legit receives.
If all receive (1/3 1/3 1/3). If only C receives, C gets it all.
GIFTS
Real Property
Real Property Gift Requirements
1. Donative Intent:
a. Present transfer
b. No consideration: not expecting to receiving anything of value back
2. Delivery: visible evidence of intent
a. Requires physical/constructive/symbolic delivery of deed
b. must be in writing b/c subject to SoF
i. Some Exceptions to SoF:
1. Prevent Unjust Enrichment:
 Mertz v. Arendt (1997): Evidence was clear and convincing that the son had
received land as a parol gift. SoF did not defeat a parol gift of real property
when the donee took possession of the real prop. and made improvements in
reliance of the gift.
o Son began farming plot of land owned by parents, claimed that they
made an oral promise to give him the land. He farmed it and paid the
property taxes on it, siblings tried to get the land.
o Judge made the exception to the SoF based on the equitable doctrine of
part performance.
o An informal writing may be enough to satisfy the SoF so long as it is
signed.
c. Agents are most likely to be involved in delivery of real property.
3. Acceptance:
a. presumed b/c for value
b. unless: affirmative rejection
4. Recordings: not required, but recommended.
a. Recording a gift ensures that it’s yours. Requires notary.
b. You could make out a deed and hand it to the other person. But the risk you have if you’re the
recipient and don’t record the deed – the first person could sell it to a 3 rd party. You could sue for
fraud, but the third party will own that property.
 Timing is important to make sure it is a gift and doesn’t become part of the estate.
 Lenhart v. Desmond (1985): Accepting the evidence of the transferor as true, and rejecting conflicting
evidence put on the transferee, there was 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 transferee’s claim of constructive delivery.
 Father put deed in a safedeposit box and gave key to daughter and said he wanted her to have it when
he died.
 Daughter recorded deed in her name while father was still alive.
 Invalid gift due to the lack of delivery: even though daughter had access to the deed, father still
retained full control and property
 Intent is essential and controlling element of delivery of the deed
 Note: if father had died, the deed would not have been valid anyway b/c it would be acting as a will
without satisfying the will formalities.
Personal Property
INTER VIVOS gift requirements
1. Donative Intent
a. Present intent to make a transfer w/o consideration.
b. Inferred from circumstances.
i. Focus on actions. Delivery is an action.
c. Good will is not required.
2. Delivery
a. Manual: actual physical delivery
b. Constructive: access to item; like a key
c. Symbolic: title document
d. Real property is subject to Statute of Frauds.
e. Social Graces: taken into acct— Ex. told to take a bottle of wine from basement/kitchen when
you leave, there is a good arg. for completed delivery, but there still might be issues.
f. Special Delivery Cases
i. Checks: delivery not completed until cashed. (ex: so if grandpa gives you a check on
deathbed, hurry to cash it before he dies)
1. [UPC] 10 day cushion after death to clear/process checks.
2. Check can be voided, cancelled, etc. before you cash it
ii. Stock: Must sign (1) stock certificate and (2) stock power in order for it to be complete
gift. Using a brokerage account (schwab  schwab) can make it sameday transfer,
otherwise, it takes about 3 days
iii. Agents: Agents under power of attorney or conservatorship do NOT have power to give
your gifts.
a. Exception: Court approved of substituted judgment, especially if it
follows desires and interests
b. Gift is delivered once it is no longer under Agent’s control.
3. Acceptance
a. presumed if gift has value
b. clear rejection will prevent acceptance
i. Affirmative Rejection: “Oh no, I couldn’t”
ii. Host rejects your rejection: you stay silent= acceptance.
iii. Simply not picking gift up= rejection.
Gruen v. Gruen : As to donative intent, a life estate and remainder could be created in a chattel. Delivery need
not be physical and acceptance was presumed where the subject of the gift is something of value.
 Through a letter, father gave son an expensive painting for his birthday. Father stipulated that he wanted
to keep the painting until he passed away (life estate for himself first), but there was donative intent to
bequeath to son.
 When grantor conveys property subject to a reserved life estate w/ the remainder in the grantee, although
they won’t take possession until death, the conveyance creates an immediate interest in the grantee
upon delivery of the deed.
Gifts Causa Mortis — limited to gifts of PERSONAL PROPERTY!
Gift made in contemplation of death for the purposes of making a final disposition of the subject matter if death
actually occurs.
 Legal thy to deal w/ transfer that doesn’t quite fit the will/gift requirements:
o Donor is terminallyill
o gift is revocable
o gift fails if donor recovers
o gift fails if donee predeceases donor
o gift is subject to claims of creditors or donor
o gift is limited to personal property
o gift must be delivered
o Scherer v. Hyland: The note and check was not testamentary, but was gift causa mortis b/c evid
of donative intent was apparent & undisputed. Every indication decedent intended to make a
present transfer of check. Given a valid constructive delivery, Ct. held acceptance was implied
b/c the gift was unconditional and there was no affirmative rejection.
o Women left a note and endorsed settlement check where it could be found by her boyfriend
before committing suicide.
o More evidence of donative intent may be needed if intent was not clear, but check
endorsement was sufficient.
o Check was held to be DELIVERED based on the circumstances.
o Note: committing suicide doesn’t means he didn’t have capacity to make a will.
Gifts in Contemplation of Marriage:
 [PAST]: party to unjustly call off marriage did not get ring, unless you can show fault by other party
 [TODAY]: no fault divorce; man gets ring back; UNLESS: man is already married to another woman.
Gifts to Minors:
 Minors can own property, but they cannot enter into Ks, which means that they can’t transfer property.
 Uniform Transfers to Minors Act – name an adult, reference act and minors name creates a custodial
relationship like a trust
 Often gifts to minors done through trusts w/adult trustee (owes minor fiduciary duties … at least until 18 y.o.)
NonProbate Transfer: [see PROBATE below]
 Transfers by means other than a will that are effective at death and revocable until transfer dies.
o If not a valid nonprobate transfer, writing may be treated as a will that was not executed with
formalities of a will and is void. Limits to protect integrity of wills statute.
 Faster mechanism to provide access to property. Can set up w/o a lawyer & some pass out of creditors’ reach.
 Common nonprobate transfers:
o Revocable trusts
o Life insurance
o Retirements plans
o POD accounts
o Joint tenancy
Compare: Wills v. Trusts
We req. formalitiles for wills but let ppl dispose of property through joint accounts, gifts and trusts
Testatmentary Gifts: transfers @ death Completed lifetime transfers
Must follow Wills Statute or an exception
Trying to pass an entire estate Trying to pass a single trust
Butler v. Sherwood: Delivery of property, whether Farkas v. Williams: Inter vivos trust was valid.
actual or constructive, was a critical element of a Beneficiary acquired immediate, although
completed gift, and the decedent in the instant undefined, interest in the trust at its creation.
action retained dominion and control over all the Settlor’s retained powers were not enough to
property until she died, so there was no inter vivos invalidate the trust because settler/ trustee was req
gift. The court found that it was clear that the to act in beneficiary's best interests not his own. The
decedent attempted to do by deed what the law power to revoke did not render it testamentary
required to be done by will, and that she failed. - F held stocks in trust for W but had power to
- Ella married to Ed, no children. revoke and W had to survive. Ct. found documents
- Before cancer surgery, she quitclaim deeds to be a trust, finding an equitable interest in the
property to Ed (condition that he survives her, but stocks, subject to divestment.
land is hers now and gift is revocable until she - No vesting until Death –interest was created at
dies) purchase, but would not be enjoyed until death.
- Brother Butler contests for undue influence and - Survivorship –condition subsequent that divests
invalid will. donee of the obligation that was established at the
time he bought the stock
LIFE INSURANCE
 Parties
o Insured – person whose death triggers payment of death benefit.
o Owner – controls policy and beneficiary, and may borrow against policy or cancel it.
o Beneficiary – person who receives death benefit as named in beneficiary designation which operates outside
of will.
 Income taxfree cash to beneficiary.
 Creditors of decedent CANNOT reach his life insurance payout.
 Types:
o Term
 Annual premium for payment of death benefit if insured
dies in that year/term.
 25 year old will pay about $400/year for $1M death benefit.
60 year old pays $3K/year for $1M death benefit. 70 year
old pays $10K/year for $1M death benefit.
 Good for income replacement protection during working
years.
 Can get level term for 10, 20 or 30 years. Premiums higher
in earlier years and lower in later years. Better deal if you
keep policy for full term.
o Whole Life
 Death benefit guaranteed until death
 Insurance company charges for term policy plus
takes money and invests to build fund to pay at
death.
 Premiums can be 10 times as much as term.
o Variable
 Depends on how investments by insurance
company do … it affects how long you have to
you're your premiums. (still a taxfree
investment)
 Owner directs investment allocation.
 Owner can change premium amount.
 Premium first buys term insurance for death
benefit for the year, balance is invested.
 Earnings in policy can be applied to premium.
TRUSTS
Introduction
Definition: A trustee holds legal title to asset for a beneficiary.
 Creates an ownership relationship w/ 2 separate ownerships: legal title & benefits of property.
o Trustee is legal owner of asset & has burdens of ownership.
o Beneficiary’s interest & remedies are equitable. Beneficiary gets benefits of the property.
 Benefits can be distributed immediately or accumulate for later distribution. (current and
future interests)
o Roles can be different people or same person.
 Trustee is not entitled to any benefits of the property, unless trustee/ben is same person.
 Requires Property: There has to actually be assets/property in a trust for it to be valid.
 POLICY: Why separate legal & beneficial ownership?
1. Especially w/ gratuitous transfers, we are concerned about the ability of a beneficiary to manage property.
o Ben. if often a minor or has other capacity issues.
2. Can benefit from trust w/o losing benefit of public funds. Like Medicaid.
3. Different beneficiaries have different interests. Best to have neutral party manage.
4. Trustee has obligation to taxesfollow the document & best serve all interests.
 Trusts are used in a variety of circumstances:
o We focus on the use of trusts to facilitate gratuitous transfers.
o House Deed: Escrow Co. holds onto $ & deed and acts as trustee for parties to escrow.
o Business Sale: Duediligence process allows buyer to figure out claims/problems w/ co. Some claims
cannot be discovered during duediligence (like sexual harassment). Therefore, % of purchase price is
held in escrow to enable buyer to discover an undisclosed problem. Escrow is used to cover
unforeseen claims.
 Trusts protect beneficiaries from creditors and provide tax protection.
Trusts 101
Parties Classifications Types
Roles can be different or the same
person
Trustor/settlor/grantor – Active Trust: Where the Express/Declaration: declared trust
creates & places property in trustee has other duties than to agreement of trustee, usually in writing,
trust simply hold the property but can be oral.
 Prohibition against inactive
Trustee – holds legal title for a trusts (trusts with no Constructive: remedy! Equitable device to
beneficiary duties) prevent unjust enrichment. Person who
 Carries burden of improperly ended up w/ legal title has a
ownership Passive Trust: Only duty of duty to convey property to its rightful
 Has legal control to the trustee is to hold the legal owner. Holder had a hand in wrongdoing,
withdraw/invest or make title of the property thief gets title by fraud.
decisions re: the prop
Resulting Trust: Remedy for a settler or
Beneficiary – the only one that settler’s heirs when trust fails or purpose
can benefit from the property complete. Received property W/O
and has equitable title. wrongdoing.
 A pays B for land B conveyed to C. C
holds resulting trust for A.
Beneficiary’s Interests
1. Mandatory payments:
a. Trustee has to pay beneficiary regularly
2. Discretion subject to a standard:
a. Trustee determines standard, follows some considerations
b. In practice, Cts. tend to give trustees great latitude, so looks like broad discretion anyway.
3. Broad Discretion: serve ben’s best interests or do what’s reasonable
4. Forefeiture provisions:
a. if there is any attempt/attachment by creditor, then beneficiary’s interest is forfeited & assets go off to
remaindermen.
b. Good if especially concerned about remaindermen getting some assets.
c. Risky: beneficiary could use trust early on w/o many payouts.
d. Temporary forfeit= suspension of payments to ben. only to be resumed at a later date.
Revocable Trusts … centerpiece of most estate plans!
1. [UPC]: Trusts are valid and not treated as will substitutes. Can create trusts w/ basically no assets or property.
2. Initially supported by fiction of present transfer (See Farkas case above)
3.
Wellliked b/c:
a. More private than wills:
i. [CA] limits privacy: statute req. notice to beneficiaries of trust and heirs of law @ the time of
death that there was a trust. Trust becomes irrevocable. Gives parties the ability to get a copy of the
entire trust instrument.
1. Policy: discover & protect against undue influence.
ii. Other Jx. say if you’re not the beneficiary of the trust, then you cannot see trust terms. More
easily subject to abuse.
b. Incapacity: If trustor is incapacitated, then trustee can tap in and start managing assets.
i. If all assets are in trust, do not even need to appoint conservator.
ii. Note: if beneficiaries want to challenge the actions of a trustee, but trustor is incapacitated, you
need to appoint conservator and have conservator challenge trustee’s actions.
c. Easier to administer a trust than a probate or conservatorship:
i. do not have to go to Ct. for any approval or file any formal accountings or have executor/atty fees
approved or meet fee schedule.
ii. V. Conservator: need to have accounting reviewed every 2 years and all purchases need to be
approved by Ct.
d. Convenience: instant control of assets by successor trustee.
i. Just need to show financial institution trust instrument & death certificate to have title changed.
e. Flexible choice of law:
i. Can use [DE] or another state’s law to avoid RAP problems.
ii. Trustee should live in the Jx., in which you want to be subjected to.
History of Trusts: Law of Uses ONLY applies to Real Property!!
 [CL]: Forced heirship to first son for real property.
 Statute of Uses: Vested legal title in the beneficiary.
a. Only applied to trusts w/ no duties, did not apply to active trusts (where trustee has duties).
b. Rarely seen anymore b/c most trusts (even Title Holding trusts) have duties.
 Active Trusts: Trustee must have some duty to the beneficiary.
 [Today]: SoU arguably still applies in US unless abolished by statute or case law.
a. Title holding trust is the closest US has w/ no duties
b. EXAM: If ever dealing w/ trust drafting situation and somebody is drafting really broad exculpatory
language on behalf of the trustee, then may violate the Statute of Uses.
Express Trust Requirements:
 Intent to create trust
o Intend to separate legal & beneficial title.
o Gift subject to nonbinding guidance
o Equitable charge alternative duty
 Definite property
o If there are no trust assets, then no trust.
 Acceptance of property by trustee
o Cannot force somebody to be a trustee b/c involves taking on a high legal standard.
o Wouldbetrustee is free to refuse w/ no obligations.
o Need to document acceptance: aka signing trust instrument. Need to signal assent.
 Note: does not need to be in writing, can be oral, unless there is land involved
Trust Funding
  Trustee must hold legal title.
  If trustor is trustee, then trustor then trustee already has legal title.
o Taliferro v. Taliferro (1996): Where the settler of a trust exercises a declaration of trust making
himself trustee, but does not transfer of legal title to the trust property, the trust still exists.
