VIEWS: 58 PAGES: 119 POSTED ON: 7/27/2012
Estates and Trusts: Professor Gray Introduction: Exam: Three hours, open book (bring anything into exam you want (ANYTHING!!)); cannot share materials during exam; two essays and some short answers (basic format); lovely question in middle of casebook (odds are some form on the final; prepare ahead of time and copy into bluebook). Assignments: Read first 9 chapters; we will take them in order; not tested on UPC; for exam, you need to know relevant PA statutes (KNOW THEM!!); no attendance aside from first two classes. Approach of Course: Revolves around nature of material; first 8 chapters are fairly simple; the problem with the first 8 chapters are rules, terms, etc. start to pile up; doctrine of dependent revocation is a little tough; chapter 9 is the material on estates and future interests (RAP). Class Notes Chapter 1: Lawyers, Estates, & Trusts Testimonials Holsapple v. McGrath: quitclaim deed defective because it did not contain the proper notary form; attorney guilty of malpractice and plaintiff’s could recover; no privity between plaintiffs and defendant attorney; Attorney represented DeVoss’, not the Holsopples. Traditional Rule: Privity required to sue attorney Modern Trend: Courts in recent times are doing away with the privity requirement. - As to the party wronged here, there is no question that it was the plaintiff’s; no evidentiary problem - Analytical problem privity - This case is illustrative of the trend of the attitude courts take towards privity; be careful because a will beneficiary can sue you!! - NOTE: Some jurisdictions have not adopted this approach with respect to privity PROBLEM : Oscar and Alma CARDINAL RULE OF INTERPRETING A WILL – attempt to determine the intent of the testor within the 4 corners of the document. GAP IN THE DISPOSITION!! Lawyer who drafted this did not cover all the bases. Nephews cannot take because no common disaster (both dieing at the same time) and neither spouse 1 survived the other by 30 days; as nephew’s attorney, you would sue the drafting attorney for the gap in the disposition; contrary to main case, here there is an evidence problem. (a) Evidence you would develop to show nephews of Oscar and Alma were intended beneficiaries in this situation? Only ones mentioned in the will. Statements made during the lifetime of the testators. No closer relatives. Possible non-probate property that went to the nephews. Earlier wills that had been properly drafted. - If you can’t show the nephews get it, the property passes by intestacy under intestacy statute (traditional approach) - To get nephews covered under the will, assemble circumstantial evidence such as statements made by Oscar and Alma in letters and made orally, lawyer’s notes showing drafting error, non-testamentary devices such as life insurance, a trust (either of which nephews were made beneficiaries of), prior will (doctrine of dependent relevant revocation), and maybe family situation. - Would it matter if nephew’s claim against lawyer was in malpractice or to include them as beneficiaries? If I represented the nephews in this case, I would prefer a malpractice suit as to an order interpreting the will to include the nephews as beneficiaries because the evidence that I have amassed in proceeding to interpret the will be inadmissible. However, you might still run into a privity problem. Getting a ruling on the intent of will - look inside the 4 corners of the will. Can’t look at any prior wills or any other evidence. Make sure there is a residuary clause in every will. Also define terms of will in opening paragraphs – Survivorship – survive by 30 days. 1540: English Statue of Wills requires that the will be in writing; the dispositions are supposed to be set forth in the written document; if that evidence is not included in the will, such evidence will be inadmissible; courts due distinguish between patent and latent ambiguity; general rule with patent ambiguity can’t interpret will outside the four corners of the will (but there is no such limitation if you bring a malpractice action against the attorney). (b) Would the estate have a claim against the lawyer? Quite possibly. The measure of damages might be the amount that has to be diverted from the estate to the nephews plus litigation fees. (c) How would you have drafted the two wills to avoid the problem? Two provisions that make sense in themselves but together do not; (probably would want a 30 day survival; stay away from joint wills!); To avoid a gap by a. Option 1 : Oscar wants to leave property to Alma if she survives by 30 days, and if she does not survive by 30 days, then the property will go to the nephews. 