Introduction
·
Hodel v. Irving
o
Statute limiting testamentary power is a taking that
requires just compensation.
·
Probate
o
Non-probate property
§
Joint ownership
§
Life insurance and POD contracts
§
Inter vivos trust
o
Probate property
§
Functions
·
Determining clear title
·
Protecting creditors
·
Carrying out the will
Testamentary
control
·
Public policy limits
o
Disinheriting spouse
o
Avoiding creditors
o
Promoting separation, divorce, or illegal activity
o
RAP
o
Racially-based or invidious restrictions
·
Shapira v. Union
Nat’l Bank
o
The contingency that bn marry a Jew in order to take
is OK.
o
Partial restraint on marriage is OK
§
If it is so restrictive that a marriage is not
likely to occur, then there’s a problem.
§
If the provision says he cannot marry a certain race, then there’s a problem.
PR
·
Simpson v. Calivas
o
The drafting atty did NOT owe a legal duty to the
intended bn. They were not in privity of K.
o
But, there is an exception to the privity
requirement when harm to an intended bn in a K is reasonably foreseeable.
o
The harm that using “homestead” instead of being
more specific was reasonably foreseeable.
·
A v. B
o
Atty had a Rule 1.4 duty to inform W of H’s bastard
child
o
Atty also had a Rule 1.6 duty to protect H’s
confidentiality
§
However, exception to Rule 1.6 says that atty can
disclose info to a reasonably foreseeable injured party if the injury will
occur due to the client’s commission of a fraud in furtherance of which the
client used the atty’s services.
o
Atty should have done better at record keeping and
spelling of names; however, the H was trying to hide the bastardy in order to
defraud his W. Part of her estate could go to the bastard child.
Intestacy
·
Spousal share
o
UPC
§
All to spouse if
·
No children or issue thereof AND no parents alive,
or
·
Decedent’s only descendants are shared with
the surviving spouse (no kids from previous marriage on both sides).
§
300k + ¾ of the balance if no descendants BUT
parent(s).
§
225k + ½ if decedent’s
only descendants are shared with the surviving spouse BUT surviving
spouse has kids from a previous marriage (less for decedent’s step-kids).
§
100k + ½ if decedent had any kids from a previous
marriage.
o
Indiana
§
All to spouse if no children or issue thereof and no
parents alive
§
½ to spouse if child or issue thereof alive
§
¾ to spouse if parent alive
·
Remaining distribution
o
A disclaimant cannot reduce the share(s) of
descendants from other lines of descent.
o
Indiana
§
If no descendants, to parents
§
If no spouse or descendants, then ¼ to each
surviving parent and the rest to surviving siblings and descendants of deceased
siblings.
§
If no surviving parents or siblings, to the
descendants of siblings.
§
If no surviving descendants of siblings (i.e., issue
of parents), then to grandparents equally.
§
If no surviving grandparents, then to aunts and
uncles
§
If none, then escheat.
o
UPC – main provisions
§
Equally to descendants by UPC per capita method
§
If no descendants, to parent(s) equally.
§
If no parents, to descendants of parents by UPC per
capita method.
§
If no descendants of parents, but there are
surviving grandparents or descendants of grandparents on BOTH paternal and
maternal sides,
·
½ to paternal grandparent(s) equally or to their
descendants by UPC per capita
·
½ to maternal grandparent(s) equally or to their
descendants by UPC per capita.
§
If only one side has a surviving grandparent(s) or
descendants thereof, then ½ to surviving side and the other ½ distributed to
the descendants of the deceased side.
§
If none of these exist,
·
If decedent had one deceased spouse w/ descendants,
to them by UPC per capita
·
If two or more deceased spouses w/ descendants, to
them by UPC per capita.
§
If none, then escheat.
o
UPC per capita
§
Find total amount in the nearest generation of
·
surviving descendants AND
·
deceased descendants with their own surviving
descendants
§
Surviving descendants of the nearest generation each
get one share
§
o
English Per Stirpes
§
Each line of descent treated equally
o
Modern per stirpes (Indiana)
§
English distribution begins at first living taker.
§
Division begins at the first generation where there
is a living taker. Each living taker in that generation takes an equal share
and the descendants of deceased descendants in that generation take by English
representation.