 The trust clearly declared the settlor as trustee of prop described in the trust. No further doc
transferring title was req.
 When intent is clear, do not bring in extrinsic evidence
  By signing declaration of trust  evidence of acceptance as trustee.
  Note: this outcome is typical. Clients should go to bank & change title of the bank acct to
reflect their living trust, but often clients don’t do this.
o [CA] Hegstead: follows Taliferro— if you can ID a schedule of assets on the trust to show what
should be held in trust when the settlor/trustee are the same person, then that is adequate for purposes
of funding the living trust.
o [Best Practice]: sign schedule of assets.
  If trustee is NOT trustor, then must formally transfer title.
o Need: clear transfer & acceptance.
o Funding document can be pretty informal: Just need to ID what is being conveyed & document
trustee’s acceptance.
 Farmers Loan v. Winthrop: [Best Practice]: will & trust need to align
Verbiage Creating a Trust
 [CL]: “Wish” or “desire” to create a trust is mandatory.
o Estate of Bolinger: Precatory language expresses settlor’s desires but is not binding. Precatory
language does not create a trust.
Father died leaving everything to his parents with the belief his parents would use it for the
best interests of the children.
o Levine v. Fisch: The use of the word "desire" in decedent's will is a positive directive and reflects
decedent's intention to impose an obligation on another party to comply with the terms of the will.
 Mother left all her $ to children w/expressed desire they pay $2400/yr from the income of the
prop to support their aunt
 Court looked at circumstances: Intent was clear from the specifics found in the will.
(amount, when to start/stop, etc.)
 [TODAY]: look at context to see if testator intended a duty; do not need to use the word “trust”
o Inquire if words and factual context reveal an intent to impose legally enforceable obligation on
transferees
o [BP]: use “shall” & discuss obligations.
Trusts v. Contracts … are you taking property under K law or subject to a trust?
 Duties of parties
 Duty of trustee
Trust Contract
Can K to create Trust
1. Encompasses 1. Only carries
fiduciary duties obligations
2. Only for the 2. For own benefit
beneficiary’s 3. Cannot change
benefit 4. Requires
3. May change to consideration.
increase profits of
beneficiary
    Pierowich v. Metropolitan Life Insurance: The decedent did not create a trust with his life insurance policy bc
there was no assignment of designated prop. to a trustee w/ the intention of passing title thereto, to hold for the
benefit of others, such that the legal estate was separated from the "beneficial enjoyments." Thus, an essential
element of "intent to create a trust is absent.” Instead, a life insurance policy is a K that cannot be changed
post death.
a. Man took out an life insurance policy on himself naming his wife as beneficiary but changed minor
children as beneficiaries post divorce. Wife wanted to change in order to have money to raise children.
Ct found no trust, only a contract.
b. Policy: need to keep parties to a contract in the world of K law b/c parties will take certain actions based
on K obligation.
c. Tax Planning: can also create Life Insurance Trust which is not subject to estate tax.
Contractual & Survivorship Arrangements
A contract that provides benefits to a 3P often serves as a convenient substitute for a gift or a will.
 Governed by K law
 Life Insurance: biggest nonprobate transfer!
o 3 players: owner, insured, beneficiary
Contractual and
 Owner: controls what happens w/ policy; often owner/insured are same person.
Survivorship
 Beneficiary: gets $ @ death Agreements: Governed
by K Law
 Life Insurance
 Retirement Plans
o Not a probate asset
o Free of owner’s creditors
o Beneficiary’s designation can be changed by owner
o Settlement options: lump sum, annuity, or series of payments.
o 3 types:
 1. Term: ends after term, cheap when young, usually 1yr terms
 2. Whole Life: combination savings & term guaranteed
 3. Variable: same principles as whole life, but variable b/c you decide how much you want to
put in savings, how to invest, and how much term insurance is depends on success of
investment.
 Retirement Plans
 [Jx. Split] PayonDeath Accts [see Totten Trusts below]
o [UPC]: permits contractual arrangement for money to be paid on death for named beneficiaries.
 Policy: serves liquidity, allows family to get $ immediately @ death.
o Requires written revocation.
 Joint Tenancy
Some Types of Trusts
PourOver Trusts (often used in combination with Living Trusts)
- Pours residuary of estate into an unfunded testamentary trust
o Prop. owned at death included in probate) is given to a trustee of an intervivos trust
o Incorporate trust document into will, which has a direction that the pourover assets are to be added to the
trust property and disposed of by trust’s terms.
o The trust’s terms are amenable and revocable. Do NOT need formalities of a statute of wills
- Inter vivos (living) trust – settlor is alive when trust is established
o Avoids probate
o Secrecy
o BUT administration costs
- Traditionally  invalid b/c the trust would not be in existence until death so no trust res
o Funded during lifetime would then be a fact of independent significance
- Modern Living trusts are so important to estate planning that there are now statutes allowing them
o The trust exists, its just empty
o Avoids probate
o Secrecy
- Uniform Testamentary Living Trust Act
o Recognize Living Trust whenever
o Trust must be created before or at the same time as the will
o Not subject to incorporation by reference – you can fiddle with the trust
- Testamentary Additions to Trust Act
o You can pourover into trust
o It’s okay if trust was amended after writing the will
- UPC
o Living trust is not a “testamentary trust” by this process
o Does not have ongoing ct. supervision.
- Issues:
o Incorporation by reference
o Did trust exist when will was signed?
Totten Trusts (~POD)
 UPC treats Totten Trusts and POD account similarly
 An account in which if there is any money left in a bank account, on death, that money goes into a trust for
the beneficiaries
o Note: not really a trust b/c accountholder owes no fiduciary duties.
o Creditors CAN reach this because you can change it during lifetime
o POD accounts – [UPC] – creditors can reach if estate is insolvent
 POD revocable by:
o Express writing with bank: file new designation with bank
o Designation or specific reference in will (not in every state)
 Totten revocable by:
o Will provision
o Oral revocation: unequivocal act or declaration
o Transfer deposit to another account
o By circumstances resulting in inadequacy of the estate to satisfy the testamentary gifts,
funeral/administrative expenses, taxes, etc.
- In re Rodger’s Estate (1953): Elizabeth created a Totten Trust with bank account for sister to pay on her
death. Later, Elizabeth signs will establishing trust for sister (under conservatorship) but bank account was
her primary asset. Totten Trust was revoked by (1) statements to atty about revoking outright gift to
sister, (2) looking at scheme of will. Practical difference is who will control the trust: trustee or conversator.
Alienability/Assignability of a Beneficiary’s Interest
Policy: protecting beneficiaries from creditors (and from their own follies)
Spendthrift Trusts
- Settlor makes beneficiary’s interest inalienable through express language. (NO ASSIGNMENT)
o A beneficiary’s interest in the principal or income of the trust may NOT be sold, assigned, pledged,
mortgaged, alienated or transferred in any manner, or subjected to the claims of the beneficiary’s
creditors or to any other legal process.
o Beneficiary cannot take out a loan with trust as leverage
o Requirements: must be EXPRESS & prohibit BOTH voluntary &
Asset Protection Trusts
involuntary assignment. o Foreign trust:
o Once money is out of the trust it is no longer protected no jx or
o Default position: trust is NOT a spendthrift trust b/c req. express lang. access to info
o Domestic rule:
- Common fund theory – different beneficiaries each had different attitudes
minority rule
towards litigation. If one does all the work and gets more money for others, he
sould be compensated more.
- Creditor’s Access to Trust
o Determine what the beneficiary’s interest is: DISCRETIONARY (~safe) or MANDATORY?
o Is the interest assignable? Spendthrift clause prevents assignment
- Limits on Spendthrift Trusts: 3rd parties who can collect and reach spendthrift trusts
o [TRADITIONALLY]: Not valid if selfsettled
o Involuntary Creditors: limited to whatever beneficiary’s interest is
 [Jx. Split] Tort Victims: easy to go to another Jx., so Leg. reversed!
 Sligh v. First National Bank of Holmes County: Tort judgment creditors can reach
spendthrift’s trust. Policies favoring spendthrifts do not outweigh involuntary creditors’
claims. The beneficiary’s interest should not be attached until all other assets are
exhausted.
o Sligh was involved in car accident with a drunkard who has beneficiary of 2
spendthrift trusts created by his mom, with remainder to others.
o Child support: assumes children have no means to support themselves, otherwise burdens society
o Government claims
o Claims of providers of necessities – public policy interests: so people won’t refuse to help
o Services that benefit beneficiary’s interest (ex. lawyer)
 Schreiber v. Kellogg: Determined that the spendthrift clause also applies to grandchildren, but
trust could still be reached because the services were rendered to preserve the beneficiary’s
interest in the trust. Atty sought fees from grandchild for work on trust.
 Prevents judgmentproof beneficiary from being unjustly enriched. Ensures access to
legal services by needy beneficiaries.
 Spendthrift trust owned shares of dept. store. Schreiber objected to trustee sale and
forced increased price, later compelled other changes to administration. Kellogg filed for
bankruptcy and refused to pay bills.
- Creditors Access to nonprobate assets:
o Life insurance – no creditor rights
o Joint tenancy property – no creditor rights due to right of survivorship
o Totten trusts – creditors can access (b/c during lifetime can revoke)
o POD accounts (UPC) – yes if probate estate insolvent
o ERISA retirement plan – protected from creditors
 Tip: if you change jobs, leave your money in old firm’s ERISA to protect from creditors instead of
creating a new IRA
Discretionary Trust
- Trustee has discretion to distribute payments for beneficiary’s support subject to a standard
o Beneficiary has equitable right to compel fiduciary duty to distribute.
o Broad discretionary distribution, subject to forfeiture provisions.
o Trustee remains subj. to judicial control, but may essentially have absolute discretion.
o Trustee withholding funds may make it difficult for creditors to get $ from trust
o [Best Practice]: the strongest trust has combination of discretionary & spendthrift provisions.
- OJ Simpson had no money except a pension plan, which creditors couldn’t reach but OJ had discretion to use
- United States v. O’Shaughnessy: TP beneficiary does not have property right in nondistributed trust
principal or income before trustees exercised power of distribution under trust agreement.
o Larry was beneficiary of discretionary trust (created by dad), subject to income tax lien of $400K. Larry
didn’t want to take $ from trust b/c IRS would take it.
o [MAJ]: Courts do not allow creditors to compel trustees to distribute.
 Exception: trustee/ben. is same person, then creditors can compel.
o Gov tried to put a lien on a discretionary trust to pay back taxes. Ct holds there is no property interest and
only an equitable interest. Thus creditor has no remedy until payment is distributed.
o B/c there’s no right to future payments under trust, creditor cannot compel $, but neither can beneficiary.
SelfSettled Spendthrift Trusts
- Settlor has beneficial interest in the trust, or trustee is also settlor/beneficiary.
- [MAJ] Transferring property to a 3P in spendthrift trust for yourself (you are the settlor & ben.) is considered a
fraud on creditors. Spendthrift provision is void as against public policy & creditors can tap into trust.
- [MIN]: Alaska, Nevada and a few other states — allows selfsettled trusts.
- Settlor or trustee beneficiary can receive max allowed under discretion
o But: creditor can compel trusteebeneficiary — [CA]: creditor can compel MAX distribution.
o But: if beneficiary is neither the settlor nor trustee, then generally cannot compel distributions (subject to
some exceptions, like spendthrift): involuntary creditors, gov’t, child support etc.
o [NV]: you can make trust to keep money away from spouse?
- Medicare & Medicaid
o Medicare: covers hospital care – no means test
o Medicaid: covers longterm care – subject to means test
o Cohen v. Commissioner of Div. of Medical Ass.: CAN’T put $ in trust to qualify for Medicaid.
 People with too much income attempted to qualify for Medicaid (to pay for expensive skilled
nursing). Put their assets into a trust in order to qualify. Court said this was basically selfsettled.
Asset Protection Trusts
 Foreign Trust: no Jx. or access to info; assets protected.
 [MIN] Domestic: selfsettled trust.
o Bankruptcy law allows creditors to go back 10 years.
o Must also pay taxes to state.
o Must have trustee in the state.
Special Needs Trusts
- Allow beneficiary to get needbased govt $$$ by prohibiting payment for costs covered by govt (ex: Medicaid)
o Third Party: no reimbursement to govt.
 Ex.: Grandma can set up trust for disabled grandson & keep away govt claims.
 Policy: Improves quality of life for ppl w/ special needs in that they get govt & family $
 When disabled beneficiary dies, the trust moves to remainder & govt does not take.
o First Party: government reimbursed
 set up trust using settlement funds for yourself after accident (motivation to pursue tortfeasors)
- Litigation resulting in Special Needs Trust
o If disabled due to tort & receive damages  Ct. can authorize putting damages in special needs trust
 Govt pays for medical expenses. Trust pays for things that govt does not
 When disabled victim dies, govt can recover leftover $ up to the amount govt spent on medical
expenses. Any remainder beyond that amount goes to relatives.
Termination of Trusts
Note: Power to terminate always includes the power to amend. Power to revoke always includes power to modify.
What happens w/ revocable trust when beneficiary dies?
 Traditionally: creditors cannot recover when beneficiary dies.
 [CA] State St. Bank v. Reiser: creditor can recover up to the amount that was revocable.
o Husband took out $75,000 unsecured loan from bank by showing living trust assets. Set in trust w/
wife as beneficiary. Died with insufficient assets in probate estate (excluding the trust) to repay the
loan. Held: when wife died, bank was permitted to recover the debt. If you have revocable trust up
to time of death, bank can get as those assets.
[Jx. Split]: Revocation of Trusts
- Power to revoke gives power to amend.
o If settlor can revoke trust, then settlor can override trustee’s FDs by revoking.
o In effect: If settlor is the trustee, then settlor can never breach FD.
- Old rule: trust NOT revocable unless expressly says revocable.
- New rule: revocable unless says NOT revocable.
- Latest rule: trust for settlor presumed revocable. Trust not for settlor presumed NOT revocable.
o Flows from tax rules.
- Takeaway: do not leave to default rule, express if trust if revocable or not!!
Ways to Terminate
  Terms: By trust’s express terms. Ex.: death or age.
  Revocation: Not subj. to formalities, unless trust sets out limitations.
o If instrument is not explicit: Settlor must only show “sufficient manifest” intent
o Barnette v. McNulty: Enumerated methods of revocation are not the exclusive methods of
revocation. Any manifestation of intent is sufficient to revoke.
 Trust document enumerated 3 ways to revoke trust. Decedent revoked his trust in another,
nonenumerated way, but the court upheld the revocation b/c there was evidence of an intent
to revoke.
o [CA]: if don’t mention that will can modify trust in trust documents, then trust can be revoked in a
writing other than a will. Cal. Prob. Code. §15401
o Old rule is that trusts are irrevocable. Settlor can revoke only if he has express power to do so in the
trust
o New rule/CA law is that trusts are presumed revocable/amendable unless expressly says
irrevocable
o UPC: if doesn’t expressly say, question of interpretation where settlor’s intent controls.