2 b. Option 2: The better way is at the beginning of the will to put in a definition section that includes a definition of survival (under this will, the term survival shall mean “survival by 30 days”). To Alma if she survives me, and if she does not survive me, to my nephews. Section 1.02  AN OVERVIEW OF INTERGENERATIONAL WEALTH TRANSFER [A] PROBATE - Property can pass at your client’s death either under the probate system or outside the probate system; the tendency today is to use both. - Probate system; proper testamentary disposition property passes under client’s will; governed by Statute of Wills (1540); property that passes under a will is administered by the probate court (orphans court in PA) Also, intestate property passes via the probate system. - SLICK Property may pass at decedent’s death but outside of probate: (1) LIFE INSURANCE POLICY (2) Joint Property – Joint tenants or tenants by the entirety – when first joint tenant dies, the property passes outside the probate estate to survivor (3) Retirement Benefits – pension, 401K, etc. (4) POD accounts – pay on death accounts, joint checking accounts. (5) Living Trust: When you die or upon happening of other conditions, the property passes outside your probate estate (not administered by will); a. Dacey trust has become rather common or popular, otherwise known as inter vivos or living trust: Convey property to trustee to pay income to you for your life, and upon your death, for the income to pass to your children; you may also retain a power to revoke the trust (revocable inter vivos living trust); why would you do this to avoid probate? i. To keep personal information private (will becomes public document; trust is a purely private document) ii. Avoid probate costs and lawyer’s fees (Dacey’s book “How to Avoid Probate”); Have to make sure every piece of property you own is in the trust or you have to probate the estate anyway; iii. Maybe good tax reasons for a wealthy individual; dacey trust will be included in your gross estate for federal and state inheritance tax 3 purposes (so you do not save on taxes for this purpose unless incredibly wealthy). iv. FIGURE 1-1 SAMPLE WILL Language used in will probate system: 1. The person who writes a will leaving his/her property under will = Testator (Testatrix); if you die leaving a will, you die testate (the property is distributed from the probate estate to your distributees); if you die without a will, you die intestate, and you are the intestant; if you die intestate, your property passes by descent to your statutory heirs (intestate succession). 2. English Statute of Wills (1540): part of common law (does not include Louisiana) Frequently, you will see a will = will of last testament (before 1540 (beginning of Reformation) in England, personal property only could be devised by a testament (could be oral). Could not write a will that transferred real estate prior to 1540. (testament personal property; will real property); after 1540, you could devise real estate and you needed a will for both real estate and personal property. WILL HAS TO BE IN WRITING!! 3. In a will, if you want to dispose of real property, that is a devise, and the person who receives the property is the devisee; gift of money is called a legacy and the person who receives the money is the legatee; other types of personal property (furniture, car, wig, ring, etc.), it is called a bequest, and the person to receive the bequest is also a legatee; the Uniform Probate Code and PA has done away with those distinctions (everything is now a devise); PA has only adopted parts of the UPC not all of it (definitions yes). 4. In Pennsylvania generally speaking, you do not need witnesses to a will § 2502 (repealed in 2504); PA is the only state that takes that extreme position; in most states you need two witnesses (witness is a person that signs the will after the testator signs) to have a valid will; in Vermont, you need three witnesses for a valid will. 5. Holographic Will: A will entirely in the handwriting of the testator (signed at the end) with no witnesses; in states where you have to have two witnesses for a will, they will recognize holographic wills; meaningless in PA. 6. Nuncupative Will: Oral will; generally speaking now, oral wills are not valid; they are not recognized at all in PA (§2503); in Ohio (and some other states), they will recognize an nuncupative will for small items of personal property; in the military (soldiers going into combat; cross to spouse). 4 7. Codicil: An addition or change in the will; rather than write a new will, you can write a codicil; must be executed with the same formalities as the will (signed by testator and witnessed (if not in PA)). 