·
Simultaneous death
o
Janus
§
Preponderance of expert witness testimony was
sufficient evidence to show who died first.
o
Indiana
§
Uniform Simultaneous Death Act (1953)
·
If there is no sufficient
evidence of who died first, the claimant/beneficiary predeceased the donor.
o
UPC
§
Uniform Simultaneous Death Act (1991)
·
Must establish survivorship by 120 hours by CCE. If
not, then beneficiary predeceased donor.
·
Children
o
Inheritance rights of adopted children
§
Hall v.
Vallandingham (Indiana
follows)
·
Adoption cuts the adoptee off from the natural
parent’s line of descent. Adopted kids can’t inherit from OR through their natural parent anymore.
§
UPC
·
Adoptees retain the right to inherit from AND through natural
parent.
§
Minary
·
Can’t adopt a spouse in order to circumvent
settlor’s intent.
o
Posthumously conceived children
§
Warren v. SS comm’r
·
SS relies on state intestacy law for definition of
“children”.
§
Indiana does not recognize PCC as children of the
decedent.
§
UPC requires PCC to be either
·
Conceived within 36 months of decedent’s death OR
·
Born 45 months after decedent’s death.
Bars
to succession
·
Slayer rule
o
If no statute (Mahoney),
impose a constructive trust.
o
Indiana’s statute imposes a constructive trust on
slayer, whether guilty or guilty but insane. Slayer’s heirs do not take.
o
Only PE required to prove the murder
·
Disclaimer
o
Share is treated as if disclaimant had predeceased
donor. BUT, a disclaimant cannot reduce the share(s) of descendant(s) from
other line(s) of descent.
o
IRC has 9 month window to disclaim.
o
Drye
§
Cannot evade a federal tax lien by disclaiming. Ts
should talk to devisees about this.
Testator
capacity
·
Validity requires
o
Sound mind and understanding; voluntariness
o
“T must be capable of knowing and understanding in a
general way”
§
Nature and extent of her property
§
Family members
§
Intended disposition of testamentary property
§
Relating these elements together and forming an
orderly desire regarding disposition.”
·
Majority rule
o
Presumption of incapacity
·
Minority rule (Indiana)
o
Presumption of capacity
o
If presumption rebutted, capacity must be proven by
PE.
·
In re Washburn
o
T lacked capacity b/c
§
Experts testified she had Alzheimer’s at execution
of the will (not per se evidence, but close)
§
Discrepant statements showed she didn’t understand
what she owned
§
T didn’t recognize a family member and forgot she
had paid a bill.
·
Wilson v. Lane
o
There was evidence that T was suffering from
dementia and that T was incapable of managing her property. But, this does not
speak to testamentary capacity.
o
The only question is whether she could form a
rational desire regarding the disposition of her assets.
·
Incapacity due to insane delusion
o
Requires an insane delusion AND causation
§
Majority rule
·
If there is a factual basis for the insane delusion,
a reasonable person would not have drawn the same conclusion.
·
It materially affected the will.
§
Minority rule
·
Requires NO factual basis for the delusion.
·
If so, causation is presumed.
o
Breeden v. Stone
§
Colorado applies
·
Majority BOP rule for capacity (presumption of
incapacity) and
·
Hybrid for insane delusion
o
Minority rule on whether the delusion was insane
§
Requires NO factual basis for the delusion
o
Majority rule on causation
§
Must materially affect the will
§
Capacity
·
T must
o
Understand the nature of the act
o
Know the extent of their property
§
T indexed his property, knew his addresses.
o
Understand the proposed disposition
§
T ID’ed the bn by name and gave her address.
o
Know their family
§
Insane delusion
·
T thought family was planting drugs, bombs, bugs in
his house and car.
o
There was no factual basis for these delusions.
However, this did not materially affect his will
§
Testimony that T intended to disinherit family.
§
Earlier will excluded family.
·
T thought FBI was spying on him.
o
Even so, this wouldn’t material affect the will.
·
Undue influence
o
Occurs when
§
A wrongdoer exerted such influence that it overcame
the donor’s free will and caused donor to make a transfer that she otherwise
would not have made.
o
Confidential relationship + suspicious circumstances
= presumption of undue influence
§
Fiduciary; reliance; dominant-subservient.
§
Secrecy or haste; alleged wrongdoer took part in
drafting; seems unjust or unfair.
o
Indiana
§
If a beneficiary had a confidential relationship w/
T, BOP is on her to prove by CCE that she
·
Acted in good faith
·
Didn’t take advantage of her position of trust
o
Lakatosh
§
He gained T’s confidence by visiting her daily and
helping w/ errands; then he obtained an official confidential relationship by getting
her to give him a POA.