 If settlor is beneficiary, presumed revocable
 If settlor is not beneficiary, presumed irrevocable
  Completion of purpose
o >1 purpose: satisfying 1 of many purposes does not cause trust to terminate.
o If purpose is completed, then go back to grantor & heirs.
 Frost National Bank of San Antonio v. Newton: Once primary purpose of trust is
completed, the trust is trust terminated. If there are multiple purposes, the court will not
analyze which was primary or secondary
 Trust: 1/3 income to provide for husband and 2/3 income for “support and education”
of nieces, and remainder income to Newton and Purvis.
  N & P argued that the two main purposes were completed (nieces were educated and
husband was deceased).
o Courts held no completion of purpose b/c two sisters still had to be cared for.
  Frustration of purpose: purpose becomes impossible to complete.
o >1 purpose: satisfying 1 of many purposes does not cause trust to terminate.
o Only 1 illegal purpose: trust terminates.
o Does NOT apply to Charitable Trusts: purpose cannot be frustrated. Court will just change the
“purpose” for one that can be accomplished.
 Policy: favor charitable orgs.
  Insufficient principal: Amt is set by statute, once it gets too low it is deemed insufficient to serve purpose.
  No purpose other than an illegal one.
  Consent of trustor and/or beneficiaries: can terminate OR MODIFY.
o Beneficiaries can compel termination/modification of trust if all beneficiaries and trustor agree.
o Beneficiaries alone can terminate/modify if change will not defeat purpose of the trust.
o Anyone related to trust can petition to address changed circumstances not anticipated by trustor.
 Does not require consent of all, just need to show makes sense & could not be anticipated.
o Virtual representation is allowed.
 Living adult beneficiaries can represent and give consent for minor or unborn beneficiaries if
interests of beneficiary w.r.t. termination/modification are the same.
o In re Bayley Trust (1969): The probate court can authorize a trustee to terminate a portion of
the trust not necessary to provide income to remaining life beneficiaries if all beneficiaries
consent.
 Trust created for family members with remainder to Museum. All beneficiaries consent to
termination. Bank does not consent – feared personal surcharges (beneficiary could sue
under claim that consent was a breach of fiduciary duty).
 Ct allows the termination – the trust had already served its primary purpose shows how
banks overlitigate trusts.
 State attorney general is involved b/c she is responsible for enforcing all charitable trusts with
the state; thus, is an indispensable party in the disposition of charitable trusts.
o Doctrine of Worthier Title Issue: Do heirs at law have any interests under a trust instrument?
 If a settlor tries to create a future interest in his heirs, the future interest is reclassified as a
reversion to the settlor. Favors vested interests.
 Exception: settlor’s clear intent to create future interest in his heirs.
 Hatch v. Riggs Nat. Bank: Abolished Doctrine of Worthier Title.
 Woman created selfsettled trust for her benefit, then for heir’s benefit. Petitioned to
modify trust to pay $5K out of corpus based on doctrine of worthier title. Ct held
that for her to terminate, she needed consent of heirs and a guardian at litem for
unknown/unborn heirs. Doctrine of Worthier title abolished.
 Spendthrift trust – there was no provision to amend, alienate or revoke
Amending Trusts :
o CA  in order to amend formal living trust must follow terms set out in the trust
o If have power to revoke, automatically have power to amend
Statute of Frauds: Applied to Trusts
 Statute of Frauds (an evidentiary rule): applies only to express trusts of REAL property = must be in writing
- Exceptions: Part Performance, Fraud, Unjust Enrichment
- BUT: [RST3d] — Oral Trusts for Real Property:
1. trustee can choose to perform or not
2. can be enforced based on trustee’s partperformance. Ex.: A gives real property to B in trust for C
under oral agmt. B collects rent and pays it to C (acting like taking it under a trust), but B
claims SoF failure. B engaged in part performance and so Ct. would enforce trust for C.
Resulting Trusts: arise when implied in fact (vs. constructive trust is implied in law)
1. trust’s purpose becomes impossible
2. trust’s purpose is complete, but property remains
3. person pays consideration for property and directs title to be put in 3P’s name.
a. Default: 3P is deemed trustee.
b. Unless:
1. manifest intent that did not want to create a resulting trust.
2. transfer for illegal purpose (ex. hiding assets)
3. transferee is spouse or natural object of transferor’s bounty & trust is not expressly stated.
a. Presumed: gift, if 3P titleholder is nearrelative of purchaser; NOT a trust for transferor.
Constructive Trusts: arise when implied in law; remedy for wrongdoing, imposed by court
 Does NOT need to be in writing
 Arises when:
a. Trustee procured by fraud/duress:
 Fairchild v. Rasdall: Bro1 wounds Smith. Bro1 transfers $ in trust to Bro2 under oral agmt that Bro2
would reconvey, then leaves country. Bro2 refuses & Bro1’s widow tries to compel reconveyance.
 Held: To satisfy SoF trust MUST be in writing. Alleged fraud cannot be a denial of existence of
trust; nobody tricked anybody.
b. Transferor and transferee in confidential relationship.
c. Prevent unjust enrichment
 Sullivan v. Rooney: BF/GF w/ shared financials, buy a house together w/ only BF’s name on title so
they could get a VA loan. Relationship ended & BF tried to keep house.
 Held: Court imposed constructive trust to ½ house to prevent BF’s unjust enrichment.
d. Mistake
e. Other tortious conduct
 If property subject to constructive trust is sold, can trace proceeds of sale.
Indefinite Trust:
 [Traditionally]: Private trusts must have identifiable beneficiaries who can enforce the trust, otherwise there
is nothing preventing trustee from enjoying both legal and beneficial ownership.
 Private v. Charitable Trusts: [see Charitable Trusts below]
o Morice v. Bishop of Durham: Woman left residue of estate to “objects of Bishop’s benevolence.”
Heirs at law sued to invalidate trust as too vague.
 If charitable trust, then valid.
 If private trust, then invalid b/c beneficiaries are indefinite.
 Held: private & trust invalid; passes to heirs via intestacy.
 [Jx. Split] Powers of Appointment: treat indefinite trust as power of appointment:
o Give valid right to person (bishop) to direct trust property distribution to benef. selected by powerholder
o Right defaults if not exercised. (If Bishop did not name beneficiaries, then defaults back into estate.)
o Allows changed circumstances to be addressed after death of trustor.
 [RST3d]: Indefinite Private Trust Allowed
o treats it as a power of appointment
o If trustee does not exercise power, resulting trust for reversion beneficiaries is implied by law.
CHARITIES: Charitable Trusts & Gifts Subject to Charitable Restrictions
Introduction
A charitable trust must have a charitable purpose
 Cannot be for a private benefit or profit
o A purpose is charitable if it is for:
 Relief of poverty
 Advancement of education or religion
 Promotion of health
 Governmental or municipal purposes
 Any purpose benefiting the community at large: foundations
 Must have a definite purpose
Benevolent Trusts (perform kind acts): are not charitable trusts unless they accomplish a specific
o
charitable purpose
 Must have INDEFINITE beneficiaries or a broad class of beneficiaries
o Too small a class with defeat a charitable purpose
 Unidentifiable beneficiary is OK (unlike a private trust which requires an identifiable ben.)
o Charitable trusts are not subject to RAP, Ct. will appoint successor trustees
Mortmain Statutes (Dead Hand) Limiting Charitable Gifts  now unconstitutional
o Intended to protect families from disinheritance
o Limited % of estate passing to charity or Timing of gift to charity
 No gifts w/in 90 days of death to religious institution fear that making big donations to get into heaven
o Unconstitutional as lacking rational basis
Enforcement of Charitable Trusts
1. Who can Enforce?
a. Attorney General: always
i. Lefkowitz v. Cornell: A restriction placed upon the use of a gift to a charitable corporation
is req. to be clearly expressed. Here: there was no clear expression that the gift to the
university was subject to the restriction that it be forever used as a research laboratory
public benefit.
1. Curtis Wright., owner of research laboratory facilities made a charitable gift of facilities
to Cornell. Created a Special Purpose Entity to run the facilities and do research for
CW, which were propped up by other co.’s donations. The deed and bill of sale recited
that the transfer was made in consideration of advancement of science and education.
After 25 years, Cornell entered into a K to sell the lab.
2. Charitable Trust created by conveyance: When the conveyance took place from CW to
Cornell  immediately created a charitable trust.
3. Held: Only restriction was for the advancement of science & education  Can sell
as long as the money is used for such purposes.
b. [Jx. Split]: Donors: sometimes
i. Generally: do NOT have rt. to enforce trustees
ii. Unless: gave very large check & there is a gift agmt, which allows donor to enforce via K.
c. [MIN]: Beneficiaries: rarely
i. Standing Issues: permitting unidentified beneficiaries makes it difficult to determine standing.
2. Common Restrictions:
a. Maintain in perpetuity
b. Naming after Donor

i. Tenn. Dev. DAC v. Vanderbilt: DAC donated $50K to PeabodyU to construct dorm named
“Confederate Memorial Hall” and give DAC members/families preference. PeabodyU
merged into VanderbiltU. VanderbiltU later renovated hall for $2.5M. In response to
complaints, new Chancellor sought to drop Confederate name from hall.
o Outcome: in order to change name, school had to refund DAC w/ interest.
ii. Today: Donor should declare who has standing & what circumstances justify removing name.
Cy Pres & Change in Charitable Purpose
 Cy Pres is French for “so near/close”
  Used to salvage a charitable gift that would otherwise fail for impossible/illegal/impracticable purpose
  allows courts to change the purpose of the charitable trust.
  If the charity no longer exists, divide up among other charities (if all charities similar) OR find a
replacement that does the same purpose as the one that no longer exists.
  [Traditionally]: requires general charitable intent
1. First: MUST find general charitable INTENT.
a. Donor just wanted to do something good.
b. Courts usually find general charitable intent.
2. Then, court can authorize use of trust for purpose that is as close as possible to donor’s original
purpose.
3. If charitable intent is found, Cy Pres applies when:
a. not enough money, or
b. too much money, or
c. purpose accomplished, or
d. Changed circumstances: Ex. Donation for polio research. Polio is not really a thing anymore.
e. impossibility or charity does not exist, or
 Cts. look for next closest charity.
f. premises not suitable for purpose. Applying
Applying cy
cy pres:
pres: 33 step
step analysis
analysis for
for applying
applying Cy
Cy
 Cts. look for new location. Pres
Pres
1.
4. Can
Can the
the trust
trust be
be effectuated
effectuated as
as written
written
  [RST3d]: Cy Pres 2.
5. If
If no,
no, was
was there
there aa charitable
charitable intent?
intent?
o Apply unless donor provides alternative disposition. 3.
6. IfIf yes,
yes, what
what is
is the
the next
next nearest
nearest charitable
charitable
purpose for the $?
o No general charitable intent required. purpose for the $?
o Applies to wasteful purpose:
 Cafferata: think about the overall effect this has on giving. People will be less inclined to donate if
they think their gift will not be carried out b/c it’s deemed “wasteful.”
o [UPC]: no reversion back to heirs unless trustor is alive or had died w/in 21 years.
 If trustor died >21 yrs ago, then keep in charitable world.
 Change of Purpose of a Gift: even broader power than Cy Pres.
o When dealing w/ particular gifts given to an institution, there is flexibility w/in the institution to change the
purpose of particular gifts.
 BUT: Purpose of institution cannot be changed & is still governed by Cy Pres.
  [Uniform Prudent Management of Institutional Funds Act]: Purpose of funds can be changed by court if
purpose is unlawful, impracticable, impossible to achieve, or wasteful. No changing purpose of institution.
 Racially Resrictive Covenants: per se unconstitutional
o Evans v. Abney: Cy Pres does not permit courts to simply delete the racially restrictive clauses when the
testator explicitly indicated that this limitation was an essential and indispensable part of his plan for land.
 Senator Bacon (strong segregationist) donated land for park exclusively for use by white
people (after courts ruled no park segregation). Held: donor had no general charitable intent;
land reverts back to grantor & heirs.
o Shelley v. Kramer: If call Cts.’ action state action, then Ct. cannot enforce racial covenants.
o Trammel v. Elliott: Will leaving scholarships for white students at a statefunded school. School can
apply Cy Pres to remove racial limitations. Held: if racial limitations are imposed b/c just reflected the
times, then General Charitable Intent may still be found & Cy Pres may be applied.
o Bob Jones U v. U.S.: IRS revoked tax exempt status of BJU b/c it had racially discriminatory admissions
practices. Held: tax benefict was effectively a grant of federal funds, so constitutional limits could apply.
o Simmons v. Parsons College: Lester left residue of estate to DrakeU and Parsons College equally, and
required that if either should fail, then heirs get that share. Parsons had failed before Lester’s death.
Drake sought entire estate. OUTCOME: No cy pres. Drake doesn’t get it because Parsons failed before
death and he made other provisions, so Parsons share goes to heirs.
o Gender Limitations on Scholarships: permissible
 Estate of Wilson: Application of cy pres is inappropriate unless the court 1st finds that the
specific charitable purpose has become impossible or impracticable.
 Provided 2 testamentary trusts for the education of males students that were at the top of
their classes.
 Trusts’ purpose were not impossible or impracticable  Cannot prevent private
discrimination
 Gender classification is acceptable and not contrary to public policy. Similar trusts exist
for women.
 In practice: Just remove stateaction & let limitation stand (i.e. have students apply to
scholarship directly rather than requiring stateschool to supply list of names of eligible
male/female students.)
 Policy: 50/50 gender, so assume $ is balanced.
Honorary Trusts
  Includes: monument or tomb maintenance, flowers on grave in perpetuity, saying of masses, care of pets, etc.
    [RST3d]: Honorary trusts are held for purpose w/ reversion to beneficiaries at law, so long as honorary trust is not
charitable or capricious.
o Capricious: Given to sudden and unaccountable changes of mood or behavior
  Pet Trusts:
o [Traditionally]: Russel— trust for pets as beneficiaries is not valid b/c pet cannot go into court to enforce
the trust.
o [CA] Pet Trust CA Probate Code §15212:
 Trusts held for pets as beneficiaries are VALID.
 Any person named in the trust instrument or member of an animal welfare society can enforce the
trust and has the right to inspect the pet’s conditions and wellbeing.
 Accountings to remainder beneficiaries.
 Court can appoint a trustee.
THE PROBATE PROCESS: Administration of Estates & Trusts
State/Federal Law Divide:
o Constitution reserves probate process for the states.
o Marshall v. Marshall (SC): A claim in federal court falls out of bounds of the probate exception bc
(1) the probate exception is reserved to state probate courts, the probate or annulment of a will and
the administration of a decedent's estate and precluded federal courts from endeavoring to dispose
of prop. that was in the custody of a state probate court, (2) the widow's claim did not involve the
administration of an estate, the probate of a will, or any other purely probate matter, and (3) the
widow did not seek to reach a res in the state court’s custody
 Anna Nicole Smith marries a wealthy old man. Decedent leaves nothing for her in his will. Anna
argues that son used undue influence to omit her from will. Son then sues for slander.
