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I.
INTRODUCTION
A. The Power to Transmit Property at Death The Right to Inherit and the Right to Convey o The West has put a very high premium on the right to dispose of property at death (including the right to disinherit anyone except spouses) Hodel v. Irving (pg. 3) Facts Members of the Sioux Tribe alleged that the Indian Land Consolidation Act, by making fractional interests in land escheat back to the tribe, was a taking. HOLDING This is a taking. SCOTUS establishes that everyone has a right to dispose of their property at death (not the right to inherit). This right is one in the bundle of sticks, and cannot be taken, no matter how small the interest in the land is. This case comes very close to establishing a Constitutional right to devise property at death, but does not go all the way. After this case, Congress passed the American Indian Probate Reform Act, which replaced state probate law with federal probate law and provided that if a decedent owned less than a 5% share in land, only the eldest child or grandchild would inherit and it would not be divided further. Shaw Family Archives v. CMG Worldwide (pg. 10) Facts Ps argued they were entitled to publicity rights of Marilyn Monroe because of the residuary clause in her will. HOLDING Marilyn Monroe could not convey publicity rights in her will because such rights did not exist when she died. CA tried to reverse this by making the statute creating publicity rights retroactive, but NY law applied because the court determined Monroe was domiciled in NY when she died. Like Hodel, this case revolves around the rights of people to dispose of their property, NOT the right of others to inherit. The Problem of the Dead Hand o Restatement (Third) of Property: Wills and Other Donative Transfers (2003) 10.9 The controlling consideration in determining the meaning of a donative document is the donors intention. The donors intention is given effect to the maximum extent allowed by law.
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Rationale = property owners have nearly unrestricted right to dispose of property as they please. o dead hand control Decedent exercises power of beneficiary by conditioning the gift to beneficiary upon beneficiary behaving in a certain way Generally dead hand control is OK Cant be in violation of constitution or public policy o Illegal/ Impermissible uses of dead hand control Absolute restriction on marriage Requiring beneficiary to practice certain religion Gifts that encourage/ require divorce Gifts that direct property to be destroyed Shapira v. Union National Bank (pg. 28) Facts Fathers will provided that his sons could not inherit unless they married a Jewish girl with two Jewish parents within 7 years of his death. HOLDING Court upholds the will. Father has the absolute right to dispose of the property in the way he wants It wasnt unconstitutional because it did not limit the right to marry, only the right to inherit. However, the court also looked into the restriction itself under a reasonableness test and held that it didnt violate public policy because it was only a partial restraint on marriage and not a total restraint. If the restriction were unreasonable, then it might be unconstitutional. o Posner argues for cy pres approach to allow modification of conditions to testamentary gifts o Restatement (Second) of Property: Donative Transfers 6.2 a restraint unreasonably limits the transferees opportunity to marry if a marriage permitted by the restraint is not likely to occur. Today, most courts apply a reasonableness test to restrictions to marry in wills, but some courts will hold the restrictions invalid without consideration of their reasonableness. o Incentive Trusts Conditional gifts like in Shapira are today typically done as incentive trusts People can leave their property in trust and the benefits can terminate if the beneficiary does or does not do certain things. This is useful motivation to encourage beneficiaries to be productive members of society 2
However, it can also backfire and does not account for changed circumstances
B. Transfer of the Decedent Estate Definitions o Testate If decedent dies with valid will then he died testate and property will be distributed pursuant to will o Intestate If decedent dies w/out valid will decedent died intestate and property will be distributed pursuant to state law o Testator Male who executes will o Testatrix Female who executes will o Devise Gift of real property under a will o Devisee Beneficiary receiving real property under a will o Bequest Gift of personal property under a will o Legacy Gift of money under a will o Legatee Beneficiary receiving money under will o Personal representative Person appointed by probate court to oversee the administrative process of wrapping up and probating decedents affairs o Executor What personal representative is called if decedent died testate or and will names personal representative o Administrator What personal representative is called if decedent died intestate or testate but fails to name personal representative o Heirs Under statute decedents real property descends to heirs o Next-of-kin Under statute decedents personal property is distributed to next-of-kin Probate Courts 3
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Special courts that manage the commencement, administration, and winding up of an estate Purposes = (1) taking property titled in decedents name and getting it titled to the living; (2) protecting creditors; (3) distributing property
Probate and Non-Probate Property o Probate Property Property titled in the name of the decedent passes under will or through intestacy o Non-Probate Property Property that passes outside of probate under an instrument other than a will property that is not titled in the name of the decedent Examples Joint tenancy property (both real and personal) o Joint tenancy with right of survivorship o Tenancy by the entireties Life insurance (so long as there is a named beneficiary) Pension funds/retirement funds o (payable-on-death POD provisions) Interests in trusts Administration of Probate Estates (Process) o Decedent dies EVERYONE HAS A WILL either you execute one OR the legislature drafted one for you in the intestacy statute o Personal representative named to be in charge of the process If theres a will, this person will be named in the will (aka executor) If theres no will, court will appoint someone according to statutory next-ofkin hierarchy o Jurisdiction primary or domiciliary = where decedent domiciled at time of death ancillary administration = for real estate, where property is located o Personal representative files petition with probate court o Probate court reviews the petition (without hearing) Petition must identify name of decedent, date of death, interested parties, name of personal representative, etc. o Letters of administration are issued by the court These say that X was designated as the personal rep. of the estate of Y allows personal rep. to go to banks, brokerages, bring/defend lawsuits, etc. Due Process requirements for letters of administration Notification of all interested parties 4
Heirs/beneficiaries If there is a will, you have to notify BOTH the people named in the will AND the people that would take if the will is invalid o Creditors Might be difficult for personal representative to identify creditors Publication in a newspaper of general circulation in the area where the will is being probated Publication must include statute of limitations to make claims against the estate (from 3-18 months, usually 6-9) Duties of personal representative Personal rep. is a fiduciary Things the personal representative must do File the petition Give interested parties notice Marshall the assets (this can be very difficult, best place to start is tax returns) Manage the assets File decedents final income tax return File estate tax returns until the estate is closed Deal with beneficiaries Carry out the terms of the will/trust or follow intestacy statute Personal rep. usually has to post a bond Regular bond = personal representative must go to bondsman for face value of the entire estate (very expensive) Many wills waive bonds and only minimal bonds are required Possible liabilities If the personal representative distributes property to beneficiaries and the decedent/estate has tax liabilities, then the personal representative must pay the liabilities on the property already distributed Two types of probate Formal/supervised Personal representative must file accounting with the court periodically and every penny has to be recorded and balanced Informal/unsupervised Personal representatives is still required to be able to account to beneficiaries, but formal accountings to the court are no longer required Typically only happens when personal rep. is trusted family member etc 5
Closing of the estate Prof usually doesnt file a motion to close the estate but instead just lets it die No expense to reopen the estate if an asset pops up down the road Challenging a will Usually the same statute of limitations as making a claim against the estate as a creditor Probate is expensive Some jurisdictions calculate fees as a percentage of the value of assets and some (and UPC) take the value of the services rendered
C. An Estate Planning Problem Which assets are probate o We would hope that the residence, cabin, and cars are not jointly titled and are therefore probate property If jointly titled would have to go to court if you stopped getting along o Furniture no separate document reflecting title (would need bill of sale to prove ownership) You need to force your client to give you a lot of information about their assets D. Professional Responsibility Duties to Intended Beneficiaries o In most states lawyer has fiduciary duty to intended beneficiaries So under tort theory 3rd party beneficiaries can sue for malpractice Under contract theory there must be privity of contract so 3rd party benificiaries can sue under it for malpractice Simpson v. Calivas (pg. 58) Facts Son sues fathers lawyer for drafting will incorrectly. Father wanted to give wife life estate in the house, remainder to the son and all other property to the son right away. This was accurately reflected in lawyers notes. The lawyer instead referred to the house as a homestead, and the court gave the wife a life estate in ALL the property and son got nothing until she died. HOLDING Lawyer committed malpractice because the term homestead has a legal significance that a layperson might not understand. Probably would NOT be malpractice to write the wrong name of beneficiary, because the client should catch that when reading will The son has standing even though there was no privity, because (1) he was an intended beneficiary and (2) the injury was foreseeable Fiduciary duty runs from drafting attorney to an intended beneficiary The sons rights are derivative of his fathers reasonable expectations 6
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Malpractice suit goes to general jurisdiction court, NOT probate court About 10 states retain the no privity rule and do not allow intended beneficiaries to bring malpractice suits
Conflict of Interest o Any time a couple walks into your office to do estate planning, there IS a conflict of interest A v. B (pg. 64) Facts Law firm represents husband and wife in estate planning and also represents other woman in paternity suit against husband. Issue Can the law firm disclose confidential facts about one client to another client? HOLDING Yes. Although firm owes duty of confidentiality to husband, it also owes duty to disclose information to the wife in the course of estate planning, and the existence of a child out of marriage is relevant to the estate planning. Firm has discretion to disclose, but does not have a duty to disclose.
II.
INTESTACY: AN ESTATE PLAN BY DEFAULT
A. The Basic Scheme Introduction o Intestacy is common well over half of the population dies without a will People dont like to think about dying People procrastinate People dont like dealing with lawyers o Intestacy statutes Every state has its own intestacy statute UPC is NOT very widely adopted Older statutes are NOT as mindful of modern higher divorce rates o Governing principle = blood relationships Two exceptions spouses, adopted children o Partial intestacy People can die partially intestate if their will fails to dispose of all their property Policy = legislature tries to carry out what would most likely be the intent of the decedent General rules o If there is a surviving spouse, no children, and parents Most states = spouse gets everything Some states = spouse would share with parents o If there is a surviving spouse and 3 children of the marriage UPC = spouse gets everything (assumption that spouse will benefit children) Some states divide between the spouse and the children, regardless of whether or not the children are of the marriage o If there is no spouse and three sons UPC and most states = 3 sons share equally o If there is no spouse, 3 sons, and 6 grandchildren (2 for son #1 and 4 for son #2) UPC and most states = same as above, 3 sons share equally o Same as above, but the childless son predeceased decedent UPC and most states = 2 remaining sons divide equally o Same as above, but only the son with 4 children was still alive 8
Half to the remaining son and half to the 2 kids of the dead son By right of representation or per stripes All three sons are dead and only 6 grandchildren are left Per capita among grandchildren (modern rule) Each grandchild gets 1/6 English per stripes (traditional rule) By right of representation, 1/4 each for the two sons of son #1 and 1/8 each for the 4 sons of son #2\ Types of Distribution Per Stirpes (by the stocks) right of representation (same thing) (pg 74) System treats each line of descendents equally.
Per capita with representation Estate is divided equally to the first surviving generation:
Per capita at each generation UPC approach per capita at each generation. Combines 1&2 above
Same sex marriage o This area is fluid and will probably continue to change incrementally Survival/simultaneous death 9
Statutes tend to have one of two rules Traditional rule Survival means bare survival (could be a matter of seconds) Janus UPC rule Survival must be by 120 hours (5 days) If survival is shorter than this, the beneficiary is treated as having predeceased the decedent and the property goes to the next in line o Drafting Wills Can Trump the Statutory Rules Most well-drafted wills require beneficiaries to survive decedent by 30-90 days Janus v. Tarasewicz (pg. 80) Facts Cyanide in Tylenol tragedy Husband and wife digested cyanide around the same time and both were rushed to hospital. Husband pronounced dead after arrival and wife pronounced dead two days later, although she was probably brain dead entire time. Wife was primary beneficiary on life insurance policy, and husbands mom was contingent beneficiary and the insurance company paid the wifes estate. Mom argued that wife did not survive husband. HOLDING Wife survived husband. There was sufficient evidence that the wife survived the husband because her heart beat on its own, and there was minimal brain activity. o Hypotheticals involving sufficient evidence of bare survival Husband and wife drown in boating accident. Wife was a better swimmer and died after a violent struggle, whereas husband passively submitted to the drowning. Sufficient evidence of survival? Husband and wife die in plane crash. Wifes brain is intact and theres CO in her bloodstream. Husbands brain is crushed and theres no CO in his bloodstream. Negative Disinheritance o UPC allows for negative disinheritance (UPC 2-101) and the barred heir is treated as if he disclaimed his intestate share o Common law you cant disinherit someone by providing in your will that you dont want them to get anything unless your will entirely disposes of all your property If not, remainder passes through intestacy and heir will take under the intestacy statute Table of Consanguinity (p93) 10
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If someone has no surviving spouse, children, or parents, you would consult this chart (very rare) Try to find the person with the most common DNA with the deceased In drafting a will, you should go through relatives that have an actual relationship with the decedent and then to charity to avoid disputes involving far-removed relatives
B. Transfers to Children Meaning of Children o Adoptive Children Historically, adopted children were left out of intestacy statutes Now, most states define adopted children to be the same as natural children Four basic approaches Adopted child inherits only from adoptive parents and their relatives Adopted child inherits from both adoptive parents and genetic parents and their relatives Adopted child inherits from adoptive parents and also from genetic parents and their relatives, but only if the child is adopted by a stepparent (old UPC approach) 2008 UPC key determination = whether there was a parentchild relationship (p101) Hall v. Vallandingham (pg. 97) Facts Husband died, wife remarried, and new husband adopted the children. First husbands brother died and the children tried to inherit the distributive share their father would have received. HOLDING o Children cannot inherit from natural fathers brother, because the children were adopted by mothers second husband. o This would give adopted children double inheritance. Prof argues this is not a garden variety adoption Under the old UPC, the children would take here, because they were adopted by their stepparent o Adult adoption Most intestacy statutes draw no distinction between the adoption of a minor and the adoption of an adult (in NY, you cannot adopt your lover) This is utilized by people in atypical relationships (not married/ gay couples) to ensure inheritance Can preempt will challenges by collateral kindred Different from marriage, because you cannot get out of an adoption Minary v. Citizens Fidelity Bank & Trust Co. (pg. 103) 11
Facts Woman left trust to her husband and three sons, and then to her then surviving heirs according to the lawsthen in force in Kentucky. Last alive son adopted his wife so that she could benefit from the trust as an heir of his mother. HOLDING o This is not allowed. o The purpose of the adoption statute was NOT to allow the wife to inherit through her husband against the testators intent. Doris Duke Doris fathers trusts were to go to Doris children but she didnt have any At age 75, she adopted a young woman, but then they had a falling out Doris could not get out of the adoption and the woman got $65 million Adult adoptions can be used as a type of special power of appointment by bringing the adoptee into the class of remainder beneficiaries Virtual adoption/equitable adoption/adoption by estoppel Some people do not have the resources/sophistication to go through formal adoption requirements Through virtual adoption, adoption paperwork is not properly completed but if certain conditions are met, child will be entitled to share of adoptive parents probate estate. ONeal v. Wilkes (pg. 109) Facts Cook took in a girl that no one else wanted and raised her as his own. Never formally adopted her, but referred to her as his daughter. Administrator of Cooks estate refused to recognize her as his daughter. HOLDING o Not an adoption. o Adoption is a statutory process and it was not satisfied here. o No one had the legal authority to contract for the adoption. Dissent We should look to the reality of the relationship through a moral and equitable approach. This doctrine has NOT been widely accepted, but some states allow it in unusual circumstances Posthumous children Children born after the death of the father are given rights to inheritance, with limitations rebuttable presumption 12
if the child is born within 280 days of the death of the husband, the child is treated as being in existence as of the time of conception and therefore surviving the husband o Anything more than 280 days burden falls upon the child to prove parentage Uniform Parentage Act child born within 300 days of death of husband is presumptively the child of the husband Nonmarital children At common law could not inherit from either parent Now, all states permit inheritance from the mother They should be able to inherit from both parents according to bloodlines Very problematic because it can be very difficult to prove relation to decedent (DNA might be improving this) Reproductive technology and new forms of parentage Hecht v. Superior Court (pg. 117) Facts Boyfriend devised 15 vials of sperm to his girlfriend. His adult children wanted to destroy the sperm. HOLDING o Court awarded the sperm to the girlfriend. Woodward v. Commissioner of Social Security (pg. 118) Facts Husband donated sperm when he got sick and then he died. Wife used sperm for artificial insemination two years later and sought social security benefits for the children. District Court certified questions of whether they were his children to the Massachusetts Supreme Court. HOLDING o In some limited circumstances, posthumously conceived children can enjoy inheritance rights. o This is a case-by-case determination. o Key question is whether or not the husband consented to i. (1) the sperm being used to conceive children posthumously and ii. (2) supporting such children. Balance the interests of: o The children (treated like all other children and not discriminated against due to accident of their birth) o The state (prompt and accurate administration of benefits) o The reproductive rights of the decedent In re Martin B. (pg. 126) Facts Martin granted a trust, and the trustee could distribute money to Martins issue during his wifes life. James (Martins son) 13
predeceased Martin, and James wife Nancy was artificially inseminated by James sperm after James death. Issue Do the children qualify as issue under the terms of the trust? HOLDING Yes. Look to grantors (Martins) intent. Even though he probably didnt contemplate this, he intended to provide for his childrens children. Surrogate motherhood and married couples/assisted reproduction and same-sex couples There is a lot of confusion over the property rights involved in these cases and a lot of work to be done to provide clarity
Advancements o Gifts given during lifetime are calculated in to total estate o Parallel concept with wills (satisfaction) o Common law Any lifetime gift was presumed to be an advancement a prepayment of the childs share of the estate o Many states Lifetime gift is presumed NOT to be an advancement but is subject to rebuttal evidence that it was in fact intended to be an advancement o UPC and some states Requires that the intention to make an advancement be made in writing signed by the grantor or grantee OTHERWISE THERE IS NO ADVANCEMENT Guardianships, Conservatorships, Custodianship, and Trusts o These are relevant when dealing with minor children or incompetent/incapacitated people o Guardianships and conservatorships are expensive and time-consuming (must report to the court) o Guardianships Generally refers to taking care of the physical person Also used to have a guardianship of the property o Conservatorship Replaced guardianship of the property Now this refers to taking care of the property of the person o Custodianship Something like conservatorship person given property to manage on behalf of a minor o Strategies to avoid guardianships/conservatorships 14
Create a trust Power of attorney Uniform Transfers to Minors Act You can create a custodial account for your minor child under this act However, a trust is probably better because you can condition the use of the funds
C. Bars to Succession Homicide o Majority Rule Most states forbid slayers from inheriting from their victims Most states treat the slayer as having predeceased the decedent UPC provides that the slayer disclaimed the property (treated as having died immediately before distribution) o Minority Rules Some states allow it, reasoning that there are other punishments Other states have statutes, others rely on judicial decisions Possible solutions in judicial decisions o Legal title passes to slayer (court cant legislate) o Legal title does not pass to slayer (b/c of equity) o Legal title passes to slayer, but equity holds him to be a constructive trustee for the heirs or next of kin of the decedent Court doesnt completely ignore intestacy statute if slayer is supposed to take under it Maintains constant chain of title o Constructive trust = remedy Persons name is attached to title of property, but person doesnt have any equitable rights in the property court can force the person to turn it over to next of kin In re Estate of Mahoney (pg. 145) Facts Wife convicted of manslaughter of decedent. There was NO slayer statute that governed. HOLDING Court remands the case to determine whether it was voluntary or involuntary manslaughter. If voluntary, constructive trust should be created. o Most states do not allow people to opt out of the slayer statutes (if H thinks W is crazy and might kill him, but doesnt want to hold it against her) o Well-drafted instruments and the UPC also prevent slayers from getting non-probate property 15
Chinese system takes into account not only homicide but also other forms of good/bad behavior
Disclaimer o Aka renunciation o Definition = person that is entitled to inherit declines to accept the property This is generally governed by state law Generally the person disclaiming is treated as predeceasing o Person might disclaim for federal tax purposes If so, must comply with IRS Code 2518 (p153) Cannot accept benefits and then reject them later Must make disclaimer in accordance with formalities within 9 months after the interest passes Drye v. United States ( pg. 155) Facts Son of intestate mother disclaimed because he owed the IRS backtaxes and wanted the money to go to his daughter. HOLDING You cannot disclaim when the IRS comes calling. o Disclaiming to qualify for Medicaid This area is in limbo whether you can disclaim or not Troy v. Hart (pg. 156) Facts Medicaid recipient appeared to be incapacitated, and his siblings got him to sign a disclaimer without the knowledge of the power of attorney. HOLDING o Court held the disclaimer valid, but said the amount disclaimed had to be reported to the Medicaid authorities and might be subject to an action by the state to recover the funds. o Basically have to disclose to Medicaid your wealth or potential wealth so if you disclaim an inheritance that would disqualify you from Medicaid you still may not qualify b/c Medicaid will take that into account
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III.