§
H used the POA to drain her estate for his benefit.
§
The will was a result of undue influence
o
Moses
§
T left her estate to her lover and atty
(confidential relationship).
§
But, bn-atty did not have any part in drafting the
will. The will was drafted by independent counsel (court criticized the drafter
that he didn’t provide any advice but was just a scrivener).
§
In the end, the court doesn’t want to encourage
meretricious relationships w/ older women.
o
Lipper v. Weslow
§
The will totally disinherited T’s deceased son from
a subsequent marriage’s family.
§
Evidence that T’s son from her first marriage
·
Had a confidential relationship (he was the drafting
atty)
·
There were suspicious circumstances, opportunities
for son to exploit and that he didn’t like his half-brother.
§
However, T was in excellent health and sound mind.
Testimony of T’s friends corroborated the will.
o
There is a rebuttable presumption of undue influence
when an unrelated drafting atty is in the will.
o
In planning for will contests, donors should create
inter vivos trusts with the donor as both settlor and bn and a bank as tee. The
tee can testify to the donor’s capacity and courts will be deterred from
finding incapacity b/c it would require going back and undoing transactions
with innocent third parties.
·
Fraud
o
Puckett v. Krida
§
T’s nurses lied to T, saying that her family was
misappropriating her money.
§
T gave the nurses POA, deed, and named them in her
will.
§
Court applied the undue influence standard
·
Confidential relationship
·
Suspicious circumstances
o
But for nurses’ assertions, T would not have given
them the gifts.
·
Duress
o
When T makes a donative transfer b/c someone
threatened to perform or did perform a wrongful act and, but for the wrongful
act, she would not have made the transfer.
Will
formalities - Execution
·
Wills are probated where the T was domiciled at
death for personal property and money. For real estate, the will must be
probated where the real estate is located.
·
UPC requires
o
Writing
o
Signature by T
§
OR by someone else at T’s direction in T’s conscious
presence
·
T must comprehend the fact that someone else is
signing in her name
o
Attestation
§
Signature by 2 individuals who witness
·
The signing
·
Or T’s acknowledgment
o
Of signing or
o
That the will is T’s will.
§
Or, notarized
·
Indiana requires
o
Writing
§
Except for nuncupative wills (oral)
o
Signature by T
§
OR by someone else at T’s direction in T’s presence
·
T doesn’t have to see, but he must be able to see if she were to
look.
o
Attestation
§
2 witnesses must sign in the presence of T and each
other
·
Beneficiary
(not tees, t’ors, etc.) as witness
o
In Indiana, if a beneficiary signs as one of the two
witnesses, the will is void as to her UNLESS she would have taken under
intestacy AND the will provision provided a lower amount than what she WOULD
have taken under intestacy.
·
Curing defects
o
In re Pavlinko
§
The fact that H signed W’s will and W signed H’s
will should not unjustly enrich the unintended bns while harming the intended
bn. It was harmless error/substantial compliance.
o
Substantial compliance
§
When T substantially complied with statutory
formalities.
§
CCE that the purposes
of the formalities were met.
o
Harmless error
§
Failure to comply with statutory formalities was
harmless error.
§
CCE of T’s intent to
·
Create a will
·
Partially or completely revoke a will
·
Alter a will
·
Partial or complete revival of a formerly revoked
will or portion of a revoked will.
o
Ranney
§
Witnesses signed a self-proving affidavit that
refers to attestation and signature on the will that did not happen (i.e., they did not sign the will!).
§
Court says the affidavits substantially complied
with the requirement that witnesses sign and attest the will.
o
In Indiana, self-proving affidavits are not needed.
Rather, Ts could include a self-proving clause in the will; however, even this
is not needed. But if it is included, it creates a presumption of due
execution. Same for UPC.
o
Hall
§
Atty notarized and H and W signed draft will and
agreed to write up a clean copy. The will was invalid in MT b/c two witnesses
are required.
§
But, it was harmless error. There was CCE of H’s
intent that the invalid draft was his will.
·
W’s testimony and destruction of prior will.
·
Holographic wills
o
Is it a will or not?
§
Does the writing or a portion thereof show
testamentary intent?
o
Requirements
§
Must be signed by T.
§
Material provisions of the will must be in T’s own
handwriting.
o
Extrinsic evidence may be allowed to buttress T’s
intent
o
Kuralt
§
“I’ll make sure you inherit the house” was a
sufficient codicil to the will.