 CA ct.: For Anna (1) Defense of truth was meritious. (2) son had engaged in undue influence &
tortious interference
 9th Cir.: Reversed; State courts handle probate.
 SC.: Reversed; probate exception is narrow; SC can hear case b/c this is a TORT claim for
slander & did not interfere w/ probate administration in state court.
o [CA]: some superior courts are designated as probate courts.
o [Jx. Split] re: probate & jury:
 [CA]: no jury
Functions of Probate:
1. Determine Document: which, if any, governs distribution? none, then intestacy.
2. Determine Fiduciary: if named in will, then “executor;” if not ID’d, then “administrator.”
3. Supervise Process: Ct. supervises paying off creditors.
4. Document Title in name of beneficiaries: need certainty
5. Dead people can’t tell us what to do with their stuff.
6. Priority of creditors and beneficiaries.
Jurisdiction/Location of Probate
Where to Probate:
1. Place of residence of decedent: most likely Jx.
2. Place of (real) property— may require ancillary probate in another state if own real property in many places.
o Ancillary Probate: Administration of property in state other than domicile.
 Usually for real property.
 Usually same personal representative, who must be specifically
appointed in both Jx.
 [UPC] executor in foreign Jx. allowed to act like any other person can come into St.
prove position in state of domicile & covers all other Ancillary Jx.
 [MAJ]: executor can be from any state.
o Nonissue for Corporate Executors like big national banks have a charter for
all 50 states.
 [MIN] prohibit nonresident executors in a few states.
 Will contest is usually held in domicile.
 May follow different laws of descent.
 Text: A given domicile did not allow charities to receive gifts, but the ancillary
probate allowed charities to receive gifts. Ancillary Probate trumps domicile rules in
ancillary probate Jx.
 Ex: CP Jx. v. CL w/ elective share.>>> can be very different results.
3. Place where you can have Jx over killer or where killed: Rationale: to make it easier for estate to file a civil suit
against murderer to recover damages.
Domicile: Technically a state of mind; the fixed place to which you intend to return.
 Can only have one domicile for each particular purpose:
o In theory, only 1 domicile is possible b/c you can’t return to 2 places.
 Change domicile by establishing new domicile.
o A prolonged absence from your domicile will not change it unless a new domicile is established.
o Ex: students away for 67 years may still be domiciled in their parents’ home.
 Look at: sell house; get a new license, change voter registration, leave social clubs, move all bank accounts
 Taxation Issue: domicile gets to impose estate taxes – “pickup tax”
o [CA] no estate tax at the moment (but has high income tax, so move out of CA to sell property)
 CA is very strict about people faking other domiciles
o [NY] and about 15 other states still have estate tax independent from federal credit.
 Domicile Conflicts:
o Two states may claim domicile & taxation.
 [UPC/MIN] first state to open probate wins.
 No good remedy, cannot force resolution of only one state in federal court: Possible that both Jx.
will impose tax & your estate will be doubly liable.
 Ex: Howard Hughes: both CA and Texas asserted domicile. States settled.
 Ex: Tupac Shakur. Did a concert in Alabama where someone got shot. P’s attorney sued in
Alabama and got someone appointed as executor w/o telling Shakur’s estate and won default
judgment of $10 million. Estate allowed them to take everything in Alabama (nothing), so they
never collected on the judgment. Tupac actually died with modest estate, but a lot of money
came in later.
 Ex: Gill Hyatt – invented integrated circuit in the 1950s, applies for patent, spends 30 years
litigating the patent until SCOTUS validates his patent. He had moved to Las Vegas before he
made bank from patent royalty income. CA wants domicile, investigates, makes unauthorized
disclosures, Hyatt sued CA in NV, appeal jurisdiction to SCOTUS, who sends back to NV, who
gives him ½ billion in damages, CA appeals again … still pending.
 Note: Divorced in 1960s. She gets everything except the patents. In the 1990s, she sues,
arguing she didn’t know what they were worth. Family Law court: get out, go away.
o Creditors: need to bring claim where property sits.
o [UPC] Can designate state to control distribution of your property or to be Jx. of probate in your
documents, but this is subject to public policy limitations, which include:
 cannot defeat elective share
 cannot defeat exempt property
 cannot be inconsistent with important state policy.
o [Best Practice]: reside entirely in one domicile.
 1990’s: CA has high state income taxes.
 May want to “leave” CA, but not really leave.
 Gov’t may not believe that you truly left CA & impose taxes anyway.
 One man was able to sue CA for improper conduct & won.
Formal Probate Process
*Probate provides for orderly transfers of title or property, ensures creditors receive notice and have opportunity to
present claims, extinguishes claims of creditors who do not present claims and ensures property is properly distributed to
those entitled to receive. It also protects against fraud.
*To be effective, a will must be offered in probate or else it has no effect.
WHEN does title VEST in the beneficiary?
o Interest vests @ death (but little practical significance since need probate to document title).
o Real Prop: vests immediately
o Personal prop: first vests in personal representative, then beneficiary.
o Sale after probate creates bona fide purchaser (BFP) who takes against laterdiscovered will.
o Eckland v. Jankowski: Hegstad died in 1945. Intestate distribution. Heirs sold property in 1946.
Property was sold again that year. Will was discovered in 1947, and the beneficiaries under will sought
to recover the property. HELD: bona fide purchaser (relied on court decree), no unwinding of sale.
 Note: will beneficiaries could have sued heir who sold it if they still had any money left.
Steps to Start Probate Process:
1. Lodge will: [CA] w/in 90 days of death
2. Petition for probate in order to appoint a person as personal representative (executor or administrator).
o No contest 99% of the time
o Executor: named in will. If says no, default to administrator.
o Administrator: if no one is appointed in will as executor, court will appoint an administrator.
3. Admission establishes due execution & that will is final & controlling
4. OK to admit will that violates K or has ambiguities.
Probate Hearing:
o Notice goes to: heirs, beneficiaries, AG if there is a charitable beneficiary.
o Standing: These parties also have standing.
o Publication in legal periodical: 3x in 21 days before probate.
o Will is admitted based on: (1) selfproving will OR (2) affidavits of witnesses, UNLESS will contest is filed.
o If contest is filed, then just sign document & do not require witnesses.
o Nonevent: uncontested will; if nobody contests then will is final will & begin distribution.
Personal Representative’s Supervisory duties: 4 main duties—
1. Preparing INVENTORY of assets.
a. Timing: after probate opening. Final accounting starts with inventory.
b. Serves 2 purposes:
i. Determines compensation for executor/atty: set % rate.
1. [CA]: executor’s get sliding scale; competing incentives—
a. incentive to appraise at higher values to earn more money.
b. incentive to value fairly b/c estate has to pay taxes
2. [MAJ]: reasonable compensation
ii. Accounts distribution/use: Process includes—
1. Listing assets
2. valuing assets
a. [CA]: requires assets be valued by courtappointed probate referee.
3. determining any encumbrances on assets
2. Giving notice to creditors of opening of probate
a. Creditors’ Claims Identification:
i. Need to identify creditors and clear debts before distributing net assets to beneficiaries
ii. Procedure for identifying and managing claims: EITHER....
1. Avail yourself to creditors’ claim procedures & give NOTICE: ...OR...
a. 2 ways to give notice:
i. Publish in legal newspaper
1. SoL [CA]: creditors have 4 months to file claim
ii. [MAJ/CONSTITUTION(SC)] Actual notice to known creditors.
1. SoL [CA]: creditors have 60 days to file claim
2. DO NOT avail yourself to creditors’ claims. Only deal w/ creditors that come forward.
a. SoL [CA] creditors have 1 yr after death to file claim regardless of notice. If >1yr,
then claims barred.
b. The closer creditor files to the 1yr mark, the longer less efficient this process is.
i. Ex: woman simultaneously filed petition to administer & creditor claim 2
days before 1yr SoL ran out. D rejected W’s claim 3 months later & started
180 day SoL. Woman again filed suit 2 days before the 180 day SoL ran out.
ii. Note: If you have a party who has priority over probate compared to a party
who could administer, but who also has a creditor claim; NEED the party w/
priority to serve as executor. OTHERWISE, you end up with an executor
who keeps approving their own personal creditor claims on the estate.
3. Creditor cannot file suit while claims process is underway.
4. BUT: Some claims survive regardless of SoL (Bar does not apply to these):
a. claim for performance by personal representative brought w/in 4 mos. of when due.
b. secured claims
c. claims up to limits of insurance
d. claims by personal representative or atty for compensation or reimbursements
e. debt incurred after death: normal statutes apply
i. breach of K after death
ii. tort claim after death: ex. accident @ Decedent’s house.
f. federal statutory environmental liability: may not be interfered w/ by state creditor
claim procedure.
b. Creditor’s Claims Processing:
i. Personal representative EITHER...:
1. Acts on claim: .... OR....
a. SoL applicable to creditor are tolled from mailing of notice until expiration of 90day
period after rejection
i. Exception: a claim that decedent promised to make a gift  1 year SoL from
date of death.
b. Policy: gives personal rep. time to look at claim adequately.
c. SoL [CA]: Once rejected, then creditor has 180 days to file suit against the estate.
i. find out sooner rather than later that a law suit will be filed.
d. Personal representative has 3 options:
i. accept claim
1. FD: executor has duty to only accept valid claims; if accepts invalid
claim executor may be personally liable.
ii. reject claim:
1. often family/friends use creditor claims to get inheritance.
2. Charitable Org w/ “I plan to make a gift” verbiage= invalid claim,
UNLESS supported b enforceable pledge/K.
iii. accept in part/ reject in part
2. Sits on claim.
a. If personal rep sits for 90 days w/o action, then creditor can treat lack of action as a
rejection.
b. BUT: This “rejection” does not trigger 180 SoL to file suit, so creditors are in no
rush.
c. All SoL are tolled until executor expressly rejects, at which point SoL begin to run
again.
3. Distributing decedent’s property.
4. Pay decedent’s bills: funeral, atty, etc.
Nonprobate assets & creditor’s rights
- Life insurance – no creditor’s rights
- Joint tendency no creditor’s rights
- Totten Trusts – creditors can obtain
- POD accounts – UPC: creditors can get to if probate is insolvent
Priority of Creditors’ Claims
- Order only matters if estate is insolvent  pay everything in 1 category before executor pays the next
- ORDER of paying debts
o Administrative expenses: Executor, attys, administrators
o Funeral expenses
o Expenses for last illness
o Tax liens
o Secured claims on land
o Unsecured creditors
Informal Probate
o [UPC]: proposed informal probate.
o Range of Options:
1. No court action – no BFP.
2. File will with court – BFP after 3 years.
3. Court appoints representative AND/OR determines documents.
4. Court supervises administration
 Certain kinds of exempt property:
o Wages in bank account that can be distributed immediately to surviving spouse
o CA has spousal surviving petition, transfers everything to surviving spouse more quickly
o CA also has informal process by affidavit saying you are entitled to those bank accounts
 If affidavit looks facially accurate, bank is not liable if person was NOT actually entitled to accnt
 BUT, if you refuse to honor affidavit & ends up valid, you must pay opposition attny fees
o CA: “Small estates” up to $150K and NO REAL Property can be settled by affidavit
o If someone has a lot of $$$ but some is not subject to probate b/c it’s not in living trust while the rest is
o If have little property outside living trust, it (if <$150K) can be subject to informal probate process
 Never able to give good title to bona fide purchaser if court does not resolve probate at all
 Under UPC, there are several options – from DIY to fully supervised. Trade off is how quickly you can have clear
title to the property and whether you can ever convey title that would make somebody a BFP.
o Least formal – DIY – no one can become a BFP – it’s always subject to question.
o Deposit will to the court then do nothing with it – just give public notice what you’re operating under.
After 3 years, you can give good title to somebody, you can become a BFP.
o It may be that you can’t figure out who you want to administer the estate, in terms of document (or
intestacy), there’s no dispute on who’s entitled but who’s the administrator, then you can go to the court
and ask for a fiduciary. You can have the reverse problem – not having the document – can have court
decide which document you can operate under. You can have both problems.
o Supervised probate – court supervises the entire process
 Advantages
o Less labor intensive
o Cheaper
o Better/easier with corporate fiduciary (less likely to embezzle)
 Issues:
o allows fraud or embezzlement
o better w/ corporate fiduciary (but BofA won’t do it for small estates)
o title clearing issues
o living trusts are a better alternative
 BUT: lots of $ passes outside of probate; life insurance, retirement acct, POL assets.
Finality of Probate Orders: orders are FINAL
o Debts paid to estate cannot be collected again.
o BFP from probate takes against beneficiaries of laterdiscovered document
 Island v. Denvin: treasurer of navy paid debt to executor, but executor was appt under forged will. After
treasurer paid, estate’s new administrator discovered the real will & wanted treasurer to pay again. Held:
even if order was issued in error a debtor is not required to make the same payment twice.
 Allen v. Dundas: Brown forged will Priestman’s of & was appointed executor. Brown sought payment of
& got Navy debt. Later, Priestman’s son proved will was forged & sought to collect the debt from Navy.
Held: Son doesn’t get debt back from BFP but is free to sue Brown for fraud.
o Exception: order is final if not appealed unless order is result of fraud/accident/mistake.
 [SoL] for Fraud: 2 yrs from discover & 5 yrs from commission
 Exception: can ALWAYS go after perpetrator of fraud. Policy: perp needs to return assets.
General Steps in Solemn Probate (Executor’s Duties)
1. Find & determine document that constitutes the will
2. Determine personal representative
3. Take will to Registrar of Wills
4. Schedule date for probate proceedings
5. Join, notify, & serve interested parties: Everyone name in the wills  receives notice of proceedings
6. Collect material for probate
o Witnesses signatures
o Death certificate, etc.
7. Receive Letters Testamentary
o Letters from Probate Ct. authorizing executor to change all names in property titled decedent to
executor’s name  Not the name of the estate
8. Post bond (if necessary)
9. Marshal assets of the estate: Executor take into personal control (only probate assets)
10. Prepare inventory
o List, value, encumbrances
 CA determine lists of assets, take to assets referee to determine value
o Appraisers – where needed, by sure will names who he/she should be
 If not needed Be sure will waives him/her as to general appraisals ( to avoid cronyism)
1. But if decedent owns a collection of something – MUST be appraised
2. May choose person from whom decedent purchased items Inventory Assets
11. Deal w/ creditors
o Figure out who is owed what
o Must give notice to creditors to file a claim with the estate
 Publication
 Must give known creditors actual notice
 CA  creditors have 60 days in which to file a claim against an estate
 Once a creditor sends a claim  executor can accept or reject it
1. Within 90 days
2. If executor does not act  considered rejected.
 If claim is rejected  creditor can sue the estate
12. Pay debts & taxes
13. File preliminary acct.
14. Present own bill
o Both for executor fees (no need to justify) & for atty fees (judge will require proof of separate work done)
15. Present final acct., including:
o Everything done to estate
o Debts & taxes paid
o Include checks to legatees (how distribution will take place)
16. Distribute estate as per attached distribution
17. Once distribution is complete, executor is discharged of duties
Fiduciary Roles
Generic term encompassing: Executor, trustee, agents under power of atty
administrator, personal representatives, guardians/conservators
Fiduciary Roles & Breach:
1.