WILLS: CAPACITY AND CONTESTS
A. Mental Capacity The Test of Mental Capacity o Requirements to make a will Requirements are very low Testator must be an adult (most places 18 y.o.) Testator must be sound mind: Must be capable to: o Know the nature and extent of his property o Know he natural object of his bounty Theres a natural category of people that we would expect the testator to want to benefit (spouses, children, blood relatives) o Know the disposition that he is making of that property o Relate these elements to another o There is NO INTELLIGENCE requirement These are simply general rules to allow people to express their intent to have a will o Burdens of proof Majority = presumption of competency (Wilson) Person challenging will has to rebut the presumption So once there is prima facie evidence of due execution of will party contesting it has burden of proof Minority = burden on proponent of will to show testamentary capacity (Washburn) In re Estate of Washburn ( pg. 159) Facts Decedent executes three wills. 17
Each will gives greater portion of estate to nurse caretaker Principal beneficiary under second will challenged the third will and argued decedent lacked capacity to make that will due to Alzheimers. HOLDING Court found that there is a presumption that everyone is competent o This must be rebutted by person challenging the will Burden shifted to caretaker to show Decedents capacity which she could not Court held third will invalid because there was no showing of testamentary capacity there was medical evidence of her Alzheimers and her statements conflicted with the contents of the wills. beneficiary of the third will was NOT a relative, so the court might have been a bit more skeptical because of that.
Wilson v. Lane (pg. 161) Facts Testator left will that went to 16 blood relatives and one non relative, who was a person who cared for her later in life Relatives argued that she lacked capacity to make will o Offered some proof of dementia (was appointed a guardian for some affairs after she made will) o Peculiar o Old o Strange fear of house flooding o Maybe had alzheimers Jury found there was no capacity, but the trial court entered judgment n.o.v. HOLDING Will was upheld. Although there was circumstantial evidence the will was shown duly executed so the burden is on those contesting the will Here evidence was not enough to deprive her of right to make will Dissent This was a decision for the jury to make and there was enough evidence to uphold the jurys decision. o Professional responsibility If someone comes in with questionable mental capacity, the lawyer may rely upon their own judgment as to whether the person is competent If lawyers good faith belief is that person is incompetent, he cant draft the will o Ante-mortem probate 18
Some statutes permit a person to institute a proceeding of a will during the testators life to remove uncertainty about testamentary capacity and freedom of undue influence All beneficiaries to will and testators heirs must be parties to action However, it also deprives the person of the opportunity to change the will Capacity threshold It takes more capacity to write a deed than to write a will It takes more capacity to write a will than it does to get married Why require mental capacity? Protection of peoples interests Assures testators intent is expressed Protect them from unscrupulous 3rd parties
Insane Delusions o Insane delusion False sense of reality to which person adheres despite all evidence to the contrary o A person can have sufficient mental capacity generally to execute a will however, if he is suffering from an insane delusion the will may fail for lack of testamentary capacity the insane delusion MUST be related to or drive the will in some way general insane delusions are not enough HYPO Woman goes around DC telling people that a man lives on moon and only eats blue cheese She can do this for years and still write a perfectly valid will Unless her will gives all or a substantial portion of her property to the man on the moon o In that case the insane delusion drives the will o This test is separate from the mental capacity test Being strange or eccentric is not enough it has to be pretty much crazy o Causation requirement If the insane delusion does not affect the disposition, then the will is still valid Most states require the delusion to have a material effect on the disposition Some states require only a showing that the delusion might have affected the disposition o Most common example False (crazy) belief about a member of the testators family causes them to exclude them from the will o Difference between insane delusion and a mistake A simple mistake will NOT invalidate the will 19
In re Strittmater (pg. 169) Facts Ladys will gave all her money to a womens organization that she worked with. Her cousins were her only heirs at law and they challenged the will. HOLDING Her will was driven by insane delusions and is therefore invalid. This decision was motivated by hostility toward womens movement. But prob just a social/ political decision in 47 by an old judge with views on feminists o just a relic from the past Breeden v. Stone (pg. 171) Breeden left a handwritten will basically leaving everything to Sydeny Stone Killed himself after writing will and prob being on a coke binge and killing someone a few days before in a hit and run accident His relative contested the will arguing insane delusions He was moody Scared of govt agents threatening him and his dogs safety Was on a coke binge HOLDING Will was upheld Basically his delusions went towards his own safety and the will had nothing to do with that so the will is upheld Delusions unrelated to will The will in this case was a holographic will A will that is written in handwriting of testator and is NOT witnesses in ordinary course of law Half of states allow these o Typically rural or southern jurisdictions In re Honigmans Will (pg. 178) Facts Couple lived in new York and made their fortune owning deli shops in NYC Mr honingman had health problems and surgeries etc and became depressed In depression Husband had insane delusions that wife was cheating on him and excluded her from his will. HOLDING Court denied probate of the will. Court placed burden on will proponents to show the insane delusion did not affect the disposition. Dead Mans Statutes o These statutes refuse to allow an interested party testify about oral statements made by the decedent o Rationale = only person who knows what really happened is dead 20
These still exist in a minority of states
B. Undue Influence Definition o When the will of the person who becomes the testator is coerced into doing that which he or she does not desire to do o Restatement if the wrongdoer exerted such influence over the donor that it overcame the donors free will and caused the donor to make a donative transfer that the donor would not otherwise have made o Undue influence does not require a lack of mental capacity But it is very common that the testator was vulnerable Young Old Frail Compromised capacity (ie low IQ)
Scope o Only the portions of the will that are affected by the undue influence will be held invalid and the rest of the will will be upheld, if possible Burden Shifting o In most jurisdictions, the person challenging the will must establish a prima facie case of undue influence o must show that: There was a confidential relationship If a person is in a confidential relationship with someone making a will, he should take precautions in order to show that the will was fair and not the product of undue influence Defendant received bulk of the estate Testator was of weakened intellect o Some jurisdictions allow showing one or more other suspicious circumstances Restatement provides list of some suspicious circumstances (p185) o If this is satisfied, the burden shifts to the proponent of the will to establish there was no undue influence Elements o Evidence to prove undue influence will often be circumstantial and inferential Restatement in the absence of direct evidence, circumstantial evidence is sufficient to raise a presumption of undue influence if the contestant proves: Susceptibility 21
o donor was susceptible to undue influence Opportunity o Alleged wrongdoer had opportunity to exert undue influence Motive o Wrongdoer had motive or disposition to exert undue influence Causation o There is a result appearing to be the effect of the undue influence o Property was disposed of in a manner testator would not have otherwise done Its likely that no neutral witnesses will be able to testify about the alleged influence Estate of Lakatosh (pg. 182) o Rose, Old lady lived alone, no visitors etc o Roger Jacobs began visiting her once or twice a day Begins helping her with stuff taking her around etc o After a few months Roger suggests that Rose give Roger power of attorney o Roger sent her to his counsin a lawyer to sign the power of attorney o She also made a will giving Roger everything o HOLDING Will was invalid. Court looked to the three elements of the burden shifting test: (1) there was a confidential relationship; (2) person enjoying such relationship received bulk of the estate; (3) decedents intellect was weakened. Because all three of these were met, the burden shifted to the guy to show that there was no undue influence and he could not do that. In re Will of Moses (pg. 186) o Woman married three times and all three husbands died. o She then became involved with a younger man (Holland) who was an attorney o 3 years before death she left all of her property to Holland Holland had no knowledge of this will as Moses went to another lawyer o Sister challenged the will as a product of undue influence. o HOLDING Court held the will invalid. Although the woman had independent counsel, the attorney did not give adequate advice. o Dissent The other attorney did exactly what he was supposed to. The woman knew how she wanted to dispose of her property, and the other lawyer did that for her. o Prof agrees with dissent and says there probably wasnt even a prima facie case of undue influence here. 22
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He didnt even do anything to exert any influence and didnt even know about the will. This case points out that lawyers have to be very careful in entering into relationships with previous clients (although Prof thinks this was misguided) Bequests to Lawyers Rule 1.8(c) Lawyer shall not solicit any substantial gift from a client, including a testamentary gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client
Sexual Relationships and Undue Influence o A sexual relationship used to be viewed as evidence that undue influence was more likely o More recently, a sexual relationship has been viewed as evidence that the decedent would have wanted the person to benefit (treated as natural object of bounty) In re Kaufmanns Will (pg. 191) o Wealthy man had committed relationship with a same-sex partner. o He executed multiple wills that gave larger and larger portions of his estate to his partner. o Family challenged the will. o HOLDING Undue influence. The man was vulnerable to his strange sexual preferences. o This is probably not still good law in New York, but probably would be in lots of jurisdictions. Avoiding Undue Influence Charges for Non-Traditional Relationships o Adult adoption Not available in all states and cannot be undone if the parties have a falling out o Owning property jointly with right of survivorship However, if the parties have a falling out, the only way the property can be severed is by going to the court and bringing an action for partition (expensive and problematic) o Revocable inter vivos trust More flexible can be changed without litigation You can control your property during your life and then it is disposed of according to the trust at your death Lipper v. Weslow (pg. 193) o Will contest o Sophie Block had 3 kids o One died and left two children 23
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Blocks will, written by her lawyer son, left out the dead son and thereby the grandkids leaving her estate entirely to her two living children Block resented the grandkids and their mother (daughter-in-law) Didnt come visit Didnt like her Werent nice etc HOLDING No undue influence. Although there was a confidential relationship and the son benefitted disproportionately, the decedent made her wishes clear and they were confirmed in statements to uninterested witnesses. Prof thinks the court should have taken a closer look at the suspicious circumstances (drafter got more than his intestate share, lived next door with key to house, bore malice toward his brother, will was executed 22 days before she died, lady was in bad health, witness was a maid probably paid by the drafter). The burden should have shifted here, but it didnt. In will Block explains why she did not like the kids Normally, you dont want to have a specific justification for the reasons for excluding someone If these go into the will, they can be challenged Prof says that explanation is not a good idea b/c it sets yourself up to be contradicted If she wanted to do something she had to do something short I know XXX exist but I am intentionally leaving them out Or write a memo to the file that person is being intentionally left out
No contest clauses/in terrorem clauses o definition Provision in will that states if a beneficiary under the will sues contesting it the beneficiary loses whatever he was entitled to under the will o Baited no contest clause Give the possible challenger a gift that they risk losing if they challenge the will A no contest clause is useless if the person challenging will gets nothing or has very little to lose o Most cases will enforce these UNLESS there is probable cause for the challenge Some states will not enforce these under any circumstances Prof puts these clauses in almost every will she does Avoiding Will Contests o Contests are often based upon lack of capacity and undue influence in the alternative o Things you can do to avoid will contests 24
Get permission to speak with doctors and get medical opinions on capacity Try to get nurses to act as witnesses to the will, because they are in a special position to testify about capacity Have the client write a handwritten letter laying out the testamentary plan Tape a video discussion Family meeting
C. Fraud Definition o When the testator is deceived by a deliberate misrepresentation AND o The misrepresentation causes testator to dispose of property in a way he would not have if misrepresentation was not made Misrepresentation includes: o (1) the intent to deceive the testator and o (2) the purpose of influencing the testamentary disposition Two types of fraud o Fraud in the inducement When the testator is misled about material facts which causes him to sign a will he would not normally sign Doesnt address the will per se but just important facts Example an heir promises to convey property to a person that the testator wants the property to go to so that the testator doesnt put that provision in the will and the heir had no intention of conveying the property o Fraud in the execution When a person intentionally misrepresents the character or contents of the instrument signed by the testator which does not in fact carry out the testators intent Example putting a will in front of a person that is pretty much blind and telling them it is a deed and having them sign it Scope o Similarly to undue influence, only the portion of the will procured by fraud will be invalid and the rest of the will will stand, if possible o Fraudulently procured inheritance is invalid only if the testator would not have otherwise devised the property if he knew the true facts o Example A man defrauds a woman into marrying him even though he was already married and they live happily together for a year Even though the marriage was a fraud, the woman leaving everything to the husband might not be a result of the fraud, because she might have done that 25
based upon their intimate relationship, and not necessarily the legal characterization of their relationship Puckett v. Krida (pg. 209) o Live-in nurses convince a woman that her relatives were wasting her money and wanted to put her in a nursing home, neither of which was true. The woman changed her will to benefit the nurses. Holding Fraud in the inducement. There is a distinction between fraud and undue influence D. Duress Definition o When undue influence becomes overtly coercive o Restatement a donative transfer is procured by duress if the wrongdoer threatened to perform or did perform a wrongful act that coerced the donor into making a donative transfer that the donor would not have otherwise made Latham v. Father Divine (pg. 210) o Decedent made a will leaving everything to Father Divine. o Nieces (not her heirs at law) talked to decedent and convinced her to draft a new will, naming them as beneficiaries. o Before decedent could sign the new will, she fell ill and died o the nieces alleged that Father Divine killed her to prevent her from signing the new will. o Lower Court threw out the complaint for failure to state a claim. o HOLDING Reversed and remanded. (Ps stated a case for relief) If Father Divine killed the lady to keep her from changing her will, a constructive trust would be imposed for the benefit of the beneficiaries under the second will. Duress, fraud, and undue influence also used to prevent person from signing new will o If this is the case, a constructive trust can be imposed on behalf of the intended beneficiaries under the new will o A constructive trust can be imposed on an heir who is innocent if other heirs unduly influence a person not to make a will that would benefit someone else and die intestate instead Reasoning = they wouldnt have benefitted at all under the will
E. Tortious Interference with an Expectancy Brought in tort, and NOT in probate courts o You are seeking tort damages from the wrongdoer, NOT challenging the will A no contest clause would not apply here because this is not a challenge of the will 26
A plaintiff is expected to exhaust probate remedies first, so long as they have notice and the probate remedies are adequate A will contest can act as res judicata to foreclose a claim of tortious interference
Rare o
Basically the only time you would use this is if the statute of limitations to challenge the will had run out, but the general statute of limitations for torts had not Statute of limitations for the tort starts running from the time the plaintiff discovered or should have discovered the fraud, undue influence, or distress
Elements o Expectancy o Intentional interference w/ expectancy through tortuous conduct fraud, duress, undue influence, but NOT lack of mental incapacity o Causation Tortuous conduct caused the interference o Damages Schilling v. Herrera (pg. 215) o Nurse moves in with decedent o convinced her to execute a will (probably undue influence). o Decedent dies and nurse does not notify her brother (heir at law) and puts the will through probate. o Brother brings an action for tortious interference with an expectancy. o Lower Court dismissed his complaint. o HOLDING Reversed and remanded. If the nurse did this, then he would be entitled to relief. b/c fraud was not discovered until after probate had finished (and brother was not notified of death and probate) he wasnt prevented from bringing suit b/c he hadnt exhausted all remedies Anna Nicole Smith o Decedents son was trying to get assets out of the probate stream so that she couldnt get to them o She brought a tortious interference case and ultimately prevailed
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IV.