·
Nuncupative wills
o
Indiana
§
Only if T is in imminent peril of death and does die
§
There must be 2 disinterested
witnesses present
§
T’s oral declarations must be reduced writing w/in
30 days and submitted for probate w/in 6 months.
§
An oral will cannot revoke an existing will, it can
only change it to the extent necessary to give effect to the oral will.
Will
formalities – Revocation
·
UPC
o
Whole or partial revocation occurs by
§
Executing a subsequent will that revokes expressly
or by inconsistency OR
§
By performing (or having another in T’s conscious
presence perform) a revocatory act w/ the intent to revoke.
·
Harrison v. Bird
o
If evidence shows that T had possession of her will
and said will is not found among her belongings after death, there is a presumption
of revocation. But, if jury finds that a lost will was not revoked, can still
probate the will by proving its contents.
o
T made two wills, executed both, and atty kept them.
T called her atty and told him that she revoked her will. Atty tore up one copy
and mailed it to T. But, it was not in T’s conscious presence, so the duplicate
will stands. But, the torn will was nowhere to be found, so it is presumed
revoked.
o
These rules are subject to harmless error exceptions.
·
Indiana
o
Partial revocation can only occur by a subsequent
writing, signed and attested to by 2 witnesses. Otherwise, can fully revoke by
destroying or subsequent writing.
·
LaCroix v. Senecal
o
Codicil revoking and replacing residuary clause of
the will failed due to interested witness. Does the residue fall to intestacy
or should the court apply the original clause?
o
Dependent relative revocation
§
When T would not have revoked a will or portion of
the will had she known that the codicil or subsequent will would fail.
·
Revival
o
Indiana
§
Revocation of will 2 does not revive will 1 unless
expressly provided for in the terms of revocation or if will 1 is re-executed.
·
Revocation by operation of law
o
Divorce
§
Indiana and most other states have statutes that
automatically revoke portions of the will in favor of the ex and ex’s relatives
on divorce.
o
Marriage
§
New spouse is entitled to intestate share regardless
of prior will.
o
Birth of children
§
To protect pretermitted children unnamed in a will.
Will
formalities – Components
·
Integration
·
Republication by codicil
o
A codicil automatically republishes the prior will.
This helps if an interested witness attested the will.
·
Incorporation
o
Can incorporate any writing in existence at
execution.
·
Acts of independent significance
o
Can say “I leave the contents of my safe to X.”
·
Contracts for wills
o
Ks to not revoke
§
Public policy of supporting surviving spouse trumps.
Construction
of wills
·
Traditional approach
o
Mahoney v. Grainger
§
Plain meaning rule. There was no ambiguity, so no
extrinsic evidence is allowed to prove T’s intent.
o
Patent ambiguities
§
E.g., “I leave all to X. . . . I leave necklace to
Y.”
§
No extrinsic evidence, falls to residuary clause or
intestacy, but specific devises trump general.
o
Latent ambiguities
§
Extrinsic evidence allowed (e.g., which niece named
Alice?).
·
Indiana
o
Extrinsic evidence is allowed for both patent and
latent ambiguities.
·
Arnheiter
o
Mere erroneous description does not vitiate doctrine
§
If a will has an erroneous description that would
cause property to fall into the residue, just drop the erroneous language and
use what’s left as the devise.
·
Erikson
o
Extrinsic evidence of a scrivener’s error is a/m to
prove intent
Lapsed
gifts
·
Common law w/ no anti-lapse statute in place
o
Specific and general devises
§
Fall to residue
o
Residuary share
§
Passes to intestacy (no residue of a residue rule;
Indiana follows)
o
Class gift share
§
Divided among surviving class members
o
Estate of Russell
§
Gift to a dog is a void gift. Void gifts fall to
intestacy.
·
No residue of a residue rule
o
If a residuary devise lapses (i.e., if a residuary
devisee predeceases T), it falls to intestacy.
·
Anti-lapse statutes
o
UPC
§
If the lapsee is a blood relative of T’s
grandparents, then the lapsee’s descendants take according to UPC per capita
method, as if each lapsee were distributing their share by intestacy.
o
Indiana (narrower)
§
If the lapsee is a descendant of T, then the
lapsee’s descendants take.