Executors/Administrators: named in doc., ultimately up to court, but if willing/able court follows doc, UNLESS
named executor is involved in a dispute over estate; manage probate estate.
a. Or Administrator: appointed by Ct.; manage probate estate.
b. Priority of Administrators: can file petition w/ court
i. Spouse
ii. Children
iii. Heirs
iv. Creditors
v. Public Guardian
vi. Interested Person financial interest
c. Executorspecific Duties:
i. MUST perform decedent’s K’s:
1. Exception: K’s for personal services
ii. May operate business until sold
iii. Personally liable if executor enters into a K that the estate cannot perform. [See Onanian v.
Legatt below]
2.
Trustee: legal title, but not beneficial title in trust
a. of Intervivos Trust: appointed by document
b. of Testamentary Trust: appointed by court
3.
Guardians/Conservator: appointed by court; manage affairs of incompetent person
a. Guardians supervise minors who are automatically incompetent
b. Conservators supervise adults who are w/o mental capacity to manage their affairs.
4.
Agents under Power of Attorney: appointed by document; named individuals to manage affairs
a. Durable Pwr of Atty: continues even after incapacitated [look up]
b. Healthcare Pwr of Atty: continues even after medical issues [look up]
5.
SoL for Breach of Fiduciary Duty: 4yrs; starts to run when breaching party dies.
Qualifications:
1. Competent Individual at least 18 y.o.
a.
MAY REQUIRE BOND
i. Policy: protects estate assets from infidelity of fiduciary.
ii. Often required for individual fiduciaries.
iii. Bond amount: usually the liquid assets of the estate (Policy: easy to steal)
iv. Testator or beneficiaries may waive bond.
v. Relationship between trustee/beneficiary: Risky to be fiduciary if beneficiary does not like you
b/c will try to tag you with liability; requires high bond.
vi. Not everyone can be bonded.
vii. Premium on cost of administration.
b. BUT: bonding is not required if—
i. fiduciary is named in will OR
ii. trustee or beneficiaries waive bonding req.
2. Corporation authorized to do trust business in that state
Lawyers as Fiduciaries: lawyers named as trustee or executor
1. Cannot select self as counsel for estate in will.
2. May be subject to removal on lower showing if drafting attorney —
a. Presumption: attorney breached duty if included in the will.
3. Compensation:
a. May be prohibited from double compensation: cannot charge as both attorney & executor.
b. Entitled to:
i. (1) Reasonable … OR …
1. [Best Practice]: standard in doc
ii. (2) Fee Schedule Compensation
1. Fee Schedule states allow extraordinary compensation!
2. Example: CA Probate Fee Schedule:
a. 4% on first $100K
b. 3% on next $100K
c. 2% on next $800K
d. 1% on next $9M
e. ½% on next $15M
f. for amounts above $25M, a reasonable amount to be determined by court
c. Compensation is often a function of asset base: ranges from 1/2% to 3% depending on size of trust; as
trust size increases, percentage decreases.
d. Executor’s fee schedule:
i. pay income taxes on it
ii. schedule based on GROSS ESTATE, not net estate.
iii. But: sometimes if estate is insolvent, this is the only way to get money to the family quickly.
Naming Fiduciaries:
1. [Best Practice]: name one or more
2. Can be individuals or corporate, or both
a. Corp: banks/trust cos. have virtue of not dying, are in existence in perpetuity
3. Multiple trustees must agree by either unanimity or majority
a. [Best Practice]: document should specify
b. At least 3 trustees to use Majority decision.
c. If less then 3 trustees, can only choose unanimity decision.
Capacity of Personal Representatives:
1. [EARLY RULE]: personal capacity
a.
Onanian v. Leggat: Leggat (executor & probate attorney) entered K with Onanian (real estate developer)
to sell land at $X, then breached K to sell land to Onanian at auction for a little more. Onanian sued
Leggat for the difference. Held: Executor was personally liable for breach of K w/ land buyer.
i. Today: beneficiaries would sue executor after buyer.
2. [MODERN TREND]: representative capacity—
a. beneficiaries can sue fiduciary for breach of duties
b. [MAJ]: Vance v. Estate of Myers: Meyers owns bar. Holbert was executor (and soninlaw). Holbert
and another employee served drinks to Vance, who got into fight and was too drunk to defend himself.
Vance sues. The estate owns bar, but Holbert (executor) has no assets. Held: tort victim can tap assets
of estate to recover (and then beneficiaries can sue executor for breach of fiduciary duties).
c. [UPC]: Representative Capacity of Executor:
i. No individual liability unless K so provides or representative capacity is not disclosed
ii. Personal liability for ownership or control of estate property or tort if personally at fault.
iii. Claim in K or for tort can be brought against estate, regardless of liability of executor.
iv. Issues of liability between executor & estate can be resolved in accountings, surcharge, or
indemnification proceedings.
Executor Duties
 Separate fiduciary’s legal ownership from beneficiary’s beneficial ownership
 Must perform decedent’s Ks other than for personal services.
 May operate business until sold.
 Possible personal liability if executor enters into a contract estate cannot perform.
1.
Simple Fiduciary Duty:
a. Keep track of $/property & do not steal it
b. Manage and invest $/property reasonably
c. Give $ to beneficiaries in manner called for in document. Make appropriate distributions.
2. Highest Standard of Law applies … best not to be trustee if beneficiary doesn’t like you
3. DUTY OF LOYALTY
i. cannot engage in selfdealing: duty to not take personal profit or advantage from trust
1. [CL]: STRICT LIABILITY for breach; taking personal profits is ALWAYS a breach (“no further
inquire rule” – liable once it is found that selfdealing occurred)
2. [CL]: must return any profit to trust that resulted from selfdealing, even if trnsxn benefitted trust
3. Damages: If BAD FAITH, trend increases damages. If GOOD FAITH, trend away from damages.
4. [RST2d]: must return any profit to trust regardless of selfdealing or not.
a. RST still distinguishes between breach & not breach, but either way trustee is required to
return profits.
b. Breach: If goal was to earn profit, duty breached & must return profits.
c. Not Breach: if goal was not to earn profit, but earned profit, then not breach, but still need to
return profits.
i. Risk: even buying property from trust to help trust can result in profit.
ii. Lack of breach might prevent removal.
5. [MODERN Trend]: no breach if trustee profits contingent to a selfdealing K if K is:
a. prudent AND
b. in best interests of the trust.
c. Damages: if not prudent, return losses.
d. [In practice]: trustee should seek instructions if he believes this exception applies to trnsxn.
ii. Conflict of Interest
1. Estate of Rothko: All trustees owe beneficiary a duty of loyalty, &, in the case of multiple
trustees, a trustee can be liable for the other trustee’s breaches of loyalty.
a. Rothko left 797 paintings to charity. Trustees sold to MAG art gallery. Trustees had conflict
of interest b/c of relationship to MAG. Ks to sell paintings to MAC were neither fair nor in
beneficiaries best interest: trustee sold to flood market for personal gain. 57 paintings sold
in violation of restraining order.
b. Measure of damages: trustees charged the difference in sale price plus appreciation damages
c. 3rd Party who knowingly breaches duty of loyalty can be compelled to return property.
Beneficiary could pursue property sold to a 3rd party if 3P took the property w/ notice that
sale breach of trust.
d. Note: in cases, in which selfdealing is less obvious, having a trustee vote “no” to the sale
would be sufficient to relieve that trustee of liability.
iii.
Protections for Trustee: sometimes trustor wants to give trustee some flexibility
1. Document can relax selfdealing rule
2. Trustee can get court approval in advance of selfdealing transaction
3. Trustee can get beneficiary approval/consent: careful! easily subject to challenge for lack of info
4. Statutory Exceptions: banks can purchase own common trust and mutual funds, but not bank’s stock.
5. Exculpation clauses
4. DUTY OF CARE

i. FOCUSES ON THE INVESTMENT OF THE TRUST... AND....
1. need to make intelligent decisions about how to invest trust.
2. each investment decision is looked at in isolation
a. For ANY single case of loss, trustee liable.
3. Types of investments:
a. Bond – loan for which principal amount will be repaid with interest. If borrower does not
default, no risk of loss of nominal principal if bond is held to maturity.
i. Bond price is based on interest rates and strength of issues (borrower).
ii. If interest rates rise, bond value drops so buyer gets equivalent of current market rate
return.
iii. Bond Price = (C/i) * [1 (1/[(1+i)^n])] + M/[(1+i)^n]
b. Stock/Equity – ownership interest in business. Shares in profit left after expenses. If
business liquidates, all debts are paid before stock/equity is paid.
4.
[Original Rule]: Prudent Man/Prudent Person Rule—
a. “How men of prudence, discretion and intelligence manage their own affairs but
not in regards to speculation but in regards to permanent disposition of their funds
considering probate income as well as safety of principle.” Harvard v. Amory
b. prudent person using discretion, intelligence, managing their own affairs, not in
regard to speculation but in regard to permanent disposition of their funds, considering the
probable income, as well as probable safety of capital to be invested, Harvard v. Amory.
c. Problem was asset by asset analysis, looked at in isolation, so no netting of
returns. Goal was really to avoid losses, “do no harm.” VERY CONSERVATIVE
d. Focus: income beneficiary, not remainder beneficiaries
e. Investments analyzed in isolation (cannot net gain on one investment against loss on another)
i. Policy: to prevent trustee who has incurred a loss from making a risky investment to
make up the loss.
f. Primary Goal: preserve initial principle and get income  mainly BONDS
g. [Many states]: legal lists of bonds only— safe & return on principle + interest.
h. [Other states]: some blue chip stocks with strong earning history allowed
i. Assets evaluated in isolation.
j. Problems:

i. Bondonly portfolios are riskier than mixed (stock & bond) portfolio
1. Any portfolio w/ only a single asset class is risky.
2. 40% stock/60% bonds is least riskiest balance for investment
ii. PMR did not account for inflation (reduction in purchasing power in future)
1. historic inflation rate ~3%/year
2. St. Louis Adjusted Monetary Base: ~$4 trillion (huge spike after 2008
recession)
3. Velocity of M2 Money Stock: ~1.5 ratio (dropping since 2008 recession)
iii. PMR did not consider circumstances of trust & beneficiaries (especially remainders)
1. Ex.: duration of trust?
2. Short term: concerned about interest, bonds best
3. Long term: looking about 20 yrs out, concerned about inflation, stocks best
5.
[New Rule]: Prudent Investor Rule—
a. Manage trust as prudent investor considering purpose, term, distributions, and other
circumstances of trust
b. Focus on the PROCESS, not the result.
i. Easiest Breach: do not diversify
c. Investments looked at in context of whole portfolio.
d. Risk looked at in light of potential return.
e. Duty to make reasonable effort to verify facts related to investments.
f. Can invest in ANY asset class.
g. Duty to use special knowledge.
h.
Factors to consider whether PIR met:
i. economy
ii. inflation/ deflation
1. “neutron bomb of investment”
2. Problem w/ Bonds: $1000 will still be $1000 10 years later, but have greatly
diminished purchasing power; invisible loss.
3. Assumption: equitities (stocks) outperform inflation.
iii. taxes
iv. income and appreciation expected
v. needs for liquidity, income, appreciation
vi. special relationship of asset to trust purpose or beneficiary
vii.
MUST Diversify UNLESS imprudent to do so: keep bonds & stocks.
1. Policy: diversifying is safer & almost always reduces risk
a. [Best Practice]: mix of equities (stocks) & fixedincome
investments (bonds)
i. Stocks get less risky over time, used to address inflation.
2. Market does not compensate for Risk of Concentration
3. Look for assets with noncorrelated returns
a. Noncorrelated asset classes have less risk than weighted average
risk of holdings
b. In extreme markets, many assets classes become correlated.
4. Types of Risk
a. Companyspecific risk
i. Ex: Enron overstates earnings
ii. Can be minimized by owning stock of multiple energy
companies
b. Sector risk
i. Ex: Warm winter in east depresses prices for oil and natural
gas, impacting Chevron, Shell, BP, etc.
ii. Can be minimized by owning other sectors, like
pharmaceuticals and construction, that would not be
impacted or might even be helped by good weather.
c. Market risk
i. Ex: Bearish fed report depresses equity values.
ii. Maybe reduce by holding cash and bonds.
iii. Ex: Global liquidity crisis depresses all asset claims.
iv. Does the market price risk correctly?
v. Normal Distribution with Outlier
vi. Average weight of 100 people in U.S. is 190lbs.
vii. If you compute average of 100 people with
heaviest at 1400lbs, average becomes 200 lbs.
viii. The most extreme outlier only changes the
average by 5%.
ix. In planning, if you have large enough sample,
you can safely assume you will have average return
with minimal risk even with an outlier.
d. Fat Tail Distribution and Outlier
i. In U.S., Average Net Worth $93K
ii. If you take sample of 100 people and Bill Gates
(NW ~ $70B), average becomes $505M
iii. Outlier changes average 5425%
e. Leverage Multiples Risk and Return
i. If investor borrows $ to make investment and gets a
return greater than interest charge, return on capital
is greatly enhanced.
ii. If return is less than interest charge, loss is greatly
exacerbated.
5. Time Horizon and Risk
a. Inflation risk greater over longer term
b. Volatile assets that on average have a positive return are less risky
over time (stocks)
c. We are in bear market now
d. Pain–topleasure ratio is ~ 2:1 (big pain : small pleasure)
e. Average Stock Fund Return 9.9% vs .average stock fund investor
return 3.8% … 6.1% difference is “Investor Behavior” penalty
6.
Estate of James: Trustee knows Kodak stock is rapidly depreciating, but
does not sell. Held: trustee liable for breach b/c did not diversify or sell.
a. Damages:
i. when would prudent person have sold?
ii. what would bank have done w/ $?
iii.
Held: GF= amt owed + interest
iv. But: if BF, then amt owed + loss of profit
7.
Exception: sometimes document may override diversification
a. Ex.: keep all stocks b/c trying to keep control of family business.
b. Exception in document MUST BE: clear, wellthought out, and make
sense.
c. As soon as relevant issue ends, then need to go to Ct. to have
exception removed.
ii.
HANDLE OTHER MANAGEMENT AND ACCOUNTING DECISIONS
1. Duty to Segregate Assets:
a. Trustee must keep separate: his own personal assets vs. trust(s)’s assets
i. keep trust A separate from trust B and both separate from personal acct.
b. Exceptions:
i. corporate trustee: can comingle assets of multiple trusts for investment purposes &
use common fund accounting to keep track.
1. Policy: keeps costs & fees down.
ii. form a partnership to manage multiple trusts: [look up]
1. Ex.: 2 kids & 4 trusts (1 from mom/dad); have kids buy allin at a reduced
cost & form Pship, which makes investment.