WILLS: FORMALITIES AND FORMS
A. Execution of Wills Attested Wills o The functions of formalities Ritual function = makes the testator aware of the severity of executing a will Evidentiary function = increases the reliability of the proof presented to the court Protective function = safeguards testator from undue influence, fraud, duress Channeling function = easier for courts to determine testators wishes if all wishes are recorded in standardized forms o Basic formalities In writing Signature by testator Attestation by witnesses Pennsylvania doesnt require attestation o Profs custom in execution elements 28
In writing Witnessed by at least two witnesses Testator and witnesses are all in the same place at the same time observing each other sign the will Wise to follow the most conservative adherence to formalities so the will is upheld wherever it may be challenged Attestation clause An attestation clause provides that the will was duly executed These are not required in any state, but it gives rise to a presumption of due execution and its probably malpractice if you dont include one Wills execution can be upheld even if the witnesses predecease the decedent or cant remember the execution Affidavit of execution This is a modern approach that allows the testator and witnesses to swear before a notary public that they signed the will properly Makes it very difficult to challenge the will on execution grounds Two step self-proving will A separate affidavit is appended to the end of the will, and it contains an oath of the witnesses (and often the testator) that the will was validly executed One step self-proving will Testator and witnesses sign only once and the affidavit language is folded into the attestation clause
Strict Compliance: Writing, Signature, and Attestation: o Under the traditional rule, for a will to be admitted to probate, it must be in strict compliance with the formal requirements of the applicable Wills Act o Elements Will must be (1) in writing; (2) signed by testator; (3) signed by at least two witnesses; and (4) any additional requirements of the jurisdiction o Formalities in execution serve a purpose and we dont want to enter the slippery slope of whether or not the execution was adequate to convey the testators intent. Need to balance the need for a clear rule to avoid litigation with fairness toward people without resources and their right to dispose of their property as they want In re Groffman (pg. 228) Facts Testator acknowledged his signature to the two witnesses separately and neither witness saw the other witness sign. 29
HOLDING Will Invalid. Procedure wins over substance. The testator did not satisfy the requirements of the Wills Act. Lawyer here screwed up Stevens v. Casdorph( pg. 229) Facts Testator signed a will at the bank, and then the bank manager took it to two tellers to sign as witnesses. HOLDING Will Invalid. Two problems: o (1) witnesses were not present when testator signed and he didnt acknowledge his signature or publish the will as his and o (2) the testator was not present when the witnesses signed the will (line of sight rule). Dissent This approach is too strict and we are supposed to focus on the intent of the testator. o Presence in will execution Line of Sight Test Most jurisdictions apply the line of sight test Requirement that the witnesses sign in the presence of the testator is satisfied only if the testator is capable of seeing the witnesses in the act of signing (does not actually have to see them sign, only has to be able to see them sign) Conscious Presence Some jurisdictions apply the conscious presence test Witness is in the presence of the testator if the testator, through sight, hearing, or general consciousness of events comprehends that the witness is in the act of signing UPC dispenses with presence requirement and provides two options Signed by two people within a reasonable amount of time after witnessing signing of the will or acknowledgement of the will Acknowledged to a notary public o The meaning of signature Signature by mark, with assistance, or by another Preferable to have a full name signature, but a mark, cross, nickname, or abbreviation will probably be sufficient Typing up a will and typing the signature in a cursive font can be sufficient (Taylor v. Holt) Order of signature Generally, testator should sign before witnesses 30
If everything happens in one transaction, the order is not critical Subscription and addition after signature Subscription = requirement that the testator sign at the end of the will o This applies in a few states Addition after signature o If you handwrite something on a will If written AFTER the testator signed will is probated and the handwritten addition is ineffective because its an invalidly executed codicil If written BEFORE the testator signed will might not be probated Delayed attestation NY requires witness to sign within 30 days UPC requires reasonable time Some cases say signature after the testators death is even ok o The meaning of writing Will doesnt have to be on paper only need a reasonably permanent record Interested witnesses and purging statutes o Interested witness witness that stands to benefit from the will o Traditionally, a will would be invalid if any required witness was an interested witness Parsons Case Facts Lawyer got an interested witness to disclaim any interest under the will in an effort not to have the will invalidated. Holding Invalid. Witness must be disinterested at time of signing will. o Purging statutes tried to remedy this by purging the benefits of the interested witness instead of throwing out the entire will Most states have purging statutes that purge only the benefit that the witness would receive under the will that is in excess of what the witness would have received in intestacy Estate of Morea (pg. 239) Facts Son served as witness to a will that he benefitted from. Holding Will is valid because son actually would have benefitted more under intestacy statute and therefore had nothing to gain from the will. o UPC and a minority of states do not require witnesses to be disinterested Recommended method of executing a will pp. 242-245 Safeguarding a will 31
3 possibilities as to where to keep a will Testator keeps it and stores it somewhere Law firm keeps the will at testators request File the will with the probate court Problems w/ each Testator could destroy, damage, misplace, scribble on the will or relatives could try to destroy it after death Law firm has burden of keeping will and periodically reminding testator it is in the firms possession If the court has the will, it is difficult to change the will quickly Multiple originals = horrible idea
Curing Defects in the Execution of Attested Wills o Excusing execution defects by ad hoc exception To avoid harsh results of strict compliance, some courts have occasionally excused or corrected an obvious execution defect Basically some courts will just correct will if obvious mistake (others wont) In re Pavlinkos Estate (pg. 246) Facts Husband and wife did not speak English and mistakenly signed each others wills (mirror image wills). Wife dies and her will is not probated. Husband dies and they try to probate his will. Holding Invalid. The court applied the 4 corners rule and held the will was a nullity and total nonsense. Dissent This is ridiculous. We should apply the 8 corners test and that would show us the clear collective intent of the husband and wife. In re Snide (pg. 250) Facts Husband and wife mistakenly signed each others will. Holding Will was upheld. Court allowed exception to strict compliance rule. Dissent Majority misconstrues the case law, which weighs heavily in the direction of invalidating the will. This case was roundly criticized when it was decided Which will would you apply for probate? The will they signed contains incorrect provisions that dont make sense The will that makes sense is not signed by the decedent o Curative Doctrines: Substantial Compliance and Harmless Error Substantial Compliance Rule o court may deem a defectively executed will as being in accord with the statutory formalities if the defective 32
execution nonetheless, by clear and convincing evidence, fulfills the purposes of those formalities In re Will of Ranney (pg. 253) o Facts Witnesses signed a two-step self-proving affidavit without having actually signed the will beforehand as the affidavit said. o Wife attacked the will for improper execution. o HOLDING Court applies the substantial compliance rule and remands to determine whether purposes of the formalities were fulfilled. o Prof is bothered by this case because a lawyer and two other people that work in a law office get away with taking an oath that isnt true o Prof also personally believes that most jurisdictions would not go this far with the substantial compliance doctrine to uphold the will Harmless Error (aka the dispensing power) Rule o court may excuse noncompliance with statutory formalities if there is clear and convincing evidence that the decedent intended the document to be his will UPC Harmless Error Rule o Document is treated as if it had been executed in compliance with the wills statute if the proponent of the document establishes by clear and convincing evidence that the decedent intended the document or writing to constitute (i) the decedents will, (ii) a partial or complete revocation of the will, (iii) an addition to or alteration of the will, or (iv) a partial or complete revival of his formerly revoked will or of a formerly revoked portion of the will In re Estate of Hall (pg. 259) o Facts Husband already had a will, and then went to make a joint will with his wife. o They wanted the draft to serve as their joint will until the joint will was finalized they signed it and it was notarized without witnesses. o Wife applied the will for probate but the husbands daughter from a previous marriage challenged it. o HOLDING Will is valid. 33
The husband intended the draft joint will to be his will. It purported to revoke his original will and he ordered his wife to destroy his original will. o Montana had enacted the UPC Harmless Error Rule. Comparing substantial compliance and harmless error Lots of similarity, but a few differences Langbein was the architect of both and he came to prefer the harmless error rule because of its focus upon the testators intent
Notarized Wills o UPC provides a will is valid if signed by two witnesses OR signed by a notary Prof is skeptical because lots of times notaries sign things without having actually seen the person sign the document Prof doesnt know of any states that have adopted this yet In re Will of Ferree (pg. 266) Facts Guy wrote out his will on a will form and had it notarized, but not attested to by witnesses. Holding Will is invalid. Having the will notarized did not satisfy the substantial compliance rule. o A notary can serve as an attesting witness if he intends to sign as a witness rather than as a notary You would still need another witness to satisfy the attestation requirement
Holographic Wills o Definition A will written in the testators hand but not signed by witnesses Could take the form of a letter, scribble on pad etc Slightly over half the states recognized holographic wills Mostly popular in west and south (rural jurisdictions) UPC recognizes holographic wills o Signature In almost all states allowing holographic wills, the signature can be anywhere on the face of the document However, if the signature is not at the end, there may be doubt as to whether the decedent intended his name to be a signature o Often times holographic wills are written in extreme circumstances close to death Kimmels Estate (pg. 269) 34
Facts Father writes a letter to his sons that says if anything happens he wants his two sons to take his property (specifically listed pieces of property). HOLDING Valid holographic will. Court focused upon fathers intent. Signing it Father was a valid signature, because thats how he signed all his letters. Factors pointing toward holographic will Phrase if anything happens followed by specific pieces of property Told the sons to hold onto the letter because it might help them Sent the letter to the intended beneficiaries Factors pointing against holographic will Doesnt seem to be contemplating death Leaves out natural object of his bounty Lack of clarity court was forced to speculate Conditional Wills Some wills are written to become operative if death from a particular event occurs Most cases presume that the language of the condition does not mean that the will is to be probated only if stated event happens but is instead a statement (inducement) for making the will (ie they are thinking about death) Eaton v. Brown (pg. 272) Facts Lady wrote a holographic will stating that if she died on a journey, she wanted everything to go to her adopted son. She died after returning from the journey. HOLDING o SCOTUS upholds will. o The conditional language was evidence of why she was motivated to make the will, but wasnt intended to limit its effectiveness. At the time, the adopted son would not have taken under the intestacy statute, so this might have motivated the Courts decision. Pre-Printed Will Forms Holographic will statutes vary in how they treat pre-printed will forms w/ handwriting and whether or not it is a valid holographic will First-generation statutes entirely written, signed, and dated in the handwriting of the testator o Traditionally, a will had to be completely handwritten to be a valid holographic will
35
Ten states still require a holographic will to be entirely in the handwriting of the testator and two of these require the same for the date Second-generation statutes material provisions o Required only the signature and the material provisions to be in the testators handwriting o A court could ignore the pre-printed text and uphold the will if looking at only the written portions made sense as a holographic will Third-generation material portions and extrinsic evidence o The court may look to the pre-printed text to give context to the handwritten portions as a holographic will In re Johnson (not in book) Facts Man used pre-printed form and wrote my estate to followed by a list of people and fractions, as well as a church. HOLDING Will Invalid. Court looked only to the handwritten language and found no dispositive language or language of testamentary intent. Estate of Muder (pg. 276) Facts Man used form with pre-printed text I give to and handwrote my wife followed by a list of property. HOLDING Valid holographic will. Court looked to the pre-printed language to find the testators testamentary intent. This case was decided shortly after Johnson but didnt cite to it Prof thinks the court was motivated by antipathy toward the church in Johnson and that these cases should have been decided same way. Estate of Gonzalez( pg. pg. 274) Facts Guy filled out pre-printed form and showed it to 2 witnesses. Witnesses signed a blank form that the guy was going to fill in later and make it neater. Holding Court upheld it as a holographic will. The pre-printed text served as evidence of his testamentary intent. Formal wills can be amended by holographic codicils o Codicil A testamentary instrument that amends a prior will DOES NOT REPLACE IT o In re Estate of Kuralt (pg. 280) 36
Facts Man had a formal will later wrote a letter to his mistress saying he was going to arrange for her to get his property in Montana. HOLDING Valid holographic codicil. NY did not recognize holographic wills, but because the property was located in MT, there was ancillary jurisdiction in MT. Court looked to his intent and upheld the codicil.
B. Revocation of Wills Revocation by Writing or Physical Act o A will is ambulatory it can be modified or revoked by the testator during his lifetime o How to Revoke All states permit wills to be revoked in one of two ways 1) Subsequent writing executed with testamentary formalities 2) A physical act, such as destroying, obliterating, or burning the will o Oral declarations of revocation are insufficient in all states o UPC Revocation by physical act must be accompanied by intent to revoke Allows someone other than testator to revoke by a physical act IF performed in the testators conscious presence and by the testators direction At common law you would have to do it yourself (could not delegate) o Revocation by Inconsistency If a subsequent will does not expressly revoke previous one but makes a complete disposition of the property the previous will is revoke by inconsistency However, if a subsequent will does not expressly revoke the prior will and does not make a complete disposition of the former will, it is viewed as a codicil o Handwriting on a will can give rise to a presumption of revocation Prof had to get affidavits swearing that the handwritten marks were made BEFORE the testator and the witnesses signed it to probate a will o Revocation is only presumptive and subject to rebuttal Revocation must be subject intent So a tear on a will that was not made to revoke will should not revoke the will But this is hard to prove o Revocation by Presumption If the will is known to be in the possession of the decedent, but cannot be found after her death, there is a presumption of revocation 37
This presumption can be overcome in certain circumstances (if a disinherited heir had access to the house, if the house burned down, etc.) Harrison v. Bird (pg. 287) Facts Decedent asked her attorney to destroy her will and he tore it into pieces in front of his secretary and brought the pieces to her house in an envelope. HOLDING Will was revoked. The attorney tearing it up was NOT revocation, but the fact that she was known to have the will and it could not be found gave rise to a presumption of revocation. Note: this probably would NOT have satisfied the conscious presence rule of the UPC unless the lady was on the phone with the lawyer as he was tearing it up. o Probate of Lost Wills In states without a contrary statute, if the will is lost/destroyed without the consent of the testator or not in compliance with the revocation statute, the will can be submitted to probate if the contents can be proven (for example, if there is a copy of the will somewhere) Thompson v. Royall (pg. 290) Facts Decedent wanted to revoke her will and codicil but the lawyer suggested she keep them for her reference in case she wanted to make another will. Lawyer wrote on the back of will that it was null and void and she signed it. HOLDING Will was probated. She had the intent to revoke the will, but did not do an act of revocation. The writing of the attorney on the back did not touch any of the language of the will as required by the statute. If holographic wills were permitted in this jurisdiction, she should have written the note herself and signed it and it would have been revoked by holographic codicil. If someone wants to revoke a will by writing cancelled there are two ways to accomplish it Holographic codicil revocation Act of revocation if the word cancelled is written across the text of the will o Partial revocation by physical act Many states allow partial revocation by physical act but many do not Reasoning for NOT allowing partial revocation by physical act 38
Revoking a gift to someone = someone else taking a gift, and making a gift can only be done through a testamentary writing Opportunity for fraud
Dependent Relative Revocation and Revival (DRR) o definition if the testator purports to revoke his will upon a mistaken assumption of law or fact, the revocation is ineffective if the testator would not have revoked his will had he known the truth Reasoning = testator lacks true revocatory intent Example = a testator destroys his will under the belief that a new will is valid, but in fact the new will is invalid o DRR can be applied to only a portion of a prior will If a second will revokes an earlier will, but some of the second wills provisions fail, the revocation of the earlier will is presumptively ineffective to the extent necessary to give effect to the dispositive provision in the earlier will that the failed dispositive provision in the later will replaced o Limitations on DRR Most courts say that DRR can only apply where: There is an alternative plan of disposition that fails OR Estate of Ausley (pg. 299) Facts Lady revoked her will and had her lawyer draft a new will. The new will was not executed because she wanted minor changes to be made from the draft. HOLDING DRR was not applied. Even though the attorney testified as to the new plan of disposition, the testimony was not sufficient evidence of alternative plan
Campbell v. French (pg. 299) Facts Person executed a codicil that read I revoke the legacy to Judy, because Judy is dead and Judy was alive. Holding DRR applied. Where mistake is recited in the terms of the revoking instrument OR Possibly Clear and convincing evidence o Limited amount of extrinsic evidence allowed
LaCroix v. Senecal (pg.295) 39
Facts Lady executed a will and then executed a codicil where she revoked a provision of the will and made minor changes. The codicil was invalid because one of the witnesses was an interested witness. HOLDING Original will was not revoked. If the testator would have known that the codicil would not have been upheld, she never would have revoked her will. Estate of Alburn (pg. 300) Facts Lady executed one will, and then a second will (which revoked the first will) and then destroyed the second will. HODLING Second will was not revoked. There was evidence that the lady destroyed the second will believing that it would revive the first will, but this wasnt allowed by statute. The court held she would rather have the second will than the die intestate. Revival o Fact pattern Person executes will #1 and later executes will #2. Person later revokes will #2. Does this revive will #1? o Three approaches A few states/English common law Will # 1 never revoked Will #2 wouldnt revoke will #1 until the testators death, so the destruction of will #2 doesnt even technically revive will #1, as it could not have been revoked until death. Majority of states Will #2 revokes will #1 upon execution, but upon revocation of will #2, will #1 is revived if the testator so intends. Minority Will #2 revokes will #1 and will #1 cannot be revived unless reexecuted with testamentary formalities or republished by being referred to in a later duly executed testamentary writing o UPC 2-509 (a) If a second will wholly revokes a first will and the second will is revoked by a revocatory act, the first will is revived if it is evident from the circumstances of the revocation or from the testators contemporary or subsequent declarations that the testator intended the first will to take effect as executed 40
(b) If a second will partly revokes a first will and the second will is revoked by a revocatory act, the first will is revived unless it is evident that the testator did NOT intend the revoked part to take effect as executed (c) If a second will revokes a first will wholly OR in part and the second will is revoked by a third will, the first will is revived to the extent it appears from the terms of the third will that the testator intended the previous will to take effect
Revocation by Operation of Law: Change in Family Circumstances o Divorce Most states have statutes that provide that a divorce revokes any provision in the decedents will for the divorced spouse In the other states, revocation occurs only if divorce is accompanied by a property settlement These normally apply only to wills and not to life insurance policies, pensions, or other nonprobate transfers UPC applies to both probate and nonprobate transfers o Marriage Pretermitted spouse is entitled to intestate share in most states chapter 7 o Birth of Children Pretermitted child is entitled to a share in the estate in most states chapter 7
C. COMPONENTS OF A WILL Integration of Wills o Rule all papers present at the time of execution intended to be part of the will are integrated into the will o Problems can arise if pages arent properly fastened, there is no internal coherence in the will, fonts are different on one page, each page isnt initialed by the testator Estate of Rigsby (pg. 308) Facts Two page holographic will and only one page was signed. The pages werent fastened, didnt refer to each other, and conflicted with each other. HOLDING Only the first page was admitted as a holographic will. The other page could have been a worksheet that was not intended to be a part of the will. Republication by Codicil o Rule a will is treated as re-executed/republished as of the date of the codicil, even if the codicil does not expressly republish the will, unless inconsistent with testators intent 41
Examples Suppose a testator revokes a first will by executing a second will, and then executes a codicil to the first will the first will is republished and the second will is revoked by implication (squeezed out) If a will is witnessed by interested witnesses but the codicil is witnessed by disinterested witnesses, then the original interested witnesses will not be purged of their gifts In order to be republished, you must already have a validly executed will (different from incorporation by reference, where a will can incorporate documents that have not been validly executed) A properly executed codicil CANNOT cure improperly executed will
Incorporation by Reference o UPC 2-510 A writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent describes the writing sufficiently to permit its identification and writing in existence at time will executed o Example A will says the testator wants to give a dime to every name in the Manhattan phone book This manifests an intent to incorporate AND sufficiently describes the writing o Personal property UPC 2-513 Testator can incorporate a list to dispose of tangible personal property if the list is signed and describes the items and devisees with reasonable certainty Differences between 2-510 and 2-513 2-513 applies ONLY to tangible personal property 2-513 allows lists that are created after execution of the will and can be changed 2-513 has not been adopted very widely Clark v. Greenhalge (pg. 310) Facts Woman wrote a memorandum listing property and who should get it, then executed a will incorporating that memorandum. Then, woman wrote a notebook with more property and more devisees and executed a codicil to the will So codicil republished the will P was listed as getting the painting in the notebook. HOLDING P gets the painting through BOTH incorporation by reference and republication by codicil. 42
The will incorporated the notebook by reference to memorandum because they served the same purpose. The notebook was not in existence at the time the will was executed, o But it was in existence at the time the codicil was executed and therefore republished the will. Simon v. Grayson ( pg. 315) Facts Testator executed a will that left $4000 to his executors to be paid as directed in a letter. Letter was dated AFTER the will but BEFORE a codicil that made minor changes. HOLDING Letter was incorporated by reference and it was in existence at the time the codicil republished the will. Johnson v. Johnson (pg. 317) Facts Lawyer typed out a document that gave gifts to siblings, but did not execute it. At the bottom, he wrote that he gave his brother $10 only. HOLDING Court holds this was a valid holographic codicil that republished the unexecuted will. This is flat out wrong, because republication applies only to prior validly executed wills Acts of Independent Significance o Rule if the beneficiary or property designations are identified by acts or events that have a lifetime motive and significance apart from their effect on the will, the gift will be upheld o Example Testator executes a will leaving her nephew her automobile A few years later, she trades in her old crappy car and buys a Porsche The nephew gets the Porsche, even though the act of buying a new car increased the value of the gift to the nephew o The phrasing of the will leaves it within the power of the testator to alter the value of the gifts to the beneficiaries without changing the will o Reasoning its unlikely the testator is doing these things to alter the plan of disposition, but instead is doing them for other reasons o Extrinsic evidence can be admitted to show the intent of the testator in phrases like the contents of my house and whether that would include a safe with stock certificates inside of it 43
D. Contracts Relating to Wills Differences Between a Contract and a Will o No consideration or exchange in a will o Wills are unilateral o Conflicts are resolved in the probate division instead of the civil division Generally o A party can enter into a contract to make a will or a contract not to revoke a will o In case of breach, the plaintiff must sue the estate under the law of contracts in the civil division The will is probated and the plaintiff must get damages for breach o These are often seen in separation agreements where the wife gives things up in exchange for a promise that the children will take under the husbands will Prof thinks this is pretty worthless and borderline malpractice o Prof doesnt recommend ever entering into a contract to make a will Via v. Putnam (pg. 329) o Facts Husband and wife had mutual wills that named children beneficiaries and promised each other to leave the residue to children. o Wife dies, husband remarries. o Husband dies and surviving spouse takes elective share. o Children argue they should be treated as third party beneficiaries of the promise to leave the residue to the children and want to be treated as creditors. o HOLDING Court says no way. Spouse Elective share is based upon fundamental policy and this cannot be overcome by a prior mutual will/ contract
V.