·
“If he
survives me”
o
Majority rule
§
Means that his descendants do NOT take if he
predeceases T (if he does NOT survive me).
o
UPC
§
The language is not enough to overcome the
anti-lapse rule. His descendants DO take.
·
Class gifts
o
If members of a class are individually named, it is
presumed a class gift.
·
Ademption
o
Traditional rule – Identity theory
§
Specific bequests fail if the property adeems
o
Modern rule – Intent theory
§
Specific bequests can succeed if bn can show that a
different piece of property was meant to replace the specific devise (e.g.,
buying a new house or car).
o
Anton
§
T devised condo to Gretchen, residue to Nancy. Nancy
had POA and sold the condo to pay for T’s medical expenses. T died. Does Gretchen
get any residue?
§
Court applies intent theory
·
Ademption by extinction only occurs when T had
knowledge of the transaction and opportunity to revise the will but did not do
so.
·
B/c T was incompetent, she did not have knowledge or
opportunity; so the specific bequest does not adeem and they split the residue
equally.
Will
substitutes
·
An inter vivos revocable trust does not give anyone
an interest until the settlor dies; no standing until then.
·
PODs, trusts, etc. do not require will formalities.
o
But see Cook
§
Divorce does not automatically revoke will
substitutes. T should have changed his ex as the bn according to the life
insurance company’s procedures.
§
This is Indiana law. Other states may have statutes
that deal with this.
o
And Egelhoff
§
Federal ERISA trumps state statute that
automatically revokes will substitutes in ex’s favor at divorce.
·
Creditors
o
Reiser
§
T makes an inter vivos revocable trust and retained
the right to use income and/or principal. T takes out an unsecured loan. T
dies. Can creds reach trust to satisfy the debt?
o
Jointly held property
§
Creds can’t reach
o
Life insurance, retirement benefits paid out
§
Creds can’t reach
·
Joint tenancies in land
o
Joint tenants have equal interests; can’t devise, it
is split b/w remaining joint tenants at death.
·
POA
o
Normal POAs terminate at principal’s incapacity
o
Durable POAs end at principal’s death.
o
Springing POAs begin at incapacity and end at death
o
Agents can’t be appointed by court.
o
Limited powers
o
Kurrelmeyer
§
Courts can interpret POAs strictly, which can allow
abuse, or broadly, which can impede principal’s intent.
·
Trustees
o
Retain power after settlor’s death
o
Broad powers
o
Trusts
§
Inter vivos revocable trust
·
Settlor controls bn’s rights
·
Tee owes duty only to settlor
·
If 3P has a power of withdrawal, he has the same
rights of the settlor AS TO the specific property for which he holds the power
of withdrawal
§
Settlor can revoke or amend a revocable trust
·
By way of the terms in the trust document
·
By a subsequent will or codicil
·
Any other way that shows CCE of settlor’s intent.
·
Pour over wills
o
Clymer v. Mayo
o
W had a pour over will naming H as the bn of the
trust. H and W divorced. W changed the bn of her life insurance to a friend,
but did not change H as the trust bn. MA law automatically revokes ex’s
interest in a will. Court said the pour over will was an integrally related
scheme, ex-H’s interest in the trust revoked.
o
UPC and Indiana follow the same rule.
Advanced
directives
·
What to do
o
CCE of prior instructions
§
Regarding who the decision maker should be
§
Or what treatment she does or doesn’t want
o
Indiana views ToC for CCE
§
Absent CCE, defer to family
·
Indiana
o
Living will takes effect upon diagnosis of terminal
illness (death will occur w/in a short period w/o life prolonging devices).
o
But if patient is pregnant, living will does not
take effect.
Spousal rights
·
Generally
o
SS
§
Surviving spouse receives monthly benefits
o
Pension
§
ERISA gives surviving spouse the payments
o
Homestead
§
Surviving spouse can occupy home for life
o
Personal property
§
UPC allows survivor to keep $15K max.
o
Family allowance
§
Automatic $25K to support survivor during probate
·
Marital property
o
Community
§
Property acquired during marriage is jointly owned
unless spouses agree otherwise.
o
Separate
§
Separate ownership.
·
Elective share
o
Elective share is traditionally less than the
intestate share
o
Theories
§
Partnership theory (UPC)
·
Rewarding long marriages w/ a higher elective share.
§
Support theory
·
Supporting low-income survivor w/ children
o
Courts are allowing survivors to reach trusts and
non-probate assets for the elective share.