2. Have the pship track each trust’s investment.
2. Duty: Tax Regulatory Compliance
a. file & pay taxes
b. make advantageous tax decisions:
i. timely manner
ii. expected to retain a competent professional
iii. ask the right questions
iv. Insolated from Liability: if follow advice, but advice is bad or there is a mistake.
Trustee would be protected, but the trust may be able to sue “competent” professional
for malpractice.
c. maintain legal/business entities (corporate or partnership) and other trust property rights:
i. required annual filings.
ii. vote shares or interests in best interest of trust
iii. manage entity if trust holds controlling interest in the entity
iv. Business Novice: can hire somebody w/ more expertise to manage
d. Bad Excuse: “I didn’t know” is not a good answer if trust has substantial funds.
3. Reliance on Professionals:
a. Baseline expectation: act w/ common knowledge that reasonable person would know
b. But: if hypertechnical, allowed to rely on professionals’ REASONABLE advice
i. tax: CPA, legal: atty
c. Cannot follow advice that is obviously bad/wrong or subject to question by reasonable person
Enforcement Mechanisms For Fiduciary Duties
1. Accounting:
a. Def.: fiduciary explains what they have been doing & beneficiary can review & object.
b. Accountings are required when:
i. termination of trust
ii. change of trustee
iii. at request of beneficiary: accounting required w/in 60 days of request, or else court can compel,
UNLESS there was another accounting w/in 1 yr.
1. Document cannot prevent beneficiaries from asking for accounting!
iv. If accounting isn’t submitted to court, then SoL varies btwn 180 days 4 yrs for benef. complaint.
c. Once accounting is approved by court, accounting acts cannot be basis of liability for trustee.
i. In effect: cheap insurance for trustees, no long trail of decisions that can be questioned.
2. Instruction:
a. Def.: trustee or beneficiaries can petition the court to direct trustee to act.
b. Trustee can request instructions to protect himself from liability.
c. Act done pursuant to instruction cannot be basis of liability.
3. Surcharge:
a. Def.: if fiduciary acted improperly, beneficiaries can request court to assess trustee for damages to trust.
b. Bad faith: award larger sum!
4. Removal:
a. Def.: Ct. removes trustee for improper conduct.
Delegation by Trustee
1. [Traditional Rule]: fiduciaries cannot delegate duties to others
2. [Modern Trend]: allows delegation that is prudent & supervised
a. Note: Rules are stacked in favor of giant investment organization; trustee takes on an increased risk when
selects an individual over an organization.
b. Most often delegate matters relating to tax, legal, and investments.
i. Ex: probably prudent for Michael Jackson’s estate to hire a copyright specialist.
3. [RST3d] Requirements for legit delegate:
a. Duty not to delegate except as a prudent person.
b. Must prudently select, supervise, and monitor as prudent person.
c. May be imprudent to FAIL to delegate: i.e. MUST delegate to areas outside of your competence.
d. Delegations are not limited to ministerial tasks & may include investment management.
e. Delegation may be subject to abuse of discretion review
f. Cannot delegate ALL responsibilities except as allowed in document— can only delegate discrete tasks
4. Note: Liability gap assumes the person delegated to is now liable (assumes malpractice action against who you
delegated to), but most investment management agreements limited liability to gross negligence or reckless
conduct
5. Satisfying Prudent Investor Rule may require delegation:
a. Prudent delegation of investment management allowed
b. Requirements:
i. Must prudently select agent
ii. Must establish scope of delegation consistent w/ trust terms
1. Investment Plan:
a. agreed to at time of delegation
b. agree to range of % of investment & which type of investment permitted
c. If agent does not follow agreedupon IP, then trustee should notice & ask about
this failure. Otherwise, trustee liable.
iii. Must prudently monitor agent
1. can’t just delegate and forget about it
iv. In return, agent owes duty of reasonable care & can be liable for breach.
v. But: Trustee is not liable for agent’s acts under reasonable delegation.
Things Trustee CANNOT MODIFY:
1.
[UPC] LIMITS ON TRUST TERMS:
a. Requirements to create trust
b. Duty of trustee to act in good faith
c. Trust be for beneficiaries
d. Lawful purpose, valid public policy
e. Court power to modify, or terminate
f. Effect of spend thrift clause
g. Court power regarding bond
h. Court power to adjust unreasonable trustee compensation
i. Duty to notify adult beneficiaries of existence of trust
j. Power of court to compel trustee to account
k. Limits on exculpatory language
l. Risks of 3Ps
m. SoL
n. Court Jx.
o. Venue
p. state statutes cannot be overridden in trust doc.
2. BUT: default rules can be varied w/in limits
Liability
CoFiduciaries’ Liability:
1. Not liable if vote against txn, even if voting against txn amounts to breach.
2. Duty to try to stop a clear breach
a. liable if: (1) clear breach (2) failure to act.
3. Liable for approving other trustee’s selfdealing, even if you did not benefit from txn.
Limitation of Liability for Fiduciaries
 Exculpatory clauses cannot eliminate full fiduciary duty but can reduce degree of care and prudence required
 Often construed narrowly … only defined breaches are okay, nothing more
When Fiduciaries Make Mistakes & Limitation of Trustee Liability
- Limitation of Liability
o Protecting a surviving spouse or other related trustee from harassment by beneficiaries
o Sometimes you want a trustee with a conflict of interest (Ex: allow trustee to operate business in which
he has interest)
o Allow trustee to manage trust investments more aggressively than prudent man standard would allow
- Generally: Removal and resignation not allowed
o BUT: Ct. can impose surcharge for damage to trust or estate
- Removal of fiduciary: usually only done if conduct endangers the estate
o May be removed for malfeasance, breach of duty, unfitness to serve  if conduct endangers the estate
 Generally not removed till incidence of mistake
o Petition to surcharge and remove
o Courts are very reluctant to remove fiduciaries, even if they breach
- Resignation
o Cts are generally unreceptive to request UNLESS b/c of: Old age, physical infirmity or strained
relationship w/ beneficiaries
- Successor Fiduciary: Picking successor trustee if former trustee removed, died, or resigned
o First look at document for successor, then Beneficiaries can nominate or Ct. appoint
o Other fiduciaries may continue on without the new appointment
 [Jx. Split]: default rules to fill vancancy at discretion of other fiduciaries.
o Successor trustee is not liable for previous trustee’s breach, even if discovered during successor’s term.
Distribution to Beneficiaries
Typical trust structure pays income to a person for life with remainder passing outright or in further trust for other
beneficiaries.
3 Types of Distributions to Beneficiaries
1. Mandatory: require distribution, no discretion, fixed amount.
2. Income: annual distribution of income of trust.
a. Commonly: “income to Bob for life, remainder to Jane” [see Duty to Balance Income & Remainder
Beneficiaries below]
3. Discretionary: up to trustee to determine if condition for distribution is met; & if so, how much to distribute.
a. Commonly: “for health/support/maintenance/education of beneficiary”
i. Tax: if for health/support/maintenance/education, then those assets are excluded from taxable
estate.
Duty to Balance Income & Remainder Beneficiaries
1. Difference:
a. Income beneficiary: keeps assets that generate income
b. Remainder beneficiary: want trustee to buy assets that grow in value
2. Trustee must be impartial
3. Distributions must be balanced
4. Investments must consider both interests
5. If GF, Cts. easy on trustees:
a. can recover legal fees if beneficiaries sue
b. no surcharge imposed
c. not removed
d. allowed to make a reasonable mistake
e.
Steelman/Stillman: James established trust worth $8M in 1977 for grandchildren. Trustee could
distribute 1/5 principal at age 25 up to all of it by age 40. Income was ~$300K back then, 20% income
tax exempt. Trustee gave grandson $230K for sugar plantation the advised against … bad business. Now
Guy wanted $145K. James Jr. wanted $150K for business on beach. Trustee did not give them the
money, so beneficiaries sue. Court ordered distribution to beneficiaries. Looked at grandpa’s intent(he
didn’t care if all the money was gone by age 40), but did not remove trustee b/c acting in good faith and
allowed him to get attorneys’ fees from trust assets.
6.
Dennis v. Rhode Island Hospital: Trust established in 1920 with buildings in RI (was a busy city then). Trustee
managed buildings, which generated rental income, which was good for income beneficiaries. Value of buildings
began to decrease, but trustee did not sell buildings until had greatly depreciated in value ($300K  $185K),
which was a huge loss to remainder beneficiaries, who sued trustee for not maintaining properties and not holding
concentrated assets in a declining market.
a.
Held: Trustee breached by favoring income beneficiaries. Trial court awarded difference in price plus
interest and inflation, but appellate court removed inflation damages.
b. Damages: difference between building price when should have sold and when really sold PLUS
accounted for rate of inflation.
7.
Pot Trust: hold money in pot for a # of beneficiaries
a. may impose budget on beneficiaries
b. need to be clear about uneven distribution … everybody is vying for the money, all in tension with e/o
c. Education: [MAJ] get college education, pricedifference of public v. private university does not matter.
.
.
.
Allocating Principle & Income
1.
Traditional Principle & Income Act:
a. Act directs trustee how to allocate receipts and expenses.
b. Act refers to distributions from specific assets like stocks, bonds and real estate.
c. Income = dividends, interest, rents, and royalties  goes to income beneficiary
i. Life beneficiaries want to grow income & favor: specific assets like stocks w/ high dividends,
bonds, and real estate.
d. Principal= gain from sale or liquidation of assets  goes to remainder beneficiary
i. Remaindermen want to grow principal & favor: stocks w/ no diversity and raw real estate.
ii. Tait v. Peck: Distributions of capital gain, in any form, by an investment co. to a trust are to
be allocated to principal.
1. Trust held shares of an investment company. Some of the stock was liquidated into cash.
The sole life beneficiary of trust requested the trustee (a bank) to allocate a sum of $ from
the liquidated stock to income to be distributed to her. She made the request under a
provision of the will, which stated the trustee had discretionary power to determine
whether any money coming into its hands was to be treated as principal or income.
2. When an investment co. is involved, it is more like participating in a common trust to
achieve risk of diversification.
e. Trust expenses/fees also allocated and split between principal and income.
f. Problems:
i. Did not address evolving investment vehicles
ii. Investing in order to generate income tended to reduce overall trust return
iii. Created incentives in conflict with Prudent Investor Rule.
2.
Revised Principle and Income Act
a. Default = Income: distribution of money from an entity is INCOME, unless otherwise provided for.
i. Document controls: can K around.
b. What’s principal?
i. property distributions from an entity.
ii. redemption in one or more payment (co. buys interest back)
iii. liquidating distributions
iv. mutual fund capital gain (see Tait v. Peck above)
v. catchall provision: distributions in excess of 20% of value of entity
3. Trustee can change distribution if it isn’t equitable.
a. Can pay a certain amount each year, often ~3 to 5% of trust assets.
4. CA Changes to Distributions Rule
a. Presumptions of income limited to 10% of value of trust’s interest in entity.
b. Generally trustee must look through entity to see if distribution relates to sale of assets which must be
allocated to principal.
5. Englund v. 1 National Bank of Birmingham: A trust provision authorizing the trustee to designate the
st
character of property coming into its hands applied only if the character of the receipt is unclear or
doubtful.
 1932, Bush created trust for wife (3/4 income) and sister (1/4 income). Power to invade principal for support
and comfort. Same terms for daughter after death of mom and aunt. Aunt dies in 1932 and mom dies in
1971. Daughter Gage died in 2009, Alixandra and Rachael are granddaughters. Sold company for $31M (net
$17M) in 1977. Daughter wanted more income so asked trustee for more. Trust stated that trustee had power
to allocate receipts and power to invade income vs. principal for support and comfort. But, governing statute
required only allocation to income. Held: no reallocation because not standard. Sale proceeds go to principal.
Trustee’s POWER TO ADJUST RECEIPTS between Principal v. Income:
1. POLICY: need to be able to adjust P&I in order to satisfy Prudent Investor Rule to balance interest of
beneficiaries
a. Today: mostly adjusting from principle to income
2. Default: have power to adjust; UNLESS expressly limited.
a. Trustee who is a beneficiary cannot use power to adjust.
3. Requirements to Adjust:
a. must be used impartially
b. must be investing for total return
4. Factors Trustee Considers:
a. purpose & nature of trust
b. settlor’s intent
c. circumstances of beneficiary
d. need for liquidity
e. preservation of capital
f. regulatory of return
g. appreciation
h. closely held business assets
i. other allocation rules
j. power to invade principal
k. economic conditions
l. inflation
m. taxes
Pay Outs
1. Focus: smoothing out rules
2. Remember: needs of beneficiaries rarely decrease, so do not write trust assuming beneficiary will eventually need
less money
3. [Jx. Split] Adoption of Unitrust Amount
n. Def.: Some states allow trustee to set a fixed percentage (35%) of value of trust assets as INCOME.
i. Very simple math for income distribution amount.
o. POLICY: banks thought power to adjust was complicated & wanted a simple rule
p. Benefit: both income beneficiary & remaindermen both want maximum return, close to same page.
i. slight difference in attitudes, but both want trustee to earn most possible.
ii. The larger the trust, the larger the income payment and the larger the remainder.
q. Problem: paying out each year can be bumpy
i. Solution: Unitrust w/ multiyear valuation— avg. payout over 3yrs, distr every 3 yrs, flattens
curve
4. Other Pay Out Formulas
r. Annuity Trust – pays fixed amount
s. InflationAdjusted Annuity Trust: Start w/ set amount, but each yr. adjust for inflation; maintains
lifestyle
t. Discretionary Trust: discretionary for support, health, education, reasonable purpose, etc.: most tax
efficient standard, makes trust last a long time
u. Incentive Trusts: Ex: distribute amount equal to W2 income; after completing college; upon marriage
(maybe against public policy); can be unequal among beneficiaries
v. Focus: smoothing rules
FUTURE INTERESTS
Introduction
Future Interest:
1. Present right to use property in the future
2. Fee simple: present right to ALL future possessory interests (present interest: life estate; future interest:
remainder)
3. Transferable
Vesting:
1. If vested, then not subject to RAP (see below)
2. An interest CANNOT be vested in an unborn person
3. Vested interest does not require survival
a. If X dies, then rather than going to X, goes to X’s estate.
4. If vested, transferable, can sell.
5. Reversionary interests are not subject to RAP. (Reversion is failure of all other interest back to grantor’s heirs.)
Types of Future Interests:
1. Indefeasibly Vested Remainder:
a. A to B for life then to C.
b. NOT subject to RAP
2. Remainder vested subject to open:
a. Subject to open = class can shrink or expand.
b. A to B then to B’s children. B has 1 child.
c. Child’s interest may be diminished: other children could be born & interest would vest in those unborn
children too. BUT: cannot vest in unborn person.
d. Subject to RAP
3. Vested remainder subject to complete defeasance:
a. A to B remainder to C, but if C predeceases B, to D.
b. Vested, but w/ a named circumstances goes to somebody else.
c. NOT subject to RAP
4. Contingent Remainder:
a. A to B remainder to C but if C does not survive B, to D.
b. Vesting of gift is conditioned on a gift that is all part of the same clause.
c. Subject to RAP
5. Executory Interests:
a. Cafferata: no reason to create these
b. Def.: Interests in 3Ps other than remainder interests.
i. Preceded by a gap:
1. A to B then to C one year after B’s death.
ii. Divest another interest:
1. A to B, but if B remarries, to C.
c. Subj. to RAP
Rule Against Perpetuities
1. Interest that violates RAP is void.
2. Does not apply to vested interests.
3. Step 1: Ask whether the type of interest at issue is even subject to RAP? If not, interest is valid.
a. Charities: RAP does not apply to gifts to charities.