8. Probate Procedure: To probate a will: (1) File the will with the Registrar of Wills (branch of orphans’ court) for probate. (2) Court will appoint an executor or administer (Testate: a properly drafted will deems an executor (executrix) who manages the estate; court will issue letters testamentary so that the executor can administer the estate; fee will vary with value of estate; If you die intestate, someone has to petition the court to open the estate, fill out the forms, pay, court will appoint and administrator (adminstratrix); there is a third category known as a Administrator CTA, which is “cum testamento anexo” meaning “with the will attached.” For some reason or another, the decedent left a will that did not name an executor or executor refused or cannot serve (even though person died testate, court has to appoint an administrator CTA). UNDER UPC AND PA, old terminology not used, we simply say personal representative to include all terms. Duties of Personal Representative (permitted to hire attorney or act as attorney if you are one (entitled to be paid)): 1. LIST DECEDENT’S INVENTORY: Collect the Assets: Find out what decedent owned (Deed to house, car, life insurance, etc.); Make a list of Decedent’s Assets; File list with Probate Court (that list is called an inventory). 2. PAY DECEDENT’S BILLS – Open bank account in name of estate and transfer money to pay bills. 3. DISTRIBUTE PROPERTY LEFT TO DISTRIBUTEES/HEIRS 4. FILE REPORT WITH COURT TO CLOSE ESTATE: with some property, you might need an order or distribution; if there is a will contest, that might be part of the estate. - Author uses term “residuary devisee” o In any properly drafted will, there should be a residuary clause, which is the “leftover clause” but you should also deal with the question of what property gets sacrificed in what order if there are debts to be paid by the estate. §3541 in Title 20 – Order of Abatement – subsection 6 – property passing under the residuary 5 gets sacrificed first. Often times this is not what you want to have happen. Should have a provision that alters the order of the abatement. I leave my house to A, my car to B, my furniture to C, and all the rest and remainder of my property, I leave to X. If not specifically devised in other sections, part of residuary devise; if named in residuary clause, you are residuary devisee; REMEMBER: Oscar and Alma’s will above if that will had a residuary clause, then nephews cannot take as intestate heirs. That would be an additional reason why the ability to sue attorney is important; if no residuary clause or is void, then property not spelled out in the will passes under intestacy statutes. ***Tulsa v. Pope: Unless personal representative provide actual notice to know or reasonably ascertainable creditors, the probate process will not cut off the creditor’s claims. - If you a personal representative of an estate, it is not enough to put the notice that the decedent in the newspaper died; if you know of outstanding creditors or could reasonably ascertain the existence of creditors, you have to send them written notice of the death and request a final accounting; constitutionally required; corollary of Mulane v. NY Bank and Trust, quasi in rem distribution of assets (1947 Supreme Court Case dealing with disposition of funds held in a trust, requiring jurisdiction over such property and disposes of it; requirement of due process to actually notify known creditors). BACK TO OSCAR AND ALMA: the famous historical case that created the problem was Finch v. Lane – disposition was a remainder interest to Elizabeth if she reaches the age of 21; but if she dies under 21 without issue, then a gift over (GAP) – Elizabeth died under 21 with issue (one contingency; here, the condition on the divesting clause is different from the condition on the remainder, and Edwards v. Hammon still applies (Edwards and Hammon – divesting clause makes it remainder otherwise contingent vesting). Question Pg. 17: If you are drafting the will, you might suggest to the guy that this is not a good idea; the estate planner’s misdemeanor is to produce litigation; here, the court appointed the long time paramour to serve as the executor but it is the type of thing you should talk clients out of. Section 1.02  Is Probate Necessary? - In spite of what the bar association says, the answer is often no. There are situations where you should have a will, but in many instances when dealing with persons with modest income, you can get away without it and rely on intestacy statutes. - Where you absolutely should have a will: (1) Minor children involved (appoint guardians if both spouses die) 6 (2) If for whatever reason, the intestacy provisions are not adequate (one doesn’t need the money, the other disabled, the intestacy statutes are blind to that situation) (3) Sometimes title insurance companies require that property pass through order of distribution in probate court. Alice and Jeremy and property passes to surviving spouse in joint tenancy, but some title insurance companies will raise a fuss about this property not passing through probate. Or father/son (should be able to use affidavit, but some title insurance companies that require probate. At common law, technically the real estate did not pass through probate (order by probate court). [B] Lifetime Transfers  Trusts - The modern trust is derived from the Statute of Uses (England 1536) – executed the equitable estate and gave legal title and seisin to the beneficiary to prevent avoidance of medieval taxes; rule that developed