CONSTRUCTION OF WILLS
A. Mistaken or Ambiguous Language in Wills Traditional Approach: No Extrinsic Evidence, No Reformation o Two Traditional Rules 44
Plain meaning or no extrinsic evidence rule Extrinsic evidence may be admitted to resolve some ambiguities, but the plain meaning of the words of the will may not be disturbed by evidence that another meaning was intended No reformation rule Reformation is an equitable remedy, that if applied to a will, would correct a mistaken term in the will to reflect what the testator intended the will to say Instead, courts interpret the words the testator actually used and not the words he intended to use o Latent vs. patent ambiguity Patent ambiguity appears on the face of the will Example = in one clause, testator leaves residue of estate to A, while the next clause leaves her entire state to A and B Extrinsic evidence is NOT admissible Latent ambiguity manifests itself only when the terms of the will are applied to the testators property or designated beneficiaries Two types o If a will clearly describes a person or things and two or more persons or things fit that description Example = devise to my niece Alicia, and the testator has two nieces named Alicia o Where the description in the will does not exactly fit any person or thing Example = devise to Mr. and Mrs. X, presently residing at Y and they dont live there Extrinsic evidence IS admissible Courts are blurring the lines between patent and latent ambiguities o Allowing extrinsic evidence raises risk that well allow judges to re-write wills of dead people Mahoney v. Grainger (pg. 336) Facts Decedent wanted to devise her property to her cousins, but lawyer instead devises the property to her heirs at law and her only heir at law was decedents aunt. Cousins challenged the will. HOLDING No extrinsic evidence admitted. The language of the will was plain and it only has one possible meaning. Moving Toward Reformation: Correcting Mistakes Without the Power to Reform Wills o Recent trend
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admitting extrinsic evidence not merely to resolve latent, and more recently patent ambiguities, but also to correct mistaken terms to conform to actual intent of the testator Arnheiter v. Arnheiter (pg. 343) Facts Decedent left her interest in the property at 304 Harrison Avenue to be sold and the proceeds to be given to her nieces, but the lady actually had an interest in 317 Harrison Avenue instead. HOLDING Court does not insert the proper number, but instead simply deletes the improper number and the property is adequately described by only the street name. Estate of Gibbs ( pg. 344) Facts Decedent messed up the middle initial and street address of his friend, and it accurately described a man the decedent didnt even know. HOLDING Court completely ignores the middle initial and street address and gives the property to the friend. Lesson dont be too specific in your will because it can come back to bite you Openly Reforming Wills for Mistake Connecticut Junior Republic v. Sharon Hospital (pg. 348) Facts Law firm mixed up which charities would take under the will. HOLDING Court did not allow extrinsic evidence or reform the will because of scriveners error. The will was plain on its face. Dissent Gives three reasons why the court should have allowed extrinsic evidence. No reason to distinguish between fraud (where extrinsic evidence would be admitted) and innocent mistake (as is the case here) Risk of blindly enforcing testamentary language is more threatening to the intent of the testator than extrinsic evidence is Addresses objections (1) presumption that testator ratified the mistake is rebuttable and (2) this will not really lead to groundless litigation Erickson v. Erickson (pg. 345) OVERRULES above case Sharon Hospital Facts Guy executes a will two days before his wedding and the will does not expressly acknowledge the wedding will take place. Under the state statute, that revoked the will. HOLDING 46
Extrinsic evidence admitted to show testators intent that he did not want the will to be revoked and it was merely scriveners error not to include an acknowledgment of the wedding. (Basically adopted dissent from Sharon Hospital) Prof would distinguish Sharon Hospital, because there, the testator should have known the wrong charities were included, whereas here, the testator could not have known of the statutory requirements to avoid revocation by subsequent marriage. o UPC explicitly allows reformation of a will even if its unambiguous on its face if proven by clear and convincing evidence o Prof and Langbein are concerned about the effect of allowing extrinsic evidence and reformation on the incentives for lawyers to perform good work Fleming v. Morrison (pg. 356) Facts Guy wanted to entice a woman into sleeping with him by leaving her his estate. After his lawyer witnessed the will leaving his estate to her, guy said that it was fraud. HOLDING Court held will invalid b/c the testator lacked testamentary intent Court admitted extrinsic evidence to show lack of intent even though the will was plain on its face. B. DEATH OF BENEFICIARY BEFORE DEATH OF TESTATOR Lapse o definition If a devisee does not survive the testator, the devise lapses (it fails) unless the will specifies a contingent beneficiary well-drafted wills should never allow a lapse!!!! o Common law rules If a specific or general devise lapses, the devise falls into the residue If the residuary devise lapses, the heirs of the testator take by intestacy No-residue-of-a-residue rule o If a share of the residue lapses, that share goes to the heirs of the testator rather than to the surviving residuary beneficiaries o Vast majority of the states have rejected this rule o Well-drafted wills provide the share of the residuary is to be divided among the other residuary takers If a class member predeceases the testator, the surviving class members divide the gift If a beneficiary is dead at the time the will is executed, or the devise is made to a pet or some ineligible taker, the devise is void (treated as if it lapses) 47
Estate of Russell (pg. 359) Facts Lady executed holographic will that left residue of estate to a guy and her dog. HOLDING Devise of half of the residue was void because the dog was an ineligible taker. This half lapsed to decedents heirs at law. People try to leave things to pets all the time Honorary trusts cannot be enforced by the dog, so the trustee acts on behalf of the dog on his honor Anti-Lapse Statutes o Definition Antilapse statutes DO NOT prevent a lapse, they merely substitute other beneficiaries, usually descendants, for the beneficiary if other requirements are met o Typical antilapse statute provides that if a devisee is of a specific relationship to the testator and is survived by descendants who survive the testator, the descendants are substituted for the predeceased devisee o Antilapse statutes also apply if the devisee was dead when the will was executed or if he does not survive the testator long enough to satisfy the will and is therefore treated as predeceased o Theory For certain predeceased devisees, the testator would prefer a substitute gift to go to the descendants of the devisee rather than the gift lapsing o Almost all states have some form of antilapse statute o Limitation Only applies if devisee bears a particular relationship to testator specified in the statute Some would be limited to ONLY the descendants of the testator Some are broader, and apply to the descendants of the testators parents or grandparents UPC allows substitute gifts if the predeceased devisee is a grandparent or a lineal descendant of a grandparent of the testator o Result = issue of the devisee share the gift (if they are all the same degree of kinship, they take equally) o Statutes change the common law and provide default rules that the devise will go to someone else unless the testator intended otherwise Contrary intent is sometimes hard to determine Using words of survivorship such as if he survives me or my surviving children is sufficient to express a contrary intent in most 48
states, but this is NOT sufficient to preempt the antilapse statute under the UPC or the case below To be sure that contrary intent is express, a well-drafted will should say if she fails to survive me, then to X Ruotolo v. Tietjen (pg. 367) Facts Testator left half of the residue of her estate to the stepdaughter if she survives me and the stepdaughter predeceased the testator. The CT antilapse statute applied to stepchildren. HOLDING Antilapse statute was applied. These words of survivorship were not sufficient evidence that the will provided for the contingency of the devisee predeceasing the testator. This was just boilerplate language and did not really reflect any intent of the testator that the antilapse statute should not apply. Court reasons that the antilapse statute is remedial and deserves a liberal construction. This is the minority approach, and most states would have let the devise lapse Class Gifts o Class gifts were treated differently from individual gifts at common law If a class member predeceased the testator, the surviving members of the class divided the total gift, including the deceased class members share o Two basic factors to determine if theres a class gift Group labels Dynamic shares that will be different depending on the number of class members surviving the testator o What is a class? Determined by whether the testator was group-minded whether the testator uses a class label when designating beneficiaries Examples to Xs children or to my nieces and nephews If you have a natural class and you describe the class by a group label AND each member individually by name, it could still be a class gift if extrinsic evidence showed the intent of the testator to treat the class as a group UPC 13.1 and 13.2 If you describe a class only by a class label, a class gift is created If you describe a class by using individual names without a class label, the disposition does NOT create a class gift If you describe a class with BOTH a class label AND individual names or the number of class members, there is a presumption that it 49
is not a class gift, but this can be rebutted with extrinsic evidence of testators intent
Dawson v. Yucus (pg. 376) Facts Testator devised her interest in property one-half to her nephew X and one-half to her nephew Y. Y predeceased the testator. X argued it was a class gift and he should get the entire interest. HOLDING No class gift. The will never used the generic class label as such (relatives, nephews etc), but instead only described each named individual as a nephew. Also, the devise did not depend on how many class members survived (it specifically said one-half to each). The lawyer could have avoided this by specifically providing that if a nephew didnt survive her, then to that nephews issue o Most states apply their antilapse statutes to class gifts to a single-generation class Some states provide this by statute, but in other states, courts reason that the average testator would intend the deceased class members share to go to his descendants rather than to the surviving members of the class Basically, class gifts dont really exist anymore C. CHANGES IN PROPERTY AFTER EXECUTION OF WILL Ademption by Extinction o Ademption only applies to specific devises!! o Types of devises Specific devise The disposition of a specific item of the testators property Examples grandmothers engagement ring, Blackacre General devise Where the testator intends to confer a general benefit and not a particular asset Examples legacy of $100k to A o If the money isnt there, other property must be sold to satisfy As general legacy Demonstrative devise A hybrid between a specific and general devise o General devise payable from a specific source Example the sum of $100k to be paid from the proceeds of sale of my Apple stock 50
If theres enough Apple stock, it must be sold to pay out the $100k o If the testator doesnt own sufficient stock, other property must be sold to raise $100k Residuary devise Conveys the portion of the testators estate not otherwise effectively devised in the will Example devise to A all the rest, residue, and remainder of my property and estate You have to be careful when giving a lot of specific and general devises because this leaves less for the residuary beneficiary, who is often the most important o Only specific devises of real and personal property are subject to doctrine of ademption by extinction beneficiary doesnt get anything if the property is disposed of before testators death Basically its treated as if testator revoked the gift In re Estate of Anton (pg. 381) Facts Decedent executed a will and made specific devise of half her duplex to her stepdaughter. Decedent then gave birth daughter power of attorney and she sold the duplex to pay for nursing home expenses. HOLDING No ademption, and stepdaughter gets half of the remaining proceeds from the sale of the duplex. Decedent didnt the request intent to sell the property so it is not deemed to adeempt o Identity theory vs. intent theory Identity theory traditional rule If the property wasnt there, the beneficiary didnt get anything Courts and legislatures have crafted several exceptions to this if the property isnt in the estate by accident or by action of someone other than the testator o Condemnation award or insurance proceeds can be paid to the devisee Example if T died in a plane crash and left the plane to his son, son will be entitled to the insurance proceeds from the destruction of the plane o Characterizing the devise as general or demonstrative Example if T devises 100 shares of X stock, court might say that is a general devise and look to the value of 100 shares at Ts death o 51
Intent theory more modern UPC approach Codifies the exceptions to the identity theory and some additional exceptions If the property isnt there, you are entitled to cash if you can show the testator didnt intend ademption Some criticize this as spawning litigation, but the burden now rests on the party opposing ademption
Stock Splits o If testator makes a will devising 100 shares of stock to A, and then the corporation splits its stock and 100 shares becomes 300 shares Old rule = look at the specific devise of 100 shares This was mechanical New rule = look at the economic total A stock split is a change in form and not substance Most states now use this approach Devisee will get all 300 shares unless the testator intended otherwise Satisfaction o When the testator makes a transfer to a devisee after executing the will o This generally applies to general devises and not specific or residuary devises Cross reference to advancements in intestate succession So if a painting is given away after will is executed painting is treated as adeemed by extinction o Common law Gift is part of the will (gift is given in satisfaction of devise in the will) o UPC Parallel to the rule for advancements Presumption that there is no satisfaction and intent of satisfaction would have to be shown in a writing o Example Testators will gives his son $50k and the residue of her estate to her daughter After execution of the will, testator gives her son $30k At common law, son only gets $20k at death Under the UPC, the son would still get all $50k Exoneration of Liens o Common law doctrine/some states exonerate liens When a will makes a specific disposition of real or personal property that is subject to a mortgage to secure a note on which the testator is personally 52
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liable, it is presumed, absent contrary language in the will, that the testator wanted the debt, like other debts, to be paid out of the residuary estate Basically, the beneficiary gets the property free of the mortgage Modern rule/UPC/majority of states Mortgage follows the property Example Ts will devises Blackacre to her daughter, A At Ts death, Blackacre is subject to a mortgage that secures a note on which T was personally liable Common law/minority of states A takes Blackacre free of the mortgage Majority/UPC A takes Blackacre subject to the mortgage
Abatement o When the estate has insufficient assets to pay debts as well as devises Some devises must be abated or reduced Analogous to bankruptcy o Common law There was a typical order of abatement Residuary devises reduced first General devises reduced second Specific and demonstrative devises are last to abate and reduced pro rata
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VI. WILL SUBSTITUTES: NONPROBATE TRANSFERS AND PLANNING FOR INCAPACITY A. An Introduction to Will Substitutes Types o Life insurance Nonprobate if it names a beneficiary (beneficiary can be an individual or a trust) If the policy names the estate or doesnt name anybody, then it is a probate transfer This is inflexible o Pension Accounts Required to pay a certain benefit to the surviving spouse Also inflexible if a child predeceases, there is no way to make the childs portion go the grandchildren Undesirable to make the estate the beneficiary due to tax consequences o Bank, Brokerage, and Mutual Fund Accounts, Joint Property If you arrange joint property, you are creating a present interest in the donee These dont accommodate fine tuning property automatically vests in whoever is named on the property/account Payable on death accounts depositor maintains explicit lifetime dominion but designates beneficiaries to take upon death o Revocable Inter Vivos Trusts o Imperfect Will Substitutes Common law joint tenancy B. Wills Substitutes and the Wills Act Revocable Inter Vivos Trusts o Requirements Property Beneficiaries Intent Dont have to have a named trustee o Three roles 54
Grantor/settlor/donor Creates trust and puts it into the control of a trustee Trustee Manages the trust with fiduciary duty to one or more beneficiaries There are duties during grantors life AND upon grantors death o UTC 603 While a trust is revocable (during the settlors life), the rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to the settlor Beneficiaries Hold equitable title and entitlement to the benefits of the trust o Contrast with testamentary trust Testamentary trust is created by will and is always irrevocable o Comparison between trusts and wills Trust is generally not governed by the law of wills Trust is not unilateral (trustee must agree to serve as trustee) Trust can be changed without formalities o Why would you use a trust? Avoid an attack on the will Flexibility can be changed without formalities Farkas v. Williams (pg. 398) Facts Guy held stock certificates in his own name as trustee for someone else, pursuant to a trust instrument. trust gave Farkas a lot of control and could be revoked before his death. Trial court considered these stocks to be testamentary and held them invalid because they were not executed with the formalities of a will. HOLDING Valid trust. Farkas conferred a present interest on Williams when he created the trust, so the interest was not testamentary. o Farkas showed intention to part w/ some incidents of ownership o He couldnt use the stock same as if he fully owned it o If Williams didnt get an interest then what was intended as a trust would have been testamentary and faild b/c did meet will standards Farkas did not retain such control over the trust to render the dispositions testamentary, even though he had a ton of control. Linthicum v. Rudi (pg. 403) Facts Guy created revocable inter vivos trust and then amended the trust while his capacity was questionable. 55
Beneficiaries wanted to challenge amendments to the trust. HOLDING No standing. Beneficiaries have only contingent interests that have not yet vested, and they are subject to the control of the settlor. o Possibly could have challenged capacity
Payable on Death Contracts and Other Nonprobate Transfers In re Estate of Atkinson ( pg. 407) Facts Decedent deposited three CDs with POD provisions to be paid to his daughters and left his current wife out of the will. Wife elects the forced share and wants to include the CDs in calculating the amount of her share. HOLDING Court includes the CDs in the amount of the estate, because they were a testamentary disposition. This case was against the trend (outlier), and Ohio later changed its statute He should have put the CDs in a trust OR created a joint account with the right of survivorship Estate of Hillowitz (pg. 409) Facts Decedent was partner in a partnership and the partnership agreement said that the spouse gets paid $2800 when a partner dies. Estate argued this was testamentary and an invalid attempt to pass assets outside the will. HOLDING Valid contract. Widow wins as third party beneficiary of the contract. o The modern law no longer denies the will-like nature of will substitutes UPC authorizes POD designations in all contracts, and most states have followed suit
C. Will Substitutes and the Subsidiary Law of Wills Introduction o Restatement 7.2 Although a will substitute need not be executed in compliance with the statutory formalities required for a will, such an arrangement is, to the extent appropriate, subject to substantive restrictions on testation and to rules of construction and other rules applicable to testamentary dispositions Revocable Trusts 56
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The most will-like of all will substitutes Courts have applied to revocable trusts subsidiary rules from the law of wills, such as abatement and ademption Discerning appropriateness of applying other subsidiary rules has been more challenging The applicability of lapse rules and antilapse statutes has been the most controversial Default rules and presumptions that run afoul of express provisions of the trust instrument generally do not get adopted
In re Estate and Trust of Pilafas (pg. 414) Facts Decedent executed a revocable trust and pour-over will, leaving out some of his kids. Decedent then made amends with his kids but did not amend the trust instrument. At his death, the kids could not find the trust instrument and therefore argued it had been revoked, based upon the presumption that arises when a will cannot be found. HOLDING Court upholds the trust. The trust instrument provided that it could only be revoked in writing by decedent, so court refused to apply the presumption of revocation. Trust was not subject to physical revocation by its terms Prof thinks the court was extra-suspicious of the kids because they stood to gain if the trust was revoked. Prof also says that if trust instrument was found ripped up that would not be revocation because it would still go against the terms of the trust instrument. If the trust provides that it can be revoked in the decedents will, and the will revoked the trust, that would be allowed. State Street Bank and Trust Co. v. Reiser (pg. 416) Facts Decedent set up a revocable trust and placed his stock in multiple corporations into the trust. Decedent got a loan from the bank and instead of collateral, he told the bank he had controlling interests in the corporations, forgetting that they were actually subject to the trust. Decedent died without paying back the loan and the bank wanted to get at the stock to satisfy the debt. HOLDING Bank can get at stock. Trusts cannot be used as mechanism to cheat creditors. This is the prevailing view. 57
However, creditors generally dont have access to joint property, life insurance proceeds, and retirement benefits.