§
See Sullivan
·
Precedent forced court to prohibit W from taking
from H’s IVRT w/ the remainder to his friends. H’s will expressly disinherited
W.
·
But court made a new rule to apply prospectively
only that IVRT assets are part of the estate.
§
But see Bongaards
·
The trust was set up by the grandmother, it was not
set up by the spouse or acquired during the marriage. W could use the trust
property and had a power of appointment at her death. Settlor wanted to keep it
in her bloodline, so H could not take a forced share.
§
Majority rule
·
IVRT are included in the estate.
§
Minority rule (Indiana)
·
IVRTs are only included in the estate when T makes
it in contemplation of impending death AND for the purpose of defeating
spouse’s election.
o
UPC
§
Definition of what is “marital property” depends on
length of marriage
§
Includes certain non-probate assets in the marital
property
§
Elective share is 50% of the marital property
·
Share is reduced by marital assets owned or
automatically transferred to survivor.
o
Indiana
§
If survivor is a subsequent spouse and did not have
children with the decedent, then s/he takes a 1/3 share.
§
If survivor is a first spouse or had children w/ the
decedent, then survivor takes a ½ share.
o
Premarital agreements
§
Can avoid elective share by executing a pre-nup,
subject to fairness requirements
§
See Reece v.
Elliott
·
A pre-nup is fair if Spouse receives a reasonably detailed disclosure of the
other’s assets.
·
If anything is scarce, must make an effort to learn
more. Independent counsel makes the prenup more conscionable.
§
UPC
·
Must be voluntary
·
Reasonable disclosure of property.
o
Pretermitted spouses
§
When T makes a will that omits future spouse, then
marries the spouse, then dies w/o ever updating the will.
·
If the omission was accidental, Courts give the
spouse an intestate share.
·
If intentional, then elective share.
o
See Prestie
§
An intentionally omitted spouse occurs when there is
no pre nuptial agreement or when there is nothing in the will providing for
her.
§
Prestie
·
H gave her a life estate in his condo, then H
married her. H died. Is the will revoked at marriage, giving her a larger
intestate share? Or is it
o
It must be unequivocal. See Prestie
o
Pretermitted kids
§
If the kid was unintentionally left out of the will,
then the law assumes the kid should receive an intestate share.
§
UPC
·
Omitted kid takes an intestate share UNLESS
o
The will leaves a substantial amount to the kid’s
other parent AND said parent is entitled to take under the will (e.g., the will
wasn’t revoked by divorce).
Trusts
o
Requirements
o
A trustee is NOT required; court will appoint one if
necessary.
o
Settlor’s intent to create a trust
§
Jimenez v. Lee
·
Was it a trust or a custodianship
·
Dad wanted it to be a custodianship b/c it would
allow him to use the funds in any way for the benefit of his daughter.
·
As a trust, it could only be used for her
educational needs according to settlor’s intent.
·
The gifts imply a trust b/c it imposed a fiduciary
obligation on dad and language used by dad show it’s a trust.
o
Res
§
Unthank
·
Res must be specifically denoted.
·
Courts will not automatically assume that the entire
estate is to form the res.
§
Brainard
·
Uncertain, nonexistent future profits cannot qualify
as a res.
·
This is solely for tax evasion purposes. The profits
become a res only after they accrue to the settlor and he pays taxes on them.
§
But see Kingman
v. Pascal
·
If the profits are virtually certain to accrue, then
a gift/res is formed.
·
The K was already in place and settlor was working
towards performance.
o
Designation of beneficiary/ies.
§
At some point, there must be ascertainable
beneficiary; but not needed for charitable trusts. The beneficiary can be
unascertainable when the trust is created.
§
Clark v. Campbell
·
Settlor gave tee discretion to “distribute to my
friends”
o
UTC and Indiana
§
This is valid; can give tee discretion to distribute
o
Non-UTC
§
This is invalid. “Friends” is too vague, possibility
of excess litigation.
§
Searight’s estate
·
Settlor made dog the bn; tee to use the trust to pay
for its care.
·
Even though the dog can’t sue the tee, the trust is
valid for as long as tee wishes to carry it out. But, the residuary
beneficiaries can sue for reversion if tee neglects.
o
Either
§
A writing (Indiana)
·
But Indiana requires a writing for ALL trusts
·
All states require a writing for testamentary trusts
§
Or CCE of an oral trust
Rights
to trust distributions
·
Mandatory trusts
o
Tee has no discretion.
o
Creds can intercept IF there is no spendthrift
clause.