4. Def.: An interest must vest, if at all, no later than 21 yrs after lives in being at time of creation of interest.
a. Basically: interest must vest w/in lifetimes of people alive at the time the interest was created + 21 yrs
beyond that.
b. Focus on Vesting: conclude that an interest either will or will not vest.
c. If cannot determine whether will or will not vest, then INTEREST VOID.
d. “Lives in Being:”
i. measurable lives must be an ascertainable group
ii. 21 yrs begins at end of lives in being.
iii. Policy: 21 yr window allows next generation to reach majority (adulthood).
5. Benefits:
a. Limits dead hand rule: limits control from the grave
b. Clears title: trustee is the real owner
6. [Traditional Rule]: Remote Possibility Test
a. If court can come up with ANY scenario, in which interests vests outside of RAP, then gift is void &
fails.
i. Unborn widow: a person’s widow cannot be ID’d until death. Any future int. following a future
int. to a “widow” might violate RAP.
ii. Fertile octogenarian: a person is fertile until death. Problems for future interests in
grandchildren.
1. Jee v. Audley: Common law “fertile octogenarian” presumes an individual is fertile
& capable of having children regardless of age. Coupled w/ RAP’s abstract
approach, result is that a future interest that appears valid may be invalid.
a. Remainder Subject to Open, so RAP Applies.
b. Audley gave $$ to wife for life then to niece & issue (if any), then living
daughter. The interest in sister’s issue was invalid b/c it was possible for him to
have more children despite age.
c. Audley’s Will Fails:
i. Mary has issue after Audley dies who live more than 21 years.
ii. Jees have another child after Audley dies.
iii. Mary and the Jes alive at Audley’s death all die.
iv. Mary’s issue die more than 21 years after deaths of Mary and the Jees
living at Audley’s death.
v. Property now vests then in the Jee child born after Audley’s death,
violating RAP.
b. Ex.: A to B and B’s heir, but if B dies without issue, to C and his issue.
i. B= measuring life
ii. C vests only if B never has issue: OK
iii. C vests if at B’s death, no issue: OK
iv. C or C’s issue vest when B & B’s issue die out: fails
1. After A dies, B could have issue who have issue who outlive B & C by more than 21 yrs.
7. Class Gifts
a. Class closes at time that division of property is required, not when document is written.
b. Class must close w/in RAP.
8. RAP Presumptions:
a. testator intended valid interest
b. reference to unnamed spouse will presume spouse to be to a life in being
c. contingent estate will be presumed administered w/in 21 yrs of death of decedent
d. Fertility:
i. Females: age 1255
ii. Males: age 14 to death
iii. Can rebut w/ evidence of infertility
e. Possibility of adoption is ignored
f. BUT: EVENTS TO THE CONTRARY WILL NOT VOID GIFTS!!
9. Assisted reproduction:
a. A child can be the product of the egg of Ann, sperm of John, birth of Sally, and raised by Cathy and Rick.
b. A person’s sperm or egg can be used years after his or her death.
c.
Woodward v. Commissioner (2002): In certain limited circumstances, a child resulting from
posthumous reproduction may enjoy the inheritance rights of “issue”. These limited circumstances
exist where, as a threshold matter, the curing parent or the child’s legal representative
demonstrates a genetic relationship between the child & the decedent.
i. A woman conceives child through artificial insemination from deceased husband’s frozen sperm.
His sperm was frozen before spermkilling cancer surgery.
ii. Determine right to inherit: (1) did decedent affirmatlively consent to posthumous conception (2)
did decedent consent to support any resulting child?
iii. Note: Time limitations may preclude a claim for succession rights.
d. [UPC]: Posthumously Conceived Children
i. child must live 120 hours.
ii. Decedent provided egg or sperm.
iii. Parental rights of donor were not judicially terminated.
iv. Decedent gave written consent to posthumous conception.
v. Judicial proceeding to establish parentage is instituted within 3 years of death and before estate
distributed.
10. Modern Trend: RAP is uncommon to deal w/ today
a. [CA/MAJ.] 90 yr wait & see:
i. Court will wait to see if interest vests w/in 90 yrs. If vests, valid. If does not vest, void.
ii. At outset, cannot void anybody’s interest.
iii. Future Atty Work: Since its creation, we have not yet reached 90 yr point.
b. Long RAP (NV 360 yrs, FL 1000 yrs)
c. Repeal of RAP: [Alaska][ND][DE][ID][NJ][RI][SD]
i. Tax Incentives: can create trusts that go from generation to generation w/o ever paying estate or
gift taxes that are not subject to RAP.
d. Savings Clause & Trusts violating RAP:
i. Thomas v. Harrison: Discretionary distributions for beneficiaries w/ no clear ending point
fiolates RAP & voids entire trust.
1. Trust is created w residuary estate for son, wife & issue (trust during life time). Trustees
were given absolute discretion over the income & principal to alleviate financial burdens
of beneficiaries, to provide educational support, or to accumulate any income not spent.
2. B/c the trust was discretionary, the whole trust was contingent as to all the beneficiaries.
3. In thy, all bens could die and trustee could distribute more than 21 yrs later.
ii. [Today]: Savings Clause— forces trust to terminate w/in RAP; distr. to whoever then entitled.
DIGITAL ASSETS
 What are these?
o Online accounts and passwords
o Cloudstored information
 Issues:
o Who owns the asset?
o Who has right to control asset after death?
o Which governs – terms of service or state law?
o What is the forum for enforcement?
 Suggestions:
o Leave someone access/password information.
o Grant fiduciaries powers over digital assets in estate planning documents.
TRANSFER TAXES
TRANSFER TAXES Taxes on wealth transfers in the U.S.: income, consumption (sales & use), gift, estate, generation
skipping transfer
Gift Tax
1. Today: top rate is 40%
2. Back stops Estate & Income Tax
a. If have income tax in place, need to have gift tax in place. Otherwise employers would just make gifts
instead of pay salary.
b. Estate tax can be avoided by making lifetime transfers, but will still owe gift tax.
3. Imposed on transfers w/o full and adequate consideration.
a. Full & adequate consideration = fair market value, objectively equal value, or at least more than “mere
peppercorn”
b. gratuitious transfers made during lifetime are taxed at death.
4. Tax imposed on value of property transferred.
5. Gift v. K: can K for minimal consideration, but cannot make gift for minimal consideration.
6. When Complete:
a. no donative intent required
b. no identified done (specific recipient) required
c. incomplete if: donor can revoke or change beneficiary (property will be subject to estate tax)
i. a trust, in which trustor retains control is NOT complete gift.
d. Gift can still be in estate:
i. Instead of paying gift tax, pay estate tax
ii. Can be both a completed gift and still be in donor’s estate
e. Control of time/remainder of enjoyment of property by donor does not prevent complete gift.
i. Transfer to trust & control distribution, but cannot change beneficiaries= still controlling timing,
so gift is completed.
ii. Ex.: gift to child for his benefit/enjoyment, then to B.
1. incomplete gift: can change beneficiaries, give to somebody else besides B.
2. Therefore, gift is still in estate.
7.
Smith v. Shaughnessy:
a. Smith (family owns typewriter co.) places $600K worth of shares in trust for younger wife for life, upon
her death, stock to be returned to him if he was still alive. If he was not still living, it was to go to
whoever wife designated in her will. Taxpayer thought that reversion made it an incomplete gift.
b. Held: TP is wrong – reversion may reduce value of remainder but still have an interest and court
will determine valuation of it
8. Examples of Completed Gifts:
a. Cash
b. Check complete on date when presented to bank
c. Charitable: complete when either postmarked or handed to charity
d. Property: complete when delivered
e. Future Interest:
i. Irrevocable future interests are complete gifts.
ii. Just because something is difficult to value, does not stop tax from being imposed.
9. Today’s Lower Interest Rate Environment:
a. In Practice: Have clients sell assets to children in exchange for promissory note.
b. If note pays out at the same rate as treasury bonds, then the note amounts to full & adequate consideration
for property.
c. Circumvents gift tax.
d. Great b/c treasury bond interest rate is VERY low.
e. Q’s to ask:
i. is it a promissory note?
ii. did you charge minimum interest rate?
iii. If yes, then no gift tax. b/c note= full & adequate consideration.
iv. Still part of estate tax though!
10. Annual Exclusion: no gift tax when—
a. Ignores some gifts
b. $14,000 indexed for inflation/per recipient/per year
i. Exception: tuition + medical expenses + $14,000 permitted even though technically >14,000.
c. Present Interest in property
d. Any # of donees
e. Can amount to up to a lot of $ quickly:
i. H&W each get a check from Grandma & Grandpa
ii. 4 checks = $52,000/yr.
11. Computation of Gift Tax:
a. Gift Tax = (rate) * (value of property transferred)
i. 40% is highest rate in 2013 (for $1M+ gifts)
b. Graduate rate: lower gifts have lower rate, higher gifts have higher rate
c.
Lifetime Credit for first ~$5M of gifts
i. Effectively: only worry about gift tax if give >$5M
ii. do not have to give away $5M all at once, can be separate smaller gifts
iii.
Annual Exclusion for gifts to any one person not more than $10K ($14K in 2014)
1. Gift must be a present interest property.
2. Donor may make annual exclusion gifts to any number of donees.
3. Does not count against $5M lifetime exemption.
4. Trusts:
a. Normally an interest in a trust is a future interest (no present interest), so gifts in
trust do not qualify for annual exclusion.
b. To get benefit of annual exclusion, set up trust and give beneficiary 30 days to
withdraw, then money stays in until a later date. Crummey v. Commissioner.
iv. automatically used when taxable gift is made.
v. Donor must report taxable gifts and use of exemption on Form 709 Gift Tax Return.
1. your credit will be equal to the value of the TAX due on the exempted gift.
a. you will not see $1 or $5 million on your tax return, you’ll see 40% * $5M
b. If give $5M, then credit = $2M
vi. Since 40% rate applies to gifts over $1M, and tax only paid on gifts over $5M, all gift tax will at
40% rate.
d.
Lifetime Credit/Gift Tax Exclusions: do not reduce your $5M lifetime credit when making these gifts
i. gifts to a citizen spouse
ii. charitable gifts
iii. annual exclusion ($14K/year)
iv. payments of tuition
v. payments of medical expenses
e.
Example: Sally makes the following transfers in 2014:
i. $100K cash to Jake.
ii. $30K Frank’s school tuition
iii. $18K for Cate’s health insurance
iv. $20K to trust for Donna that holds funds until age 35.
v. How much exemption did she use?
Estate Tax
1.
CA has NO estate tax, but there is FEDERAL one
2. Tax imposed on property owned by decedent at death. (not just titled, but also controlled by decedent)
3. SHARE LIFETIME CREDIT/exemption of $5M between estate and gift tax. $5M is indexed for inflation.
4. Graduated rates:
a.
now: 40% = top rate, which parallels the income tax and gift tax rates.
5.
Gross Estate: includes—
a. property owned by decedent in title and by joint tenancy
b. property subjected to powers retained by decedent (ex. revocable trust)
c. retirement assets and annuities
d. life insurance if decedent holds incidents of ownership:
i. power to change beneficiary of policy
ii. power to borrow against policy.
iii. Power to surrender policy.
6. Retained Power Property:
a. Examples of retained powers of enjoyment:
i. life estates
ii. income interest
iii. power to alter beneficial enjoyment
iv. power to revoke transfer
v. asset subject to claims of creditors
vi. power to vote stock of closely held corporation
b. These are counted toward estate tax, not gift tax.
i. Why Bad: cheaper to pay gift tax than estate tax.
c. Old Rule: gifts in contemplation of death were voided.
i. Now: gifts made w/in 3 yrs of death for tax purposes pay estate tax anyway.
d.
Old Colony Trust Co. v. U.S.:
i. Father/decedent set up trust w/80% income to son, remainder to son’s widow or issue.
ii. Decedent acted as trustee & had power to increase or stop payments.
iii.
Held: decedent had sufficient control to establish incomplete gift & actually part of taxable estate,
subject to estate tax!
iv. Takeaway: do not act as trustee of the estate you are creating.
e.
Estate of Rapelje:
i. Father deeded house to daughter (reported taxable gift), but continued to live in house & pay taxes.
ii. At death: house was a retained power asset & part of taxable estate, subject to estate tax.
iii.
Takeaway: substance of a taxation is more important than paperwork.
f. Reciprocal Trust Doctrine: considered collusion
i. H & W put their own assets in trust for spouse.
ii. Court will treat H has creating trust for himself & W as creating trust for herself.
iii. Therefore, H&W retain control & trusts are subject to estate tax.
iv.
Estate of Grace:
1. Joseph married Janet 1908. Between 1908 and 1931 he transferred a lot of wealth to Janet,
including Long Island estate. She did not actively manage properties. Dec. 15, 1931 he
creates Joseph Grace Trust (income to Janet, principal for any reason advisable, she could
direct property at death). 16 days later, Janet creates Janes Grace Trust, with same terms for
husband.
g. Loophole: Augmented Estate/ [UPC] Elective Share:
1. estate tax is imposed upon estate you own when you die, so plan to control assets w/o owning
them.
2. keep property in a trust, in which you retain control/use/enjoyment & give away the
remainder interest.
3. Be careful of too much control though, b/c then incomplete gift.
7.
Deductions from Gross Estate for purposes of calculating Estate Tax:
a. Debts of decedent
b. Claims against decedent — deducted when paid
c. marital deduction (gift to surviving citizen spouse)
d. charitable gifts deduction
e. expenses of administration
8.
Computation of Estate Tax:
a. Calculate value of gross estate
b. Subtract all deductions (debts and paid claims, marital and charitable gifts, administration expenses) to get
taxable estate
c. Estate Tax = (rate) * (taxable estate)
d. Reduce Tax by Credit:
i. Exemption: amount that can be given away free of tax.
ii. Credit = (exemption) * (rate)
e. Lifetime Gifts:
i. count against credit
ii. used to determine rate.
Example: Simple Estate Tax
Assets 10 mil.
Current Law:
Debts 2 mil. 1. Rate = 40%
Gift to charity 1 mil. 2. Exemption = $5M
Gross Estate = 7 mil. 3. Credit = $2M
Rate * 40% 4. 2001-2009: could give away less during life than at
Tentative Tax = $2,745,800 death
Credit $1,945,800 5. 2009-now: can give away the same amount during
Tax Due = $800,000 life & at death
Example: Estate Tax after Lifetime Gift of $1M
Assets 10 mil.
Debts 2 mil.
Gift to charity 1 mil.