Life Insurance o Life insurance is a time-honored method of avoiding probate and getting assets into the hands of family members quickly Cook v. Equitable Life Assurance Society pg. (420) Decedent designated his first wife as beneficiary on his life insurance policy. Then divorced and remarried, but never changed designation. However, he wrote a holographic will that purported to change the designation. HOLDING First wife is the beneficiary. Decedent had plenty of time to properly change the beneficiary according to the terms of the contract. The insurance company needs certainty as to who to pay so that benefits can be distributed quickly. This is by far the majority rule. o UPC takes the opposite approach it says that nonprobate transfers should be modifiable by the terms of the will. Pension and Retirement Accounts o Pension plans are a very important asset for most people today Egelhoff v. Egelhoff (pg. 426) Facts Decedent designated his wife as beneficiary under two ERISA accounts and then divorced her. Decedent died without changing the beneficiary. Children argued that WAs state law automatically revoked the designation upon divorce. HOLDING SCOTUS strikes down WA state law because ERISA preempts it States cannot make laws that would require administrators to know 50 different state laws before paying out benefits. Multi-Party Bank and Brokerage Accounts o Types of accounts Joint and survivor accounts Either A or B has the power to draw on the account and survivor solely owns balance of account, which does not pass through probate POD accounts B does not have any rights in the account until A dies, then B gets the balance 58
Agency/convenience accounts B has the power to draw on account during As life, but only for the convenience of A and not for other purposes and B does not get the balance and As death Savings (Totten trust) accounts o Banks and brokerage houses often give customers one uniform joint tenancy form without regard to what type of account they actually want This means courts have to try to figure out what type of account was actually intended Varela v. Bernachea pg. 432 Facts Guy opens up a bank account with his mistresss named on the account and gives her check card privileges. Her spending was never restricted. Guy went into the hospital and his kids kicked her out of his house and she withdrew $280k from the account. Guy brought suit to establish the status of the account, arguing it was not a joint account. HOLDING It is a Joint account. When a joint account is opened with the funds of one person, a gift of funds is presumed. This presumption was not rebutted in this case. This is the general rule presumption of present gift can only be rebutted by clear and convincing evidence. UPC says joint accounts, during the lifetimes of the parties, belong to the parties in proportion to the net contribution of each party D. POUR-OVER WILLS AND REVOCABLE TRUSTS IN MODERN ESTATE PLANNING Introduction o Revocable inter vivos trusts have replaced wills as the central instrument governing property transfer at death today Inter vivos trust is always revocable Testamentary is not b/c testamentary trust only goes into effect at death o Reasons for this Avoids probate Allows settlor to consolidate all her property (probate and nonprobate) into one dispositive instrument o Basic Components of the trust Provisions that apply during settlors life Provisions that apply after settlors death This part is the will substitute Signature by at least two parties involved (settlor and trustee) 59
Dont need attestation by witnesses more like a contract
Pros and Cons of Revocable Inter Vivos Trusts o Pros Property management by fiduciary Relieves burden of financial management from settlor Also poses inconveniences though (banks might want to see trust instrument) Keeping title clear Avoid probate no delays Plan for incompetency someone is in place to take over if you become incompetent Avoid ancillary jurisdiction for real property Choice of law must be a nexus between the state and the property/settlor/trust Convenience Privacy trusts are not public documents Avoiding will contests o Cons Uncertainty not large body of law on whether subsidiary law of wills will be applied Creditors cannot benefit from short statute of limitations in probate o Tax consequences are neither a pro nor a con, because a well drafted will and a well drafted trust can both achieve the same tax objectives Pour-Over Wills o definition a will that contains an express clause giving some or all of the decedents probate property to the trustee of the decedents inter vivos trust to hold and distribute pursuant to the terms of the trust o There used to be a problem under incorporation by reference The settlor would reference the trust in the will, but would then make changes to the trust afterward the will would not incorporate the changes that werent yet in existence at the wills execution Now, every state has provided an exception for revocable trusts so they can be amended after the will is executed and the will incorporates the changes Clymer v. Mayo pg. 445 Facts Lady created a revocable inter vivos trust and a pour-over will naming her husband as beneficiary under the trust and naming the trustee of the trust as beneficiary under her will. Lady then divorced her husband and died without changing her will. HOLDING 60
Husbands interest was revoked by statute. The statute only applies to wills, but the trust was incorporated by reference into the will.
E. JOINT TENANCIES IN REALTY Joint tenancy and tenancy by the entirety o Upon the death of one joint tenant or tenant by the entirety, the survivor owns the property absolutely, freed of the decedents interest in the property Prof doesnt like joint tenancies o If you dont want the other tenant to get your share, you have to go to court to sever the joint tenancy during your life and this is costly
F. PLANNING FOR INCAPACITY Definition of power of attorney o Agency relationship whereby the agent, called the attorney in fact is given a written authorization to act on behalf of the principal Attorney in fact has the power to do everything that the principal could do, unless the attorney in fact is on a frolic of his own Power of attorney is an agency relationship o NOT governed by contract or wills law, but agency law o Attorney in fact must abide by fiduciary standards (loyalty, care, and obedience) Two types of powers of attorney o General = prepare for management of financial assets A general power of attorney becomes invalid if the principal loses the capacity to continue to give the attorney in fact the authority Incapacity cancels general power of attorney o Durable Authority of the principal continues throughout incapacity If principal is competent can cancel this at any time Power ceases when person dies If agent dies power ends until successor is named Powers of attorney = two edged sword o Offers Flexibility but there is Risk of abuse Executing a power of attorney o Financial Usually requires a notary public, but no witnesses o Health care Usually requires witnesses unrelated to the principal AND people that dont provide health care for the principal 61
Some powers of attorney are effective immediately and others spring up only when the principal becomes incapacitated In re Estate of Kurrelmeyer pg. 449 o Facts Husband gave durable power of attorney to wife and daughter and became incapacitated. o Wife put property in trust that conflicted with his will and also gave herself additional benefits. o HOLDING Wife had the power to create the trust. The power of attorney document was very broadly worded. o Prof thinks this is a bad rule unless it was explicitly authorized by the power of attorney document. Power of attorney cannot be used to make a will for the principal, but here, the court allowed the attorney in fact to make a will substitute that became irrevocable at the principals death and acted as a will. Prof likes to give the attorney in fact the right to give gifts in order to save on estate taxes, but she likes to limit the possible recipients to curb the risk of abuse Banks are hesitant to accept power of attorneys, but they often times have their own shabby versions that they will make you sign Health care powers o You can have a power of attorney over your health care decisions You can limit the powers of the attorney in fact to exclude life support o Advance directives Instructional directive Specifies either generally or by way of hypothetical examples how one wants to be treated at end of life situations or in the event of incompetence Proxy directive Designates an agent to make health care decisions for the patient Usually called a health care proxy or durable power of attorney for health care This does not lapse with incompetency Hybrid/combined directives Incorporates both of the first two approaches directs treatment preferences and designates an agent to make substituted decisions Cruzan v. Director, Mo. Dept. of Health pg. 457 Facts Woman was in vegetative state and parents wanted to remove artificial nutrition/hydration. Care provider said they couldnt because they did not have the womans authorization. HOLDING SCOTUS says that if you can prove the intent of the patient, you can remove the artificial nutrition/hydration and you cannot be sued. 62
After this case, healthcare providers began giving forms to patients asking whether they want artificial nutrition/hydration, and estate planners started doing this too Prof thinks this is a bad idea, because we might need some flexibility for the attorney in fact to make decisions as they see fit o Prof likes to include the power to switch hospitals/doctors and the power to move from hospital to hospice Organ Donation o Problem = more demand than supply o What kind of laws do we need to control how we allocate organs? Elder Law o Financial problems interaction of Medicaid and estate planning issues Transferring assets to maintain Medicaid eligibility is a touchy subject, and there are different Medicaid laws in each state Euthanasia o Oregon is the only state with a law that allows assisted suicide
VII.
RESTRICTIONS ON THE POWER OF DISPOSITION: PROTECTION OF THE SPOUSE AND CHILDREN
A. Right of the Surviving Spouse Introduction to Marital Property Systems o Separate Property Property acquired by each spouse (including income) is owned individually Spouse has no rights to this property (before divorce or death) At death spouse can elect to take share of the others property despite terms of the will o Community Property Property acquired during marriage is community property so each spouse have equal rights to it Death of one spouse dissolves community Dead spouse owns one half and has testamentary power over it living spouse owns other half Rights of Surviving Spouse to Support o Allow the different theories differ on spouses right to share in deceaseds property (community v separate) each jurisdiction agrees that spouses and even sometimes children have a RIGHT OF SUPPORT from the decease spouse o Social Security Spouse can elect the other spouses benefits after the other spouse dies A divorced former spouse of the worker has a right to the benefits if the marriage lasted for 10 years or longer 63
Employee Pension Plans ERISA requires that the spouse of an employee have survivorship rights if the employee predeceases the spouse o Homestead Surviving spouse often has a right to occupy the family home or be granted sum money from state (UPC recommends $25,00) o Personal Property Set-Aside Related to homestead Right of surviving spouse to receive tangible personal property up to a certain value (regardless of deceased spouse attempts to devise them) Usually applied to furniture and clothing o Family Allowance Probate court can award whatever the jurisdictions set amount is to maintain and support the spouse and children even before the creditors get paid o Dower and Curtesy Dower entitles surviving wife to a life estate in 1/3 of her husbands land Curtesy entitled surviving husband to a life estate in all of the land, but only if children were born of the marriage Almost ALL jurisdictions have abolished this in favor of elective share Elective Share o Elective Share and Its Rationale In separate property states, statutes allow for the spouse to elect a share of the deceased estate (usually happens if not happy with will) Usually the share is 1/3 of the estate o it is more nuanced in lots of states Once the amount of the elective share has been determined, the surviving spouse is charged with the value of all other interests given her by the will If those do not meet the elective share requirement, the difference must be made up either by pro rata contributions from all other beneficiaries (majority/UPC) or from the residuary Elective share has traditionally been easy to avoid because it only applied to the probate estate Most states say that if spouse dies but before she can elect spouse share wife dies her estates does NOT have right to elect share and husbands estate passes to devises o Marital deduction and the dependency of women (pg 428) Taxes lower in community property states b/c only Hs half of community property taxed at death, where all taxed in separate property/common law states. H gets an estate tax marital deduction for 50% of estate for property left in effect outright to W. No limit to amount. Inter-spousal transfers not taxed as long as at least life estate in property. 64
QTIP trust (Qualified terminable interest trust): required by marital deduction giving spouse support for life. The QTIP trust is fundamentally at odds with the partnership theory of marriage. Must the surviving spouse accept a life estate? When spouse does not take under the will, the elective share is charged what she is actually left under the will + pro rata contributions by other beneficiaries or residuary estate. UPC: a life estate renounced by spouse is not charged against her elective share.
Incompetent Surviving Spouse In re Estate of Cross pg. 484 Wife was incompetent with Alzheimers and living in a nursing home. Husband left his entire estate to his son. Commissioner appointed by court has the wife elect against the will. Appellate court reversed, holding that she was fully supported by Medicaid and might lose her Medicaid eligibility by taking. HOLDING Court reverses and has wife take against the will. Refusal to take could disqualify her for Medicaid because eligibility took consideration of available resources. A court appointed guardian or other agent can take on behalf of the surviving spouse if it is in the best interests of the spouse to do so In determining best interests, most states look to all the circumstances, but a minority simply do the math of the elective share vs. the amount in will Unknown Case from Nebraska Not in the Book Facts Husband left incompetent wife of his assets in trust. was the elective share in Nebraska. Guardian asked court whether to take under the will or take against the will. Holding Court ordered the wife to take against the will. It is always better to have property outright than to have property in a trust. Property Subject to the Elective Share o Elective share statutes originally applied only to the decedents probate estate o Not many states have resolved the question whether the elective share can be avoided through a revocable trust Majority of states that have addressed this question have said that trusts CANNOT defeat the elective share o Massachusetts judicial decisions Sullivan v. Burkin pg. 488
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Facts Husband created a revocable inter vivos trust excluding his wife and grandson, and then transfers all of his assets into it. Widow wants to include the trust assets in calculating her elective share. HOLDING o Court allows the trust to defeat the elective share in this case, but announces the opposite rule for the future. o Court announced a uniform rule that if person creates inter vivos trust during marriage over which he has sole general power of appointment that is treated as part of estate for spouse election Bongaards v. Millen pg. 492 Facts Wife was beneficiary of a trust created by her mother and had a general power of appointment during her life. She appointed the trust remainder to her sister. Husband argued that it should be included in her estate for purposes of calculating his elective share. Holding No way. Trust was created by third party and not wife herself. Illusory transfer test The trust is valid, but the assets are nevertheless included in the probate estate for purposes of calculating the elective share and some of the assets might have to go to the surviving spouse to satisfy the elective share Intent to defraud test If the transfers of property into the trust were done for purposes of avoiding the elective share, the assets will be included in the probate estate for purposes of calculating the elective share Present donative intent test Whether the settlor intended to make a present gift into the trust Multifactor balancing test This means that future results will be highly fact-dependent Augmented Estate/ Statutory schemes Statutes can attempt to list which assets will and will not be considered in calculating the elective share augmented estate 1969 UPC Includes 5 categories of property in the augmented estate o Retained life estate o Revocable trust o Joint tenancy with someone other than surviving spouse o Death bed transfers in excess of gift tax exclusion o Property given to surviving spouse UPC has been pretty much ignored and is impossible to implement 1990 UPC 66
Redesigned the elective share and augmented estate to be closer to a community property system The longer the marriage lasted, the higher percentage the surviving spouse got of all the marital property
Must the surviving spouse accept a life estate? o In most states, if the surviving spouse renounces the life estate and forces the elective share, she is not charged with the value of the life estate Waiver o The right to elect against the will can be waived o Main requirements Full disclosure Full comprehension of what is being waived o UPC requirements (not adopted by all states) Voluntary Not unconscionable when it was drafted Before execution, challenging party was provided fair and equitable disclosure; waived their right to disclosure; or had adequate knowledge of the property of the decedent o Prenups Prenups have to main purposes What happens in case of divorce What happens in case of death Reece v. Elliott pg. 503 Facts Husband and wife signed prenup, and later wife challenged it because the values of the husbands property were not listed on the appendix. HOLDING Prenup upheld. Wife had independent counsel and an adequate opportunity to investigate the value of the property listed. o Some states require independent counsel or an informed waiver of the right to independent counsel o Prof recommends executing prenup way before marriage Removes element of coercion Spouse Omitted from Pre-Marital Will o Spouses omitted from a will executed before the marriage are generally treated more generously, because we cannot presume that the decedent intended to omit the spouse Generally they get an intestate share instead of being limited to elective share In re Estate of Prestie pg. 516 Facts Husband and wife divorced amicably. 67
Husband made will and trust and gave wife life estate in his condo. They actually remarried shortly before his death. HOLDING Wife gets intestate share. Will was revoked as to her by subsequent marriage.
B. Rights of Decedents Omitted from the Will Protection from Intentional Omission o In every state except Louisiana, a child or other descendant has no statutory protection against intentional disinheritance by a parent Many other countries protect intentionally omitted children Protection from Unintentional Omission o Pretermitted child statutes protect a child unintentionally left out of the will by either giving him his intestate share or shares equal to other children that were provided for some only protect children born or adopted after execution of will other protect children alive at time of wills execution Gray v. Gray pg. 528 Facts Guy had two kids from a previous marriage and left everything to his second wife in his will. Second wife later gave birth to a son. HOLDING Pertermitted child statute did not apply because of a convoluted exception under these circumstances.
Azcunce v. Estate of Azcunce pg. 532 Facts Guy drafted will naming his children as beneficiaries and then had another child. After the birth of this child he executed a codicil to the will so the will was republished HOLDING Child was not pretermitted, because codicil republished will after her birth. In this state pretermitted statutes only apply to children born after publication of the will and she was alive when will was republished Kidwell v. Rhew pg. 536 Facts Decedent created a trust and named her daughter as successor trustee, but never executed a will so died intestate Court-appointed estate administrator attempted to include trust assets in the probate estate, arguing the pretermitted statute should apply to dispositions made by will substitute. HOLDING 68
Pretermitted heir statute does not apply to trusts, only to wills. There is less protection for children that are excluded than there is for spouses that are excluded (trend is to not allow the trust to defeat the elective share for spouses)
VIII.