·
Support trusts
o
Tee must make distributions as necessary for
beneficiary’s needs.
o
Only child support, alimony, or necessaries
creditors can compel tee to pay.
·
Discretionary trusts
o
Creds can’t compel tee to pay them, but can get Hamilton order that it must be paid
before beneficiary.
o
UTC – Child support or alimony creds can compel
payment ONLY IF tee has not complied w/ the standard of distribution.
o
Pure discretionary trusts
§
Tee has absolute discretion
o
Discretionary support trusts
§
Tee has absolute, sole, or uncontrolled discretion
subject to a standard defined by settlor
§
Marsman v. Nasca
·
If settlor provides in the trust to “provide for the
comfortable care and maintenance” of the beneficiary, then the trustee has a
fiduciary duty to periodically question the beneficiary’s living situation and
provide as much income and, if necessary, principal to maintain the
beneficiary’s lifestyle.
·
Spendthrift trusts
o
It is a conditional gift, that donee cannot alienate
his interest in the gift. Thus, creds can’t reach it.
o
Voluntary creds can investigate finances.
Involuntary creds cannot; some states allow tort creditors to pierce the
spendthrift trust.
o
Child support and alimony
§
Shelley v. Shelley
·
Mandatory spendthrift trusts
o
The money is virtually in the beneficiary’s
possession, so it can be attached.
·
Discretionary spendthrift trusts
o
The creditor is limited to getting a Hamilton order
o
UTC
§
Spendthrifts are unenforceable against
·
Child support or alimony
·
The beneficiary’s trust lawyer
·
The gov’t
Modification
and termination of trusts
·
Revocable inter vivos trust
o
Settlor can always modify or terminate
·
Irrevocable inter vivos trust
o
Can modify or terminate if settlor and beneficiaries
agree
·
Irrevocable trust, deceased or disagreeable settlor
o
Trust must continue if it accomplishes a material
purpose of settlor’s intent.
·
Traditional law
o
Claflin doctrine
§
Beneficiaries can terminate except when continuation is necessary
to carry out a material purpose.
§
E.g., spendthrifts, support trusts, postponed
enjoyment w/ successive beneficiaries (Brown).
o
Equitable deviation
§
Trustee
can modify or terminate when there are unanticipated circumstances that impede
the trust’s purpose, but NOT merely to benefit the beneficiaries.
§
Stuchell
·
The purpose of the trust is to provide for settlor’s
descendants. That providing for a retarded descendant would remove him from
public assistance eligibility does not impede that purpose. It is merely to
benefit him.
·
Modern law
o
RS3 Trusts and UTC
§
Modification allowed when unanticipated
circumstances require modification in order to further the purposes of the
trust.
o
Riddell
§
Ending the trust would result in the State
immediately seizing them to pay for past due medical expenses. Continuing the
trust would preserve the funds for the beneficiary’s psychiatric care.
Continuation serves the settlor’s intent.
§
Further, Congress approved special needs trusts for
these situations.
Trustee
duties
·
Duty of loyalty
o
Self-dealing is a per se breach without prior judicial approval, settlor
authorization, or unanimous consent of beneficiaries. Good faith, prudence, and
fairness is not a defense (Hartman, Gleeson).
o
Breaching trustees are personally liable for
damages, even if they had little expertise, met w/ an atty, and consented to
the other trustees’ behavior (Rothko).
o
If a tee has a conflict of interest (e.g., favoring
a personal contractual relationship to the detriment of the estate’s
contractual relationship with the same party, Rothko), the estate’s interest must come first.
·
Duty of prudence
o
Includes:
§
Duty to act impartially to all beneficiaries
§
Duty to inquire into beneficiary needs (Marsden)
§
Prudent investor rule
o
Uniform Prudent Investor Act
§
Tee shall diversify trust investments unless special
circumstances indicate that diversification would not serve the trust’s
purposes.
§
Tee investment activity is viewed in the context of
the whole portfolio, not just in isolation.
§
Default rule. Settlor can expand or restrict this
rule w/ trust provisions.
·
BUT, if following settlor’s rules would harm the
trust or its beneficiaries, tee has a DUTY to seek judicial modification
of said rule.
o
Janes
§
Tee invested over half of the trust’s stock
investments in Kodak stock. Court applies UPIA and says tee failed to
diversify.
o
Damages
§
Stock value when it SHOULD have been sold plus
·
Interest since then (Janes).