Gross Estate = 7 mil.
Rate * 40%
Tentative Tax = $2,745,800
Credit ($1M lifetime
gifts) $1,600,000
Tax Due = $1,145,800
Gift v. Estate Tax: Ex. $150 @ 40% Estate and Gift Tax rates
o You’re taxed on the estate tax!
Gift Estate
o $ you use to pay the estate tax is also
Do not tax the tax, Tax the tax and the taxed.
only the gift gift o [default]: gifts from the estate pay their
own tax
 must be express if you want
residuary to pay instead.
Gift $107.14 Estate $150
Tax $42.86 Tax $60
Net to Heirs $90
Max Gift =
Total/1.4
Step Up in Basis at Death (not with live gift) [look up!]
1. Generally, taxpayer has taxable income on sale of asset equal to difference between purchase price and sale price.
2. Taxpayer’s basis may be reduced is he claims depreciation deductions while holding property.
3.
RULE: Basis carries over with gifts but not with estate (income tax basis becomes date of death value)
4. Idea: take date of death value of property & whoever inherits is treated as if they bought that property for its value
on date of death.
5. Example:
a. Purchase for $100,000
b. Death at $1,100,000
c. Income Tax: Sale before death @ 25% profit = $250,000 tax
d. Sale after death 0 tax: do not pay income tax b/c already paid estate tax.
6. McCaffery Plan: Buy, Borrow, Die
a. Buy building for $100K. When it appreciates to $200K, borrow another $100K (not income). When
appreciates again, borrow more again.
b. Repeat until building is worth $2M (borrowed $1.9M).
c. If building is sold, tax due is $665K. $665K plus $1.9M debt = $2.565K (more than sale price of $2M).
d. If owner dies, only $100K in taxable estate ($2M $1.9M debt). Heirs sell for $2M. No income tax since
basis become $2M at death. Pay off $1.9M in debt, leave $100K in estate. Pay 40% tax on that, you are
left with not $60K.
Generation Skipping Transfer Tax
1.
Gifts to grandchildren and more remote descendants (or 37.5 years younger if not related)
2. Normally: 2 estate taxes
a. But: if gift is more remote and goes from parents to grandchildren, then only 1 estate tax is paid.
3. GST treats children as if taxed, so really imposing 2 estate taxes.
4. GST imposed at top estate tax rate at time of transfer (40% now).
5. Exemption: $5M/year (indexed for inflation).
a. Gifts to children don’t use GST exemption.
b. Apply to direct skip – gift of $100K cash to grandchild. No GST payable if GST exemption is available.
If donor also has $100K gift exemption available, then pay no transfer taxes at all.
c. Apply to a trust – place $1M int rust and use $1M of GST exemption. Trust is not subject to transfer tax
so long as trust is not districuted or otherwise included in beneficiary’s taxable estate.
6. GST is costly tax:
a. Assume donor has no remaining gift or GST exemption.
b. Donor makes $1M gift to grandchild.
c. Gift tax due: $400K (40% of $1M)
d. GIFT is due on BOTH amount of gift and on gift tax paid: $560K (40% of $1.4M)
e. Total transfer taxes paid are $960K on a $1M gift.
Doing your children’s estate planning
  Place $5M in trust for child – discretionary distributions
  Use $5M gift exemption. Apply $5M GST exemption.
  Trust terms are such that it passes to child’s children and is not in child’s taxable estate. No tax due on child’s
death on balance of assets in trust.
  Upon death of grandchildren, same result – no tax due. Process can repeat as lon as trust has assets up to RAP (if
applicable).
Valuing Property
1. Transfer Tax = (rate) * (value of transferred property)
2. Donor cannot change rate; set by Congress
3. Value: willing buyer, willing seller. … loose standard, room for interpretation.
Timing:
1.
Gift: Value of property transferred on date of gift
2.
Estate: Value of property transferred on either:
a. date of death … OR …
b. alternative valuation date w/in 6 months after death.
i. if total estate is worth less 6 months after death, then can choose to value at this later date so that
your estate tax will be much lower.
ii. Use this when the market declines shortly after death.
c. Basically: choose lesser of the 2
3. Estate Tax is due 9 months after death.
Valuation:
1. Cash – face value
2. Publicly traded stock – average of high and low on date of valuation
3. Real estate, closely held business, other nonpublicly traded assets – valued by appraisal, but businesses are
harder to value than homes
a. Sales of comparable properties
b. Discounted value of future cash flow
c. Liquidation value
Fractional Interest Valuation:
1. Partial interests are worth less than proportionate interest in whole.
2. Results in discount for:
a. lack of control for minority
b. lack of marketability (of closely held entity)
3. Instead:
a. manage gifts to transfer minority interest
b. can create entities w/ eye towards tax discount.
4. Takeaway: if you come up w/ any reasonable reason to create an entity, follow formalities, respect business, then
can create entity to create tax discounts.
a. Reduces value of property & estate tax!
b. Buy asset, transfer to an LLC you create/manage. Give 32% of LLC to each of your 3 children.
1. Now, each has minority interest
2. Lacks control – 15% discount
3. Not marketable – 20% discount
4. At a 40% tax rate, this saves $400K in taxes for each child = $1.2M total
5. At death, parent’s retained 4% discounted in estate or likely given away in a later year
Transferring Future Appreciation:
 Donor transfers house worth $1M in 2008 to child
 In 2014, house worth $1.8M. Donor dies.
 Donor’s estate is not taxed on $800K appreciation (would’ve been taxed if donor kept house). Tax savings $320K
TaxFavored Sale of Asset:
 IRC allows intrafamily loans at interest based on Treasury Rates.
 Parent can sell child business interest worth $10M for a note at 2% interest.
 Typical closelyheld business has 20% rate of return.
 If child pays interest and applies all excess income to repayment of loan, loan can be repaid in 5 years and child
still has $10M asset and all future income.
Maximizing Power of Sales:
 Sale to trust structured so that parent pays tax on trust income so trust grows taxfree.
 Trust can be generation skipping transfer tax exempt. Donor gives $5M assets to trust and sells $50M assets to
trust for note. In 5 years, trust has $55M assets protected from future transfer tax.
Tax Reduction Strategies:
1.
Via Gift:
a. Gift tax is less than estate tax, making gifts saves $
b. Gift appreciates outside of estate— Ex. $1 mil appreciates to $2mil by time of death.
i. If give gift when it’s worth $1 million, then gift appreciates to $2 million out of estate. Pay gift
tax for $1mil.
ii. But: if give gift @ death, then you’re paying estate tax for $2 mil.
c. Possible Discounts
2.
Via Sale:
a. aka: sell assets to kids under favorable terms; ex.: only sell to kids 10% at a time.
b. Favorable valuation using discounts
c. Favorable financing at allowed interest rates: charge kids treasury bond rate! (only <1 <3%)
d. Appreciation out of estate: not subject to estate tax after appreciation!
“Grantor Trusts” Strategy:
1. In “Grantor Trust”— income is taxed to grantor
a. when grantor pays income tax, the transfer is not considered a gift.
b. By statute: grantor has power to say whether beneficiary owns trust for income or estate tax
i. If own for income, trust grows faster.
2. Income Tax v. Transfer Tax (aka Estate Tax)
B: income tax
a. Trusts: subject to income tax, not estate tax G: overlap
W: estate tax
b. Asset sale w/o gain [?]
c. Trusts can be used to pay beneficiary’s income tax.
3. Interplay btw. Income & Estate Tax:
a. Overlap (grey) = If you own the trust for estate tax, then you own the trust for income tax, too.
b. Small Income Tax Sliver (blue) = You own trust for income tax, but not for estate tax.
[POLICY] Does Estate Tax Make Sense?
1. 2010 ONLY: [EGTRA] repealed Estate Tax & GST in 2010 ( … btw … Republicans gained control in 2010)
a. No estate tax or GST in 2010
b. Gift Tax remains
c. Carry over basis
d. Creature of Senate Rules
e. Reconciliation acts
i. In senate, if you want to shut off debate, you have to use closure vote which requires 60 votes
ii. Certain bills are not subject to filibuster
iii. Reconciliation acts cannot affect revenue for more than 10 years, and if it does it is subject to
filibuster
f. History of Estate Tax:
i. 2000: exemption is $1M, top rate is 55%
ii. 2009: exemption is $3.5M, top rate is 45%
iii. 2010: exemption is $0 or $5M, top rate is 0% (w/no carryover) or 35%
1. if you died in 2010: you had a choice: carryover basis or pay estate tax
iv. 2011/12: exemption is $5M, top rate is 35%
v.
2013: exemption is $5M, top rate is 40%
2. Is Estate Tax worth it?
a. Most people would repeal estate tax:
i. money could be spent during lifetime & used to stimulate economy
ii. incentivize people to invent & create wealth
b. Counterargument: wealthy people should pay extra.
3.
Who is taxed?
a. Less than .14% of the population secures the $5 million exemption.
4.
Who pays estate tax?
a. In 2013, only top 0.14%
b. 1/3 of revenue from 500 wealthiest decedents.
5.
Compare to Income Taxes:
a. Federal Income Taxes:
i. Top 1% comprises 20% of U.S.’s Income and pays 40% of U.S. income taxes.
ii. Top 50% pay 97%
b. CA Income Taxes:
i. Top 3% pay 50%
ii. Top 9% pay 70%
iii. Top 30% pay 93%
6.
Compare to Social Security & Medicare taxes/benefits:
a. 1960s: 9:1 return on taxes
b. 1980s: 3:1 return on taxes
c. 2010: pay in more to social security than getting out.
7.
Problem: gov’t often skews the #s
a. When talk about pop’n in top 10%, top 5%, top 1%, the numbers look better than they really are, b/c the
top 5 % includes the top 1%.
b. 1% usually does the best, which makes the top 5% and 10% look like they’re doing better than in fact.
c. Between 1975 & 2008: top 1% experienced a 10% growth in income.
i. Broken down even further—
1. .01% experienced 7.8% growth
2. .09% experienced 2.2% growth.
8.
Compare to: Top 400 Taxpayers
a. Top 400 taxpayers make $345 Million+ in one year.
b. 2007 Income Tax Rate= 17%
i. 1992 Income Tax Rate= 26%
c. 2007 Capital Gains & Dividend Rate= 15%
i. Capital Gains rate drives tax rate.
d. Effectively:
i. Can really only make $345 mil. if you sell a business, i.e. a capital gain
ii. Not repeat players, usually one good year.
9. Estate Tax as a source of federal revenue
a. 0.7% of federal revenue
b. average $20B/year for next 10 years (total $200B over 10 years) … not really that much
10. vs. Canada: does estate tax with income taxes … when you get appreciated property, you pay the tax on it that
way.
11. Deficits: Wealth
a. 20082009: $1.7 Trillion
b. 20092010: $1.3 Trillion
c. Forbes 500: $1.4 Trillion
MEDIATION
Compare:
1. Mediation: no resolution unless ALL parties agree; mediator has no authority to make binding ruling.
2. Arbitration: private party as a judge, who give binding decision.
Facts:
 8090% probate cases resolved in mediation because trials cost way more (Ex: formal discovery is you trying to
get documents from opposition, who is trying to comply in most unhelpful way possible  very expensive)
 dispute is usually just about the money
 mediation can help allocate a pot of money
 no one feels like a winner or a just result after mediation
 types of mediators:
o evaluative – tells both sides what he thinks about the case
o nonevaluative – will not express opinion; will go back and forth between parties
o Ex: Judge Gold was evaluative, which can be good if sides hate each other so much they won’t agree to
anything the opposition proposes but maybe would agree to mediator’s suggestions. Outcome: legal fees
$170K, more than $150K trustee was even asking for.
 If you don’t settle, there is a chance something will change (Ex: opposing lawyer happens to be good friends
with the mediator, you find out there is another child, etc.)
Mediation Formula:
1. Calculate your Target:
a. What is best result if you won the case at trial?
b. What are your likely fees? (generally, each side pays its own legal fees)
c. How likely are you to win?
2. If you can do as well or better in mediation, take the deal.
Example:
 Dispute over house in a trust. Decedent attempted to give away house in will.
 Can the will revoke the trust?
o CA law says “trust can be amended by writing other than will”.
o Trust says it can “be amended personally”.
 Value of house $500K
 Fees to fight $50K
 Changes of winning 50/50
 Good settlement ($500K $50K) * 50% = $225K
Tips for Successful Mediation:
 Go in with anchor (starting point or goal)
 Don’t get personal or react if they do
 Be prepared for long hours
 Seek information or analysis that informs your position and adjust accordingly
 Be fully prepared with as much information and law as possible
 Draft a clear brief … probably just share with mediator, not the other side
o You can use brief to explain/dull bad facts for your client and to provide a roadmap for the mediator
 Look for things that have value to the other side that are cheap for you
o Maybe charity can give children a plaque or some other recognition for “gift”
 Make sure to get it in writing … don’t let a settlement fall apart … maybe take a predrafted settlement agreement
with you
Will Drafting Exercise & Achilles’ Will
Will Drafting Exercise – see document with samples
 don’t say you don't have children but then give something to your children
 by terms of service (itunes, gaming, etc.) you can’t really transfer your music/media to someone else
 maybe put in a clause: “if I have children at time of death, they will get/divide …”
 if no one in will survives, always good to say it goes to intestate heirs or pick a charity
 guardianship clause
 remember that if you give to parents/wife/children, then leave residue to intestate heirs, they get a gift again
 account for situations if one parent, one in a groups of cousins, etc. dies. Do the rest now share it all or does the dead
cousin’s child get her share?
 Leaving money for someone’s education – leave a specific amount
 Account for future nieces and nephews, but what if you only leave money for education to the only nephew born as of
drafting? Does it mean the later born nieces/nephews get education fund too?
 Like to have residuary clause at the end of all specific gifts
 Tax clause (all taxes paid by residue)  not a good idea, you have other assets that are taxable but don’t pass through
estate, why not use life insurance/retirement plan to help pay for taxes?  best to just be silent on taxes; usually
default tax rule is that whoever gets the gift pays the corresponding estate tax
o Maybe just let residue pay for taxes on noncash property you give away (like a guitar)
Achilles will
 How would you attack this will?
o Violates public policy
 Racist clauses
o Impossible conditions
o Capacity
 Know your stuff
 Know what will is (relation of stuff)
 She wrote this all herself so she probably has capacity
o Undue influence by Shaker Society
 Susceptible Y
 Opportunity N
 Motive Y
 Terms N
o Mistake – cannot meet conditions
 A bunch of illegal provisions – changing her mom’s will, no police/doctors touch her body, etc.
o Delusional
 Belief that has no basis in fact – fear of babies; babies are harmful
 Does will mention this delusion?
o She gives gift to mom, but didn’t mom have sex to be able to give birth to her?
o Be careful in this case because if the people opposing will have even a single reasonable theory, judge may
want to help them throw out the will just because she was so racist and weird  real case settled

Gifts Wills and Trusts Outline

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Gifts Wills and Trusts Outline

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AA, GWATS, Cafferata, Fall 2014 1

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