TRUSTS: INTRODUCTION AND CREATION
A. Introduction Background o In England, trusts go back to the Middle Ages Concept spread from institutional purposes into the private arena gradually o Trusts can carry a lot of different labels However, a trust can very seldom be adequately described by a single label Most trusts have several components incorporated into a single instrument Two exceptions where labels are definitive o Revocable vs. irrevocable o Inter vivos vs. testamentary Other labels can be misleading and refer to characteristics that overlap Definitions 69
o o
o o o o
Settlor Party who creates the trust Trustee Party to whom settlor transfers the trust property Holds legal title to trust property and manages property for duration of turst Beneficiaries Parties who hold equitable interest in the trust Trustee owes beneficiaries fiduciary duties Corpus Trust property Inter vivos trust Trust created while settlor is alive Testamentary trust Trust created when settler dies (created or funded by will) Bifurcation Trustee holds legal title to trust property Beneficiaries hold equitable title
Parties to a Trust o Three main players in a trust Settlor/grantor/donor/decedent Person who creates the trust Beneficiaries Person or persons who benefit from the trust Can be income beneficiaries OR remainder beneficiaries Trustee(s) Person or persons that manage the trust property/hold legal title to the property H devises property to W in trust to pay income to W for life and then on Ws death, the property passes to Hs children A trust will NOT be invalid for failure to designate a trustee, so long as the intent to create a trust is expressed (trustee can be appointed by court) o One person can play all three roles and wear all three hats (cannot be sole beneficiary) Examples Farkas Case O executes a trust declaring herself trustee of Whiteacre with the income from Whiteacre to herself for life, and then upon her death, to pass to A Trusts vs. Wills 70
o o
Trust is closer to a contract than it is to a will A trustee MUST agree to serve as trustee Law of trusts is NOT the same as the law of wills There is some overlap because some trusts are testamentary and the law of inter vivos trusts is less developed so some subsidiary law of wills might be integrated
Commercial Uses of the Trust o Trusts used to be a common way to organize a business Now, the corporation is much more popular o However, trusts are still used for mutual funds, asset securitization, bankruptcy, and pensions Trustees have Fiduciary Obligations and can be held Personally Liable o Trustee holds bare legal title to trust property equitable title lies with beneficiaries o Fiduciary duties duty of loyalty, duty of prudence, must account to beneficiaries o Duties of executors/personal representatives are the same as the duties of trustees Rhode Island Hospital Trust Co. Facts Trustee held buildings in trust and didnt maintain the buildings and paid out all the income to the income beneficiaries. Remainder beneficiaries brought suit. HOLDING Trustee made bad decisions, was obligated to diversify and favored the income beneficiaries over the remainder beneficiaries. Trusts are Flexible o Professor Scott (classic treatise) said that trusts were only limited by imagination of the lawyers that draft them Institutional vs. Corporate Trustees o Institutional trustees More sophisticated, better at investing, but charge fees and dont know the settlor/beneficiaries as well, so arent as attentive to individuals wishes Legal Life Estates vs. Trusts o Legal life estates can cause problems Life tenant cannot cut the timber and sell it Life tenant cannot plant sequential crops of wheat (the soil will be less fertile) If the roof caves in life tenant has to pay for it 71
Trusts can spell out rules on these issues in great detail so things operate more efficiently
Requirements for a Valid Trust (in addition to capacity) o Intent (does not have to be written) Settlor must have intent to make a gift in trust o Beneficiaries Beneficiaries must be ascertainable so court knows who has standing to enforce o Property A trust is created when it is funded so the trust must have some property to exist
B. Creation of a Trust Intent to Create a Trust o Introduction Settlor doesnt have to use the word trust or name or refer to a trustee Example = transfer of property to an individual to hold for the use and benefit of another person manifests an intention to create a trust Trusts can be formed by oral representation When there is a clear intent to form a trust, courts will look to function over form Lux v. Lux pg. 557 Decedent devised property to her grandchildren in her will. Will provided that the property shall be maintained for the benefit of the grandchildren and shall not be sold until the youngest of the grandchildren reached 21 years old. Will did not mention the word trust nor designate a trustee. HOLDING Court held that decedent had the intent to create a trust. Even imprecise language can lead to the formation of a trust. Here, the executor would be named as trustee (Prof doesnt think this would be the absolute rule everywhere, but it was in this case). Jimenez v. Lee pg. 558 Two gifts made to daughter (one from grandmother, one from fathers client) for purpose of her education. Father (lawyer) cashed in the gifts and bought closely held stock as custodian for daughter, without keeping an accounting. HOLDING Court held oral trust was formed.
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Word trust was not use but it is enough if the transfer of property is made with the intent to vest the beneficial ownership in a third party Father violated duties by taking stock as custodian (fewer duties than a trustee), being imprudent by not diversifying, and not keeping a proper accounting. Many trust instruments will waive the requirement for a formal accounting, but this was not the case here. o
Precatory Language o Definition unclear language that expresses aspirations or recommendations o Often times, this language is used intentionally to express a desire to give trustees more latitude and flexibility in administering the trust However, it MIGHT make an unenforceable moral obligation instead of a trust This is particularly a problem in testamentary trusts o Example of precatory language that does NOT give rise to a trust I wish, but do not legally require, that C permit D to live on the land o Intent of settlor must be found by construing the language of the instrument in light of all the circumstances This leads to uncertainty and a lot of litigation o Distinguish trusts from equitable charges If a settlor gives property subject to the payment of a sum of money to a third person, the testator has created an equitable charge and NOT a trust (creates a security interest, NOT a fiduciary relationship) Gift in trust vs. outright gift o Outright gift requires delivery can be actual, constructive, or symbolic delivery and acceptance o If donor fails to make delivery, can a gift be characterized as a declaration of trust? Declaration of trust does not require delivery (settlor is also trustee) Hebrew University Association v. Nye pg. 563 Facts Lady announced she was giving library to University, issued press release, and told third parties it belonged to the school. Lady died before she completed cataloging the library and her will left the residue to a charity. First Holding No trust created, because the lady lacked any intention to create a trust (donative intent is different from intention to create a trust). Remanded. Second Holding Inter vivos gift with constructive delivery. Delivery was completed constructively and so the gift was completed during life. 73
Necessity of Trust Property o Introduction Property can be anything (contingent remainders, leasehold interests, choses in action, royalties, insurance policies, even a single penny) Unthank v. Rippstein pg. 569 Facts Guy wrote a letter to a lady promising to give her $200/month for 5 years. Guy died, and lady first tried to probate this as a holographic codicil (rejected) She then argued it was a trust. HOLDING No trust because there was no property in the trust. Lady argued his estate was the property, but because he was still alive when he wrote the letter, he didnt have an estate. This was merely a promise to make a gift. Brainard v. Commissioner pg. 572 Facts Guy tried to trade stocks and put the profits in trust for his wife, mother, and young children (for tax purposes) He declared a trust of the expected profits for the wife and kids HOLDING No trust because there was no property in the trust. Trust could not have arisen until the profits were earned, so declaring the trust one year earlier did NOT create a trust. Guy didnt commit the stocks to the trust for a defined amount of time (Clifford trusts required property to be committed to trust for 10 years + one day before reverting back to settlor). There is an important distinction between saying I give the profits to A in trust vs. I give the profits from my 1000 shares of Apple Corp. to A in trust Identifying that the settlor already has the shares Speelman v. Pascal pg. 572 Facts Pascal assigned to Speelman a share of his profits to be derived from the musical and movie based on Pygmalion (at the time, he had two years left on license agreement). HOLDING Valid assignment. Even though there were no profits at the time the letter was written, there was still property in the expectance of profits to be derived from the license agreement. 74
Note: This was NOT a trust, but whoever held the profits for Speelman presumably had fiduciary duties to her. Distinguishing Brainard and Speelman An expectation or hope of receiving property in the future is NOT sufficient property to create a trust However, a person may assign future earnings from a present contract Reasoning = future yield from an existing property right can be transferred even though property to be acquired in the future cannot be
Necessity of Trust Beneficiaries o Trusts must have one or more ascertainable beneficiaries There must be someone the trustee owes duties to and can call on the trustee to account o This is tied up with the intent requirement The intent to create a trust should involve the intent to benefit specific people o Beneficiaries have to be ascertainable They may be unborn or unascertained when the trust is created Example = trust created by O (who is childless) for benefit of future children = valid Clark v. Campbell pg. 579 Facts Guy writes will directing trustees to give away personal property to his friends as trustees select HOLDING No valid trust. Although there was intent and property, there were no ascertainable beneficiaries because friends is not an ascertainable standard. In re Seawrights Estate pg. 582 Facts Guy gave his dog to lady and directed executor to place $1000 in a bank and distribute 75 cents/day to the lady to care for the dog. Two issues Was this a valid trust? Did it violate the Rule Against Perpetuities? HOLDING Valid trust because even though nobody could enforce it, the trustee agreed to honor her obligations (can be called honorary trust or not). No violation of the RAP, because the trust property would be exhausted according to the distributions well within the allowed timed period. If this was honorary trust that couldnt be enforced, how did this case even come about? Somebody failed to file an accounting over the estate and a tax collector raised a question about the value of the dog o Trusts for Pets 75
If youre unsure that your jurisdiction will uphold honorary trusts, the safest thing to do is give your pet to someone you trust and leave them X amount of dollars Trusts for specific pet generally dont qualify as charitable trusts because charitable trusts may not have private inurement (benefit) (assets cannot be distributed to particular individuals) One option = create your own charitable organization to take care of animals and then give your animals to that organization
Necessity of a Written Instrument o Oral trusts for disposition at death In re Estate of Fournier pg. 589 Facts Guy gave $400k cash to his neighbors to hold until he died and then give to sister #1, who was also executor of his estate. Guy died, and sister #1 sought declaratory judgment that guy had created oral trust on her behalf. HOLDING o Guy created an oral trust. o All the elements were present (intent, beneficiary, property, capacity). Prof thinks that this is a pretty cowardly way to favor a sibling o Other options Make gifts during life Make a written trust during life Favor the sibling in the will o Secret and semi-secret trusts Testamentary trusts are supposed to be created by will Sometimes the wills are not clear on the trust or even if one exists Distinction between the two Semi-secret invalid, no extrinsic evidence permitted to demonstrate purpose/beneficiary (trust is invalid because it shows intent NOT to benefit trustee personally) o So property passes to heirs Secret valid, extrinsic evidence permitted to show purpose/beneficiary so that trustee is not unjustly enriched by pocketing the legacy o Trust is upheld, but constructive trust is imposed for benefit of intended beneficiaries Olliffe v. Wells pg. 593 Facts Lady devises her estate to Reverend Wells and says that he should distribute property as he sees fit So Wells has no beneficiary interest in property 76
He gives property to his church Heirs challenge the will. HOLDING o Trust is invalid. o Semi-secret trusts are not valid and extrinsic evidence is not permitted to show the purpose of the trust. o If the trust would have been totally secret (no allusion to a trust at all), extrinsic evidence would have been allowed and the trust may have been upheld (this distinction makes no sense). Prof thinks maybe the real reason this case came out this way was that Wells died shortly after lady did and the mission had burnt down. Distinction between secret and semi-secret trust is still recognized in most states, but rejected in others Restatement = constructive trust should be imposed for BOTH secret and semi-secret trusts Oral inter vivos trusts of land Oral agreements relating to land are generally forbidden by statute of frauds Hieble v. Hieble pg. 596 Facts Woman had cancer and titled her property to children with retained life estate, with oral side agreement that the kids would give it back if she survived. She survived, but her son refused to convey the property back to the mother. HOLDING o Constructive trust was imposed because the son was unjustly enriched and there was a confidential relationship. o The son had to convey the property back to the mother. Pappas v. Pappas pg. 596 Facts Man planned to divorce his wife and gave land to the son to hold until after the divorce was over. After the divorce, guy tries to get the property back and the son refuses. HOLDING o Court refused to give relief to the father because of his unclean hands (only conveyed the property to defraud the divorce court). Key seems to be equitable principles and whether or not you have clean hands in seeking an equitable remedy People transfer property at their own risk
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IX.
RIGHTS TO DISTRIBUTIONS FROM THE TRUST FUND
A. Rights of the Beneficiary to Distribution Introduction o Mandatory trusts vs. discretionary trusts This label can be somewhat misleading because most trust instruments contain some mandatory provisions and some discretionary provisions 78
Very common for trustee to have mandatory duty to distribute income while also having discretion to distribute principal Mandatory trustee is required to pay all the income to the beneficiaries at some interval Discretionary trustee has discretion over distributions of income and principal
Marsman v. Nasca pg. 598 o Sara died o Her will leaves testamentary trust with Farr (lawyer/drafter) as trustee and Cappy as beneficiary. o Trustee had mandatory duty to pay Cappy income at least quarterly and also had discretion to distribute principal for Cappys comfortable support and maintenance (trustee had duty to check up on Cappy and make sure he was comfortable). o There was an exculpatory clause provided that trustee could not be held personally liable except for willful neglect or default. o Farr (1) helped Cappy take out a mortgage on his house; (2) required Cappy to make written requests for extra money from trust; (3) executed deal where Cappy deeded house to Sally (step-daughter) and retained a life estate. o Cappys second wife brought suit alleging Farr breached his duties. o HOLDING Breach of fiduciary duty by Farr. Cant order Sallys husband to give the house back, so remedy = constructive trust over amount that Cappy should have been paid from the trust to maintain comfortable support and maintenance. Court upheld exculpatory clause and held Farr couldnt be held personally liable (put burden on Cappys wife to show bad faith or undue influence by Farr in drafting the clause). o Exculpatory clauses Prof and UTC/Restatement take the position that the burden should have been on Farr (drafter/trustee) to show the exculpatory clause was fair and the settlor gave informed consent to the clause o Also, there was a conflict of interest here, because Farr represented BOTH Cappy and Sally and always made decisions in Sallys favor
Mandatory Arbitration Clauses o There is a preference for arbitration as a form of ADR, but should mandatory arbitration clauses be permitted in trust instruments? One could argue that it deprives beneficiaries of their full rights to enforce the trust 79
Law on this issue is thin, but mandatory arbitration clauses have been frowned on in some jurisdictions
B. Rights of the Beneficiarys Creditors Introduction o In the US, we are particularly protective of the settlors right to control his property, including the right to protect it from the creditors of the beneficiary This might seem offensive, but keep in mind you cannot protect your own assets from your own creditors o Three ways to protect trust property from creditors Increase the level of discretion of the trustee Spendthrift clauses (preclude beneficiary from alienating his interest in the trust) Powers of appointment (limit permissible appointees) Pure discretionary trusts vs. support trusts (traditional distinction) o Pure discretionary trust Trustee has broad discretion about making distributions of income and/or principal Downside = beneficiary cant bring action against trustee (trustee has broad discretion) Trustee must be ABUSING his discretion and this is a very high standard to meet Creditors get their rights from debtors, so if the debtor cant get the money, neither can the creditor However, the creditor might be able to obtain a court order entitling him to distributions before the beneficiary may receive any Creditor might be able to seize property thats still in the hands of the trustee if the trustee has exercised discretion by marking in his books that he will distribute to beneficiary o Support trust Trustee has OBLIGATION to make distribution for support of beneficiary and DISCRETION to make any additional distributions Traditionally, beneficiary could not alienate her interest at all However, some creditors (providers of necessaries, child support, alimony) might be able to enforce claims against a support trust o Hybrid trust Its discretionary support trust (not really a distinct category) Courts have tended to treat these as pure discretionary trusts o UTC and Restatement get rid of any distinction between pure discretionary and support trusts All trusts where trustee has any amount of discretion are treated the same UTC 504 80
If the trustee has violated a standard for distribution or abused discretion over distribution, child support and alimony creditors can force a distribution by the trustee, but only to the amount that the trustee would distribute under the standards of the trust This is also the law in a lot of states
Protective Trusts o If settlor wants the beneficiary to have a mandatory right to distribution, but also wants the asset-protection features of a discretionary trust, might try a protective trust o The trustee normally has mandatory duty to distribute to beneficiary, but if creditors of the beneficiary attach to the interest, then the distribution becomes discretionary o Prof thinks this is too good to be true, and might not survive when it is more fully litigated Spendthrift Trusts o Beneficiary of a spendthrift trust cannot voluntarily alienate/ transfer her interest, nor can her creditors reach her interest in the trust Beneficiary cannot assign interest in future payments, can only spend the money as it is distributed incrementally These protect the money only as long as its IN the trust Once any money hits the pocket of the beneficiary, then the beneficiary can spend it and creditors can attach it o Purpose = protect beneficiaries from their own vices and bad decisions o Spendthrift clauses are enforceable in most jurisdictions o Exceptions where creditors CAN get to trust property in spendthrift trusts Tort Creditors Scheffel v. Krueger pg. 616 o Mother of abused child brought lawsuit against the guy that abused the child and got civil damages. o D had an interest in an irrevocable spendthrift trust that gave right to distributions of income quarterly, but he could not invade the principal until he turned 50. o Mother wanted to claim against the trust principal. o HOLDING Court upholds spendthrift provision and holds P cannot claim against the trust. Court denies making tort creditor exception to spendthrift provision. P must collect on the judgment incrementally as the income is paid out. This is probably the majority view NO exception for tort creditors Child Support and Alimony Creditors 81
Shelley v. Shelley pg. 618 o 2 ex-wives (each with 2 children) try to satisfy child support claims against trust set up for father that gave him the right to income, but limited his right to distribution of the principal to himself or his children in case of emergency. o Wife 2 also tried to satisfy claim for alimony. o HOLDING Child support can be paid out of the principal of the trust, because the trust itself names guys children as beneficiaries in times of emergency (father abandoning = emergency). Wife 2 cannot satisfy claim for alimony out of the principal. o Although support of children is probably the most important public policy argument to establish an exception to a spendthrift clause, it was not necessary in this case. Restatement and UTC make clear that public policy carves out exceptions to spendthrift provisions for: o Spouse/children with a court order for support or maintenance o Judgment creditor who has provided services for protection for the beneficiarys interest in the trust o Claim of the United States (tax collectors) People that provide necessaries to beneficiaries This is uncertain Language of the spendthrift clause might try to limit exceptions The spendthrift provisions in some trusts specifically says that the trust property is protected from ex-spouses This might affect the courts analysis However, under UTC 503, this provision would be invalid no matter what