·
Gains HAD it been invested prudently (Restatement, Rothko).
·
Wood
o
Waiver of duty of loyalty does not automatically
include waiver of duty of prudence.
o
Just because settlor waives duty of loyalty (i.e.,
allows self-dealing) doesn’t mean that tee can invest substantial amounts in
the tee’s own stock without having to diversify.
·
Duty to delegate
o
If tee is unskilled or unable, tee must delegate
investment duties to an agent, duty to delegate.
o
If tee exercises reasonable care in choosing an
agent, then tee is NOT liable to the beneficiaries for agent’s actions.
·
Duty of impartiality
o
Equal treatment not required; only fair treatment w/
respect to each beneficiary’s interests.
o
But this is subject to the trust provisions. If
there is a legitimate question as to who should be favored, and the trust says
to prefer one person over another, then the language prevails even if the
preferred beneficiary is already well off (Howard).
·
Impartiality and attributing returns between
principal and income.
o
Absent a trust provision, tee must decide.
o
Unitrusts
§
Where a specified percentage of the total trust
assets is distributed to beneficiaries every year.
·
If settlor sets up a unitrust, settlor decides the
percentage
·
If tee converts to a unitrust, there is a statutory
percentage
o
Indiana and majority say 3-5% with presumption of
4%.
§
Heller
·
It was a normal trust; income to W, remainder to
kids. W was receiving 190k. Kid-tees converted it to unitrust according to
statute, formula valued the trust based on market factors and statutory
provision of 4% resulted in W only receiving 70k.
·
When converting to a unitrust that benefits the tee,
it is not a loyalty (self-dealing) inquiry. Rather, good faith and fairness is
the standard, no prior judicial approval required (this is NY. Indiana requires
beneficiary-trustees to get court approval for unitrust conversion.)
·
Duty to inform
o
Tee must
§
Inform beneficiaries (either present or future,
vested or contingent interest, or power of appointment) of trust’s existence
§
Supply a copy of the trust at beneficiary’s request
·
Must provide the ENTIRETY of the trust. If there are
trusts within a trust, each beneficiary is entitled to know about all of the
trusts (Fletcher).
§
Send distributes a report at least annually
§
Send beneficiaries a report at their request.
§
Keep qualified beneficiaries (distributees and
contingent distributees on the date of correspondence) informed about the
administration and facts necessary for them to protect their interests.
Charitable
trusts
·
No named beneficiaries allowed. But they can be
either ascertainable or unascertainable.
·
Must serve a charitable purpose. E.g. RS3 Trusts:
o
Poverty
o
Education
o
Religion
o
Health
o
Gov’t
o
Community
·
Shenandoah v.
Taylor
o
T said to give the net income from his trust to the
schoolchildren every year at summer for the furtherance of their education.
o
Is it a benevolent, private trust subject to RAP? Or
a charitable trust exempt from RAP?
o
Charitable means helping society’s poverty,
sickness, education, etc.
o
Here, the trust would give money to kids after
school, when they don’t care about school anymore. Further, the tee has no
discretion in the disbursements or use of the funds. There is no guarantee that
the funds will be used for education. This is a private, benevolent trust; not
charity.
o
Henry should have given more discretion to the tee to determine how the funds would be spent to
further educational purposes or who needs it for educational purposes, or for
needy kids.
·
Cy Pres doctrine
o
Charitable trusts are not subject to RAP, they are
perpetual. When a trust’s purpose can’t be carried out anymore, becomes
illegal, wasteful, impossible, the trust should be modified to benefit
approximate purposes.
o
But this only works for general charitable purposes.
If it is a specific charitable purpose, then the funds revert to the estate.
o
Neher
§
The will devised property to the town to build a
hospital. The town already had a hospital but needed a town hall. Court said
that settlor had a general charitable intent to help the town, so they could
alter the terms.
o
There is a presumption of general charitable intent
that must be rebutted by the opponent.
o
Even if settlor provides a secondary charitable
recipient as a backup, the court may still apply cy pres on the primary gift.
·
Enforcement
o
Traditional law
§
Herzog
·
Only donors with a reversionary interest have
standing
o
Modern trend
§
UTC
·
Settlor and AG always have standing
§
Smithers
·
Settlor or settlor’s estate has standing when, e.g.,
o
Egregious misconduct
o
Lazy AG
No comments:
Post a Comment