Self-Settled Asset Protection Trusts o Under traditional law, the settlor cannot shield assets from creditors by placing his own assets in a trust for the settlors own benefit o Some devices have been developed that attempt to overcome this basic rule Lots of people have gone to foreign jurisdictions that have amended trust laws to allow people to self-settle assets in trusts designed to protect assets from creditors However, this might not be effective in the US Lawyers are hesitant to advise clients on these, because the lawyer could be convicted of fraud and lose her law license 82
FTC v. Affordable Media pg. 628 Facts Couple was involved in Ponzi scheme, and put their assets in a trust in the Cook Islands (couple were co-trustees and trust protectors). FTC brought claim to get money for defrauded investors, and couple claimed it was impossible to get the assets because a duress provision had kicked in and the trustee would not give them the assets. Court held them in contempt. HOLDING Impossibility IS a defense to contempt, but here, it was brought about intentionally by the couple. Also, it wasnt impossible because the couple could have prevented duress provision from taking effect as trust protectors under the trust Trusts for the State-Supported o A settlor cannot execute a self-settled trust to shield his own assets from Medicaid eligibility or other govt support programs o However, a third party without support obligations can create a discretionary trust that will not be considered in determining the beneficiarys eligibility for Medicaid Rules on this are very tricky This is a specialty within estate planning very dangerous if youre not familiar with the rules in your jurisdiction o Federal law on Medicaid has tightened gradually over the last 40 years In some of these changes, lawyers can be charged with fraud
C. Modification and termination of Trusts Introduction o If the settlor and ALL the beneficiaries consent, an irrevocable trust may be modified or terminated (even if the trust contains a spendthrift clause) However, lots of trusts are testamentary, which means the settlor cannot consent to modification or termination If a trusts purpose is illegal or impossible it will likely be terminated by law o Modifying a testamentary trust is basically just as difficult as modifying a will Very difficult, with just a few limited ways to change the trust o Claflin Doctrine A testator has a right to dispose of his own property with such restrictions and limitations as he sees fit, and his intentions ought to be carried out, unless they contravene the law or public policy Modification and termination can ONLY be allowed if it its NOT contrary to material purpose of the settlor
Deviation and Changed Circumstances In re Trust of Stuchell pg. 643 83
Facts Guy created a trust for his family, and upon the death of the last life beneficiary, the trust was to be divided equally between ladys children. One of her children was mentally retarded and received govt assistance. Lady wanted to permit the trustee to deviate from the trust by not giving anything to the retarded child b/c it may but him in financial position where he wouldnt receive govt assistance any more HOLDING This is NOT allowed. The only purpose of this modification is to cheat the state and to enrich the other children. Deviation is NOT permitted where the only reason is that it would be more advantageous to the beneficiaries. o Deviation from Administrative Directions (aka Equitable Deviation) Courts have been much more liberal in allowing deviation from administrative directions in the trust rather than distributive provisions In re Pulitzer pg. 644 Facts Pulitzers will prohibited the sale of stock of a publishing corporation. After heavy losses, the trustees petitioned for right to sell the stock. HOLDING o Court approved the sale because the trust estate was in jeopardy due to an unanticipated change in circumstances. More modern approach treats distributive provisions the same as administrative provisions (both can be modified if a change in circumstances means that continuation of the trust under its terms would defeat or substantially impair the purposes of the trust) Restatement/UTC Both adopt more modern approach and treat distributive and administrative provisions as modifiable due to a change in circumstances In re Riddell pg. 645 Grandparents created a trust for grandchildren. Father wanted to alter the trust to create a special needs trust for his schizophrenic daughter. HOLDING Court adopted UTC/Restatement equitable deviation doctrine; held it would be equitable to create special needs trust that allowed daughter to receive govt assistance while benefitting her supplementally. Grandparents could not anticipate this problem, and if they would have, they would have created a special needs trust. o Reformation and Modification to Achieve Tax Objective 84
Important and recent development Courts are fairly indulgent to change trusts to accommodate changes in the tax law to permit the trustees to achieve objectives of trust more fully This is positive tax law is unpredictable, and can be retroactive Trust Protectors Settlor can name someone as trustee and someone else or multiple other people as trust protectors Trust protectors have the right to fire the trustee and appoint a new one without bringing suit against the trustee This is especially useful if an institutional trustee is being used (more likely to be uncooperative and bureaucratic) This gives the protector great leverage over the trustee Requirements of replacing the trustee depend upon the trust instrument Trust protector can retain general oversight role while not having to micromanage details Prof thinks this device is quite useful Lots of law in this area remains to be developed To what extent is protector a fiduciary subject to oversight? we dont know
Claflin Doctrine and Material Purpose o Claflin doctrine there cant be modification or termination where there is a material purpose of the trust that remains to be carried out Modification or termination can be rejected even if there is no spendthrift or support provision in the trust In re Estate of Brown pg. 653 Trust had multiple consecutive purposes: (1) education of children of settlors nephew, (2) nephew and his wife get support and maintenance for their lifetimes in the style and manner to which they are accustomed, (3) upon nephew and wifes death remainder to be paid to nephews children. Education was paid for, and nephew, wife, and children all wanted to terminate the trust. HOLDING No termination permitted. Although the education purpose was satisfied, the purpose of providing support for nephew and wifes lifetimes was NOT satisfied. o Restatement 85
If all the beneficiaries of a trust consent, the trust can be modified or terminated even if it would be inconsistent with a material purpose of the trust if the court determines that the reasons for modification or termination outweigh the material purpose
UTC
Maintains the material purpose standard trust can only be modified or terminated if all beneficiaries agree AND it would not be inconsistent with a material purpose of the trust However, also allows court to make modification without consent of all beneficiaries, if the non-consenting beneficiaries will be adequately protected Most inter vivos trusts are revocable and can be modified unilaterally by the settlor during life
Trustee Removal o Traditional rule cannot remove trustee except for cause Even if all beneficiaries agreed, trustee could not be removed Well-drafted trust give someone power to remove (beneficiaries OR trust protector) Statutes might provide for removal under certain circumstances (such as UTC, etc.) o UTC 706 allows removal slightly more easily than traditional for cause requirement: Possible reasons for removal under the UTC Breach of trust (same as traditional for-cause rule) Lack of cooperation among co-trustees (not quite for-cause, but pretty high bar) Unfitness, unwillingness, failure to administer effectively (sounds like for-cause) Substantial change of circumstances Requested by all beneficiaries, betters the interests of beneficiaries, suitable replacement trustee is available This is slightly easier than for cause removal, but still pretty difficult o Hypothetical Man fled Germany having lost everything in the Holocaust Became very successful in NY and had millions when he died Did a lot of business with a bank that was taken over by Deusche Bank after his death He named this institution his trustee BEFORE the acquisition Family members wanted to remove the trustee because of relationship to Nazi regime 86
Trustee had been performing satisfactorily Prospects for removal? Under the traditional for cause rule, theyd have no chance Probably NOT a substantial change of circumstances that militates against their interests under the trust under the UTC Options Approach the trustee and ask for resignation as trustee Take it to the media even if its a losing proposition, the media would pick up on a case like this Davis v. U.S. Bank National Assn pg. 660 Settlor appointed bank as trustee of the trust. Trust made grandchild an income beneficiary for life, and at his death, principal distributed to grandchilds children. Grandchild wanted to switch trustees because the fees were too high and the requested successor trustee was situated closer and knew the familys situation better. HOLDING Court allows removal of trustee under states version of UTC: o (1) removal was requested by all beneficiaries (grandchild virtually represented his daughter), o (2) removal served best interests of all beneficiaries (lower fees meant higher distributions), o (3) removal wasnt inconsistent with a material purpose of trust, o (4) suitable successor trustee was available and willing to serve. NOTE Probably more difficult to meet best interests standard and possibly material purpose if the trustee is an individual that was hand-picked by the settlor rather than an institution. NOTE: In most jurisdiction, fiduciary fee schedules are set out in statutes, but most institutions require waivers to these and impose their own schedules. o Successor Trustees They are held to their own fiduciary standards NOT responsible for wrongful behavior of prior trustee unless they violate their own obligation to mitigate it or correct it o Virtual Representation What if you have all of the beneficiaries agreeing that the trustee should be changed or another modification ought to happen, but you have a generationskipping trust thats supposed to vest in the next generation 87
Its impossible to have all the beneficiaries request removal/modification unborn people are beneficiaries
UTC 304 Unless otherwise represented, a minor, incapacitated, or unborn individual, or a person whose identity or location is unknown and not reasonably ascertainable, may be represented by and bound by another having a substantially identical interest with respect to the particular question or dispute, but only to the extent there is no conflict of interest between the representative and the person represented This expands virtual representation in two ways o Allows for representation not only in judicial proceedings, but also in obtaining consent of the beneficiaries without judicial involvement o Allows a parent to represent a minor or unborn child, even if the parent does not have a similar personal interest, so long as there is no conflict of interest with respect to the particular question or dispute
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X.
TRUST ADMINISTRATION: THE FIDUCIARY OBLIGATION
A. Introduction Reason for Fiduciary Obligation o Trustee lacks direct personal/financial interest in the trust property Beneficiary is probably unable to directly monitor and oversee everything the trustee does o Threat of fiduciary litigation is the primary check on the agency costs of trust Comparing Fiduciary Obligations of Trustees and Personal Representatives/Executors o Obligations of trustees are the same as personal representatives o Private trusts are often designed to go on for long period of time Obligation of trustees can have a long duration (trusts can last for decades) Unlike personal reps (administration of estate will take around 2-3 years) Important to make sure interests of beneficiaries are taken care of over the long term of service of the trustee Most jurisdictions have statutory outlines that address fiduciary duties o These trump trust provisions at some level cant contract out of the fundamental fiduciary rules o Can give trustees latitude and cut them some slack, o CANNOT say they dont have to act like a fiduciary Powers of the Trustee o Powers used to be limited because the trustee was simply a passive holder of property Now powers must be much broader because the trustee has to invest the property o Most states have statutes that codify this broadening of trustee powers o Regardless of the breadth of the jurisdictions powers statute, a well-drafted trust will include a detailed schedule of powers
B. THE DUTY OF LOYALTY Definition o Trustee must administer the trust SOLELY in the interests of the beneficiaries IT IS THE MOST FUNDAMENTAL PRINCIPLE Self-Dealing o Occurs when the trust and trustee engage in a transaction 89
No further inquiry rule If a fiduciary is self-dealing, there is no further inquiry into good faith or fairness Only two defenses o (1) settlor authorized the transaction in the trust instrument OR o (2) beneficiaries consented after full disclosure The fiduciary is automatically in violation of his duty of loyalty if neither of these defenses are met, regardless of whether the transaction was fair and in good faith Fiduciary can try to get advance judicial approval of a transaction Hartman v. Hartle pg. 675 Lady appoints two sons-in-law to serve as executors of her estate and directs them to sell the property and divide the proceeds equally among her children. Executors sold the property to one of the ladys sons, who bought it on behalf of his sister (daughter of lady and wife of executor). This amount was divided equally among the children. Sister sold it for profit and kept the difference. Different daughter brought suit for violation of fiduciary duty. HOLDING o Executor violated the duty of loyalty because he was selfdealing (enriching his own family at the expense of the other beneficiaries). o Daughter was ordered to split the profits from the resale of the house among all beneficiaries. Its possible that there has been a little bit of retreat from the no further inquiry rule Statutes in most states allow a corporate trustee to deposit the trust assets with its own banking department and to invest the trust assets in a common trust fund or in a mutual fund that it operates Trustee can give herself reasonable compensation out of the trust funds
Trust pursuit rule o When a trustee self-deals or otherwise breaches the trust, the beneficiaries are entitled to a constructive trust of whatever property comes out of the transaction, unless a third party is bona fide purchaser without notice of the breach of trust In re Rothko pg. 679 o Artist appointed 3 executors: Reis (accountant that set up estate plan and director of consignee gallery); Stamos (unsuccessful artist); and 90
Levine (amiable idiot). After his death, executors agreed to dispose of about 800 paintings within three weeks: 100 to a company for a flat fee, which included a large interest-free loan; and 700 on consignment to Reis gallery with 50% commission, even though going rate for commission was 10%. Artists daughter brought suit under state statute that allowed child to challenge wills that left more than half of the estate to a charity (daughter would NOT have standing today, this statue has been repealed). Surrogate court found: Reis had a serious conflict of interest being a director of the gallery; Stamos was also conflicted because the gallery allowed him to display artwork; Levine failed to make any effort to make sure things were being done fairly. HOLDING All 3 executors violated the duty of loyalty, but none were found to have directly self-dealt (Reis was a director and NOT a shareholder that would enjoy direct benefit and Stamos being able to display his work was not a direct benefit from the contract). Levine was subject to $6 million in fines (only liable for actual value of the paintings, because he wasnt acting in his own interest). Reis and Stamos were subject to $9 million in fines which included appreciation damages because they were acting in their own self-interest. Appreciation Damages Artwork is likely to increase in value acutely at the artists death and then gradually over a long period of time Where do you cut off appreciation damages? Court cut off the appreciation damages at the end of the trial In another situation, appreciation damages might be less appropriate If the violation isnt to such a big magnitude If the market is uncertain and could go up or down
Co-Trustees o Under traditional law, if there is more than one trustee, the trustees must act as a group with unanimity, unless the trust instrument provides otherwise Because co-trustees act jointly, a co-trustee is liable for the wrongful acts of another co-trustee to which she has consented or enabled through negligent inaction o Traditional rule of unanimity is on the way out UTC = majority can act
C. Duty of Prudence 91
Introduction o Duty of prudence mostly relates to investment decisions made by the trustee Classic approach = prudent man rule o Fiduciary has limited options for investments (must be absolutely protective of principal even if that means lower income) Many older legal list statutes provided a short list of acceptable investments o Problems with this approach Hindsight bias (didnt know at the time it would be a bad investment) Each investment was evaluated in isolation UTC/Restatement/UPIA = prudent investor standard (all states) o Basic principles of prudent investor rule Trustee shall invest and manage trust assets as a prudent investor would, exercising reasonable care, skill and caution Investment decisions are to be evaluated not in isolation, but in the context of the trust portfolio was a whole Trustee shall diversify the investments of the trust, unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying o Trust instrument can provide for broader latitude than the prudent investor rule Diversification o Diversification is a very important element of the duty of prudence o Duty to diversify is a LEGAL standard Lawyers cannot advise as to what to buy when you sell off the majority stock, can only say that it is NOT legally prudent to have all your eggs in one basket In re Estate of Janes pg. 702 Testator left his property (which consisted of 71% Kodak stock) in three trusts. Trustee sold off some of the stock to pay expenses, but not very much. Price of the stock continued to fall and the trustee continued to hold the stock. Beneficiaries brought suit. HOLDING Trustee violated the duty of prudence by not diversifying. It should have sold the stock within 3 months after the settlor died. The trust contained too much Kodak stock to meet the standard of diversification. Liability of the trustee = value of capital lost plus interest. o Diversification is more difficult to accomplish if trust property contains illiquid assets 92
If there is one piece of real estate, there is probably more latitude in how quickly the trustee has to diversify, but still probably want to get it on the market quickly Special circumstances where diversification might not be required If there is language in the trust instrument that authorizes the trustee to hold on to particular assets, then the trustee still probably has a duty to diversify However, it may justify a slower reallocation of the trust portfolio If there is language in the trust instrument that ORDERS the trustee to hold on to particular assets, then that changes the analysis However, if this is clearly a stupid thing to do, the trustee probably has a duty to seek modification of the trust Wood v. U.S. Bank, N.A. pg. 712 Estate consisted entirely of financial stock and more than 80% was Firstar stock. trust authorized the retention of the Firstar stock. Stock prices plummeted and beneficiary brought suit. HOLDING Trustee violated prudent investor rule by not diversifying. Retention language only negated the prohibition on self-dealing, and didnt negate the duty to diversify.
Calculating Damages for Imprudent Investment o Two main options Capital lost plus interest Value of the trusts property on the date by which it should have been sold off PLUS compound interest through the date of judgment MINUS the actual value of the property Interest is determined by statute (usually between 6%-9%) Total return damages Fact finder compares the actual performance of the imprudent portfolio against the performance of a hypothetical prudent portfolio and awards damages in the amount of the difference (perhaps adjusting for taxes, expenses, and distributions) Usually requires expert testimony Prudent Investor Rule Imposes Immediate Duties o Trustee must immediately make an inventory and assessment of all the assets in the trust o Then, trustee must devise a plan of which assets will be disposed of, how theyll be disposed of, and what will be achieved by doing this Trustee Insurance 93
Bonds are available to cover a trustees possible liability If the instrument waives it, you might not have to pay anything, but you might still have to buy a minimal bond that will cover taxes and administrative costs Trustees of complicated and large trusts should probably get a bond
Social Investing o Trustee cannot sacrifice higher returns or other interests of the beneficiary to pursue social objectives Delegation o Under traditional law, trustees could NOT delegate matters that the trustee could reasonably be required to perform o General rule now trustee can delegate anything if the trust instrument doesnt prohibit it, but trustee is still subject to a duty of care, skill, and caution in selecting, instructing, or monitoring the agent trustee can still be held liable if he delegates to someone dishonest, or doesnt pay attention after delegation o UPIA trustee has to use reasonable care in delegating a function o Delegated vs. Directive Trusts Delegated trusts = responsibilities of trusteeship are divided by the trustee Directed trusts = trust instrument provides that the trustee must follow the direction of a third party (considerable overlap with idea of trust protectors)
D. Impartiality and the Principal and Income Problem Duty of impartiality o in investing, managing, and distributing the trust property, the trustee must strike a balance between the beneficiaries, giving due regard to their respective interests o This duty is implicated when a trust has two or more beneficiaries (most commonly when there are successive beneficiaries) o Trustee MUST consider any preferences the settlor expressed in the trust instrument or otherwise, and also must consider the sometimes conflicting interests of the beneficiaries o Sometimes, the trustee MUST favor one beneficiary over another Its generally true that if you invest in income-producing investments, the principal is not likely to grow; if you invest in capital-appreciating investments, the income will be low Howard v. Howard pg. 726 o Guys trust gave preference to his wife (if she survived him) over the remainder beneficiaries (his children).
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Guy died and his son argued that the trustee should consider the wifes other resources in distributing the trust funds or else some of the benefits would go to her children (guys stepchildren) instead of the remainder beneficiaries. o HOLDING Trustee was not to consider wifes other resources. Settlor specifically gave preference to his wife over the remainder beneficiaries. o This case is a good example where the provisions of a trust instrument can provide protection for the trustee (trust expressly preferred wife over children). Establishing Priorities o It is Important to have explicit priorities established in the trust if its a complex/blended family situation o The probability of conflict is greater, so trustee needs some sort of guidance o Protection for the trustee AND the trust property People will start bringing lawsuits that will drain assets of the trust o These provisions not only instruct the trustee what the testator wanted to achieve, but also prevent beneficiaries from bringing suit unnecessarily o Principal and Income Problem o Under traditional fiduciary rules, the particular form of the trusts investment return determines its classification as principal or income Examples Income = cash dividends on common stock, interest on bonds Principal = appreciation in the price of the stock or bond If the trustee opts to invest in a stock that does not pay a dividend (price will appreciate faster) then the principal beneficiary is advantaged at the expense of the income beneficiary, and vice versa The classification between income and principal is pretty much arbitrary o Modern portfolio theory challenged these arbitrary classifications Uniform Principal and Income Act Contains an adjustment power the trustee can reallocate between income and principal if he concludes that total return investing is leading to unfair results Unitrust statutes Idea = statute sets the percentage of the value of the trust principal that must be paid to the income beneficiary each year o Unitrust provisions can also be included in the trust o instrument and the settlor can determine the percentage of the trust property to be paid out This allows trustee to maximize returns regardless of what form the returns take 95
Can include rolling average values so payments dont jump up and down sharply In re Matter of Heller pg. 731 Guy set up a trust with his wife as income beneficiary and others as remainder beneficiaries. Trust provided that wife receive the greater of $40k/year or the total income of the trust each year. State statute provided an optional unitrust provision. Trustees converted the trust into a unitrust under the statute, which sharply reduced wifes distributions. She argued that one of the trustees was also a remainder beneficiary and there was a conflict of interest. HOLDING Court upholds use of unitrust provision. Trustee in question was NOT the only remainder beneficiary, so this was not per se invalid. Guy probably didnt expect that the income would reach this high of a level and probably would have wanted unitrust provision to apply in this case. E. Subrules Relating to the Trust Property Duty to Collect and Protect Trust Property o Trustee has duty to collect trust property without unnecessary delay o For a testamentary trust, the trustee should collect the assets from the executor as soon as possible under the circumstances Trustee also has duty to examine the property tendered by the executor to make sure its what the trustee ought to receive Trustee has duty to require executor to redress any breach of duty that diminished assets Duty to Earmark Trust Property o Earmarking the property designating the property as trust property rather than trustees own o Reasoning if trustee doesnt designate between the two, the trustee might later claim that the most successful investments were his personally and less successful ones were trust property o Trustee is only liable for loss that results from failure to earmark, not loss resulting from general economic conditions Duty Not to Mingle Trust Funds with Trustees Own Funds o This is often a result of the failure to earmark o Breach even if the trustee doesnt use the funds for his own purpose 96
o o
Reasoning mingled assets might be reached by trustees personal creditors This duty has been partially abrogated in most jurisdictions because corporate fiduciary can hold and invest trust assets in a common trust fund UTC allows trustees to make joint investment from separate trusts This allows trustees to take advantage of economies of scale
F. Duty to Inform and Account Duty to Inform o Trustee has duty to inform the beneficiaries of the existence of the trust AND significant developments pertaining to the administration of the trust Trustee also has duty to respond to requests by beneficiaries for information reasonably related to their interest in the trust o UTC 813 Trustee upon request by beneficiary, shall promptly furnish to the beneficiary a copy of the trust instrument Trustee, within 60 days of accepting trusteeship, shall notify qualified beneficiaries of his acceptance and of his name, address, and phone number Trustee, within 60 days of creation of irrevocable trust, shall notify qualified beneficiaries of trusts existence, the ID of the settlor(s), the right to request a copy of the trust instrument, and the right to a trustees report Trustee shall notify qualified beneficiaries of any change in trustees compensation (in advance) Fletcher v. Fletcher pg. 739 Lady created a trust that was to be separated into three separate trusts upon her death for her son and his two children. After the lady died, the son sought access to a schedule of assets that were transferred to one of the other trusts, but the trustees only gave him the part of the instrument relating to his trust and claimed the lady wanted to keep things private. HOLDING Court held that the beneficiary was entitled to see the entire instrument, including the additional schedule of assets. He was the equitable owner of trust property and trustee had duty to inform him with the entire trust instrument. o Secret wills? Can a settlor create a secret will by using a revocable trust? Fletcher implicitly holds NO and that trustee has duty to provide a copy of the trust to beneficiaries AND heirs of the settlor that request it o Secret trusts? Settlor might want to conceal the existence of a trust from a beneficiary to prevent beneficiary from being lazy 97
Traditional law = settlor may not completely eliminate the trustees duty to inform UTC provides that beneficiary can be kept in the dark until age 25, but lots of states allow an older age or even indefinitely if there is a trust protector to whom information must be given and who has standing to bring a suit
Duty to Account o Trustee has a duty to account on a regular basis for his actions as trustee so his performance can be assessed o Liability Safe Harbor The law protects trustee from liability to the beneficiary for breach of trust if the facts underlying the claim are fairly disclosed in an accounting filed with the court, notice of the accounting is served on the beneficiary, and the beneficiary does not object to the accounting o Always have a duty to account Lots of times people want to waive the obligation to account to a court (so expensive and labor-intensive) this does NOT mean theres no obligation to account to beneficiaries (trustees ALWAYS have this obligation, even to remainder beneficiaries Jacob v. Davis pg. 749) National Academy of Sciences v. Cambridge Trust Co. pg. 745 Guy created trust with his wife as income beneficiary and NAS as remainder beneficiary on her death. However, guy conditioned wife receiving income on her staying unmarried. Wife re-married, but concealed this from the trustee. Trustee filed annual accountings that accounted for every penny in the trust. After her death, NAS found wife had been improperly paid and brought suit against the trustee. HOLDING Trustee breached duty because it should have investigated whether she was re-married or not. Even though trustee did formal accountings, its duty was not satisfied, because it did not discover underlying facts material to the trust. What could the trustee have done? Look through marriage records (probably nearly impossible) Requested wifes tax returns to see if she was filing jointly
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XI.
CHARITABLE TRUSTS
A. Introduction Charitable trusts are governed by the same rules as private trusts with a few exceptions: o Charitable trust must be for the benefit of a charitable purpose not an ascertainable beneficiary o Charitable trusts are exempt from Rule Against Perpetuities more easily modified under cy pres o State Attorney General, NOT ascertainable beneficiary, is the principal party with standing to enforce a charitable trust B. NATURE OF CHARITABLE PURPOSES Shenandoah Valley National Bank v. Taylor pg. 752 o In guys will, he purported to create a trust with income payable to the children in grades 1-3 of the local elementary school (contained language that the money was to be used for their education). o However, the trust had no provisions for termination. o Guys relatives challenged the will as in violation of the Rule Against Perpetuities. o HOLDING Court held the trust invalid because it violated RAP. A trust must be a charitable trust to avoid application of RAP, and this was NOT a charitable trust because it was not sufficiently restricted to the advancement of education or limited to children in need. Could not apply cy pres because cy pres can only be applied if it is a charitable trust to begin with. o Today, you might have been able to argue for administrative deviation of this trust It had all the aspects of a charitable trust, but it wasnt administrable Instead, just give the money to the school itself Requirement of a Charitable Purpose
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requires having some sort of provision that guarantees that these charitable purposes will be met and the money wont be used for private inurement (benefit of private individuals) o In the case above, there was no mechanism to ensure that the children would spend the money on education Defining Charitable Purpose o examples Relief of poverty Advancement of education Advancement of religion Promotion of health Governmental purposes Any other purpose the accomplishment of which is beneficial to community at large o Can benefit law professors (furthering education purpose) but cannot benefit lawyers o Can benefit needy employees (battling poverty) but cannot benefit all employees generally
C. Modification of Charitable Trusts: Cy Pres Reasoning for Modifications o Modification of charitable trusts has always been considered necessary b/c if there is a trust that can last forever the settlor could not possibly be able to foresee everything o Something had to exist to allow modification of charitable trusts Cy pres defined o If a settlors charitable purpose becomes illegal, impossible, or impracticable, the court may direct the application of the trust property to another charitable purpose that approximates the settlors intention If its not impossible or impracticable to carry out settlors wishes, cy pres doesnt apply and no modification is allowed If cy pres applies, you are supposed to modify the trust to come as close as possible to the intent of the settlor
In re Neher pg. 761 o Lady left her home in trust to the village where she lived and expressed her desire that it be used as a hospital. o Village accepted it, but then asked the court to allow it to be used as an administration building because a hospital had just been built nearby. o HOLDING Court allowed modification of the trust. 100
Court reasoned that ladys intent was a general intent to benefit the village, even though she explicitly focused upon the hospital aspect. Prof doesnt buy this case because administration building is NOT as close as possible to settlors intent (also thinks village knew the hospital was being built and planned this all along).
The Buck Trust pg. 765 o Woman lived in very wealthy county and left charitable trust for a foundation that served her county and 4 others. o She restricted use of the trust to her own county. o Foundation requested modification after the trust property increased dramatically so it could spend the money in the poorer surrounding counties. o HOLDING Court denied this argument and rejected modification. Inefficiency or ineffectiveness is NOT the same as impossibility or impracticability. Lady had such a broad range of charitable purposes that it would never be impossible to spend it all, even in the limited geographic area. o Remedy Court took the funds from the foundation and created another foundation exclusively for the ladys county. Court created a panel of trustees to oversee the new foundation. The Barnes Foundation o Chemist got rich and bought a lot of very valuable paintings. o Guy established a trust and laid down very specific rules for how paintings should be displayed, building should be maintained, etc. o There has been a lot of cy pres litigation trying to modify the trust to preserve the artwork Trustees got permission to charge admission to gallery, take pieces on tours to raise money, etc. Discriminatory Trusts o Often times settlors might want to discriminate in how the charitable trust is used Must balance between the benefits of a private charitable trust and public policy Podberesky v. Kirwin pg. 775 4th Circuit holds that state university scholarships for blacks were invalid under Equal Protection Clause unless justifiable to remedy present effects of past discrimination Grutter v. Bollinger pg. 775 SCOTUS upholds race-conscious admissions of Michigan law school because of the compelling state interest in achieving diversity 101
This area of the law is emerging and not well-settled (decided on a case-by-case basis)
D. Supervision of Charitable Trusts Fiduciary duties that apply to a trustee of a private trust also apply to a trustee of a charitable trust o However, because there are no ascertainable beneficiaries, who will enforce the trust? o In most states, the state Attorney General is the only person with standing Smithers v. St. Lukes-Roosevelt Hospital Center pg. 776 o Guy (recovering alcoholic) promised $10 million to hospital to create stand alone rehab center. o Halfway through the gift, guy got mad and forced hospital to agree to maintain the stand alone building and forbid use of the trust money for anything other than maintaining the building. o After guy died, hospital planned to sell the building and move the center into the hospital. o Wife challenged, AG intervened and found out hospital was misappropriating trust funds, and wife brought suit. o HOLDING Wife has standing to enforce terms of the trust. Wife was uniquely interested in the administration of the trust and the state AG was unable to sufficiently police charitable trusts in all cases. The Bishop Estate in Hawaii o Princess of Hawaii left huge trust to establish schools (one for boys and one for girls) in Hawaii. o Trustees were to be appointed by Hawaii Supreme Court. o Abuses ran rampant along with corruption between trustees and political figures o State senate refused to confirm Attorney General for second term after she tried to enforce trust o IRS threatened retroactive tax liability in the amount of over $1 billion, and then the abuses were somewhat curbed however, conflicts still exist today Problems with AG being the only person with standing to enforce charitable trusts o Charitable trust enforcement is not politically rewarding, so no real incentive to police them o Lack of resources o This is a huge problem because there are huge taxpayer interests and tax dollars at stake We dont have an effective way to police this people committing the funds have lost control in most cases Carl J. Herzog Foundation, Inc. v. University of Bridgeport pg. 776 102
Facts School closed its nursing school and added trust funds specifically designated for nursing to general fund. Herzog Foundation brought suit. o HOLDING i. Court held the donor of the gift had no standing to challenge to enforce the terms of the gift. Only effective way to enforce charitable trusts = IRS threatens to cut off tax exemption (IRS cant spend too much time on this) Other possible solutions Trust protectors o Probably have to be a panel, but its possible Drafting the instrument to keep someone from the family involved More than 20 states, along with the UPC and the Restatement, allow the settlor of a charitable trust to maintain a proceeding to enforce the trust o
XII.
POWERS OF APPOINTMENT: BUILDING FLEXIBILITY INTO TRUSTS
A. Introduction Terminology o Donor person that creates the power of appointment in someone else o Donee person that holds the power o Objects/Permissible Appointees persons in whose favor power can be exercised (these exist as a result of the mere creation of the power) o Appointee person to whom property is appointed (ONLY if the power is exercised) o Appointive Property property subject to the power permitted to be appointed o Takers in Default designation of who gets the appointive property if the donee fails to exercise the power (any well-drafted POA will include this, but its not mandatory) Two types of powers o General The power of appointment includes the power to appoint to any one or all of the following people: oneself, ones creditors, ones estate, the creditors of ones estate Examples 103
T devises property to X in trust to distribute the income and principal to such of the creditors of A as A shall appoint by deed. T devises property to X in trust to pay the income to A for life, or until such time as A appoints, and to distribute the principal to such person or persons as A shall appoint. (A can appoint to anyone, including himself and his creditors).
Special Any power of appointment thats not a general power of appointment o Difference between these two is also understood in terms of tax consequences Property subject to general power = taxable Property subject to special power = not taxable 2041- Tax o Powers of appointment are intertwined with and driven by tax concepts o 2041 provides that general powers of appointment are taxable to the donees estate, even if they are unexercised o Background Zachary Smith Reynolds He was the heir to two large fortunes, and he inherited them when he was rather young Both were in the form of trusts that included general powers of appointment that he could exercise by will He died before he was old enough to have a will, so the property was not taxable at his death under the tax law of the time Congress changed the tax law so that property subject to a general powers of appointment by the decedent was taxable as property of the decedent even if unexercised o Five and five rule You can give someone a general POA over as much as 5% or $5k (whichever is greater) each year without causing the entire principal to be taxable in that persons estate Flexibility o Its impossible to predict changing circumstances, so giving a power of appointment allows the donee to make the decision in the future o Because POAs are aimed at flexibility, its unlikely they can be neatly categorized or reduced to a formulaic definition (must read the language carefully) Relation-Back Doctrine o Does the property belong to the donor or the donee? Historical perception Donee acts in place of donor, as though donee is agent of donor, so the property relates back as though belonging to the donor 104
Appointee was deemed to receive the property directly from the donor This doctrine still logically applies to special POAs Donees power is limited to classes of people donor has identified However, its no longer applied consistently to general POAs Can a creditor of the donee with a general POA claim against the appointive property? If its presently exercisable, the only thing preventing the donee from becoming the owner is manifesting intention to exercise (with formalities possibly required) Irwin Union Bank & Trust Co. v. Long pg. 806 Ex-wife wanted to claim against trust property and the trust gave the husband a right to withdraw 4% of the trust principal each year. HOLDING o Because the husband has not exercised the right, the property is not his yet and the court cannot force him to exercise his right. General POA is very close to having outright ownership, but its not the same This is the majority rule Restatement and minority of states DO allow creditors of donees with general POAs to claim against the appointive property.
Tax Considerations/Advantages/Disadvantages o Holder of general POA is treated as owner of the property for estate tax purposes Income from the appointive property is taxable to the donee If the donee exercised the power during life, the resulting transfer of the appointive property is subject to gift taxation as if the donee had personally made a gift of that property If the donee dies without exercising the power, his estate is subject to taxation on the property o Holder of special POA is NOT treated as owner for tax purposes Donor can give property to A to hold in trust for A as life beneficiary and then give A special power of appointment and As estate will not be taxed on the property Credit shelter trust Avoid giving spouse general POA so property wont be taxed in spouses estate Spouse creates credit shelter trust and gives spouse: (1) income rights, (2) the right to invade principal for ascertainable standards, and (3) special POA 105
By giving the spouse a special POA, this allows her to make this appointment based upon circumstances that have arisen in the interim (between the deaths of the spouses)
B. Creation of a Power of Appointment Donor must manifest an intent to create POA, either expressly or by implication Not necessary to use words power of appointment or appoint o Only requires discretion for the donee (donee can exercise the power or not) o Donor doesnt even have to be conscious of the fact that a POA was created C. EXERCISE OF A POWER OF APPOINTMENT A well-drafted instrument will make it very clear whether the donee is exercising the POA or not Exercise by Residuary Clause in Donees Will Beals v. State Street Bank & Trust Co. pg. 813 Father created trust for daughter that contained general POA; takers in default were both of daughters sisters. Daughter partially released POA for tax purposes (making it a special POA) and failed to mention anything about exercising the power in her will. HOLDING Court finds that MA law applies because that was the jurisdiction governing the fathers trust. Court applied the rule that a general POA can be exercised by the residuary clause in the donees will even without being mentioned. This POA was a general POA from the start and daughter only partially released for tax purposes. o Partial release was in itself a type of exercise of ownership Also, it was clear that daughter intended everything to go to her one sister and not her other. This is a minority rule and isnt even the rule in MA anymore o Majority rule Residuary clause does NOT exercise a POA held by testator How to address POAs when drafting the donees will o Try to explicitly address the POA in the will, but its not always obvious that the donee even has a POA o Best option = blending clause with blanket exercise clause My residuary estate and all property over which I have a power of appointment shall go to X This might be ineffective if the donors trust provides specific way to exercise the POA Choice of Law o When the appointive property is land, that jurisdictions law governs 106
When the appointive property is NOT land Traditional view (Beals) = donors domicile Minority view = donees domicile
D. Release of a Power of Appointment A donee may NOT contract to exercise a POA at a later time if it is not presently exercisable (many POAs can only be exercised by will testamentary POAs) Siedel v. Werner pg. 827 o Ex-husband had a general POA over trust created by his grandparents. o In divorce separation agreement, ex-husband agreed to write a will that exercised POA in favor of his two children with ex-wife (takers in default would have been those two kids PLUS his two kids from a prior marriage). o Ex-husband then made a will exercising the POA for his third wife. o HOLDING Contract was NOT enforceable. Ex-husband could not contract his POA here b/c it was a testamentary POA (exercised by his will) Cant contract a POA that is not presently exerciseable This could not be characterized as a release either.
Donee can release a POA at any time, even if he can only exercise it under his will o This release is treated as an exercise at the time its made, so it creates gift tax liability
E. Failure to Exercise Power of Appointment Takers in Default o Every well-drafted trust with a POA will name a taker in default that takes if the POA goes unexercised o If there is NO taker in default named and the POA goes unexercised General POA The property reverts back to the donor and goes to the takers under the donors will or the intestacy takers Special POA If the special POA is narrow (as she may appoint to my grandparents issue) the property will likely go to the permissible appointees (grandparents issue) If the special POA is broad (excludes the 4 categories of general POA) the property will likely revert to the donor as under an unexercised general POA Loring v. Marshall pg. 832 107
o o
Aunts trust gave special POA to nephew, nephew gave his second wife income for life, but nephews son predeceased his wife. HOLDING Court awarded the property to the estate of the nephews son (went to the family of his mother that divorced the nephew). Nephews son was the ONLY permissible appointee, so it went to his estate even though the appointment was never made. Court held there was an implied gift in default of appointment.
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INTESTACY: AN ESTATE PLAN BY DEFAULT

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WILLS: CAPACITY AND CONTESTS

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These still exist in a minority of states

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WILLS: FORMALITIES AND FORMS

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LaCroix v. Senecal (pg.295) 39

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