was that the Statute of Uses did not apply to an ACTIVE TRUST; today, you must give the trustee some affirmative duties, not a passive entity to hold seisin/title; - A valid trust today must be an active trust (trustee must have affirmative duties) - Trustee pays income to A for life and A gets property at death - Modern trust law is derived from Statute of Uses and its consequences. - Treatise: Scott on Trusts (definitive treatise on the law of trusts) TERMINOLOGY ON TRUSTS (Chapter 8): 1. Inter vivos trusts versus testamentary trust: An inter vivos trust is created by a living person to another living person (between or amongst people; a dacey trust is a typical form of a revocable intervivos trust); a testamentary trust is a trust that is created in a will – you can have a provision in your will that is a trust). 2. A characteristic function of the trust is that it splits the responsibilities of the trust (manage – trustee) from the trust’s benefits (beneficiaries); splits legal and equitable title; trustee holds the legal title of the property for the benefit of the beneficiaries; the beneficiaries have the equitable title or the use or benefits of the property; trustee must have active duties to avoid the Statute of Uses; the person who creates the trust is the settlor; the property placed in the trust is the trust res (“thing”); the beneficiaries of the trust is the ces tui qui trust (ces qui); trustee (manages). 3. Trustee is entitled to be paid; Trusts are PRESUMED TO BE IRREVOCABLE; giving property to a trustee is a form of a gift; donative intent, delivery, acceptance; with dacey trust, if you want it to be revocable, you must say so. 4. Trusts that arise by implication or operation of law a. Resulting trust – Absence of a beneficiary; What do we do? 7 EXAMPLE: O conveys to “T and his heirs to pay the income to A for life.” When A dies, the trustee is not supposed to have a beneficial interest in this thing (T), so O must get the income T and heirs are trusts A has an equitable life estate O has a reversion (referred to as a resulting trust) When A dies, by operation of law, O has a resulting trust (T is obligated to convey title back to O) b. Constructive Trust – Really an equitable remedy; Father divine case; when someone has engaged in wrongdoing, acquiring money improperly, the court will impose a constructive trust on the property. A trust or equitable remedy that arises by operation of law. By the way, Statute of Uses, like Statute of Wills is a common law statute. Question 1: O owned Blackacre and gave W a first mortgage not recorded in fictional PA jurisdiction. O borrowed $30,000 from PJ (mortgage) and PJ unaware of W. W recorded and then PJ recorded. W assigned its note and mortgage to FMA (an agency of US gov); mortgaged foreclosed; your law firm’s client is interested in buying property from FMA. Agency will only convey by quitclaim deed. IT IS UNCLEAR WHETHER PA IS A NOTICE OR RACE NOTICE Comment [DS1]: Per Spyke in Property, PA is a race-notice jurisdiction. JURISDICITON; Grantor-grantee index. Notice: PJ wins whether records or not as BFP Race-Notice: W wins because PJ didn’t record first Comment [DS2]: Race Statute Between successive purchasers, the person who wins the race to RECORD prevails. Subsequent purchaser’s Not sure whether notice or race notice, don’t sign contract because you do not know whether knowledge of the prior purchaser’s claim is irrelevant. “Who knew what” is not relevant. FMA has good marketable title or not Protects a subsequent purchaser only if the subsequent purchaser records first. When FMA took the assignment, and they did a title search, depending on the scope of the Notice Statute If a subsequent purchaser had notice search, they may or may not have picked up the conveyance to W. of a prior unrecorded instrument, the purchaser could NOT prevail over the prior grantee. Protects only subsequent purchasers without notice. Protects a Discuss quitclaim deeds (be careful, no warranties) subsequent purchaser against prior unrecorded instruments even though the subsequent purchaser fails to record. Question 2: 1925, Shylo Spinner obtained from W’s estate certain lands in PA subject to an Race – Notice Statute Subsequent purchaser is protected against prior unrecorded instruments only annual rent charge. 1940 S (100 year lease) conveyed interest in part of the land to P. P took to if the subsequent purchaser (1) is without notice of stipulation to observe and maintain girdle building (covenant). the prior instrument and (2) records before the prior instrument is recorded. Punishes non-recording. P: covenantor Comment [DS3]: – A marketable title to real estate is one which is free from reasonable doubt and S: covenantee the hazard of litigation. It is one which a reasonable buyer would be willing to accept in exchange for valuable consideration. In 1985, O purchased from S. In 1990, F acquires P’s interest. O comes to you for advice, showing you a letter he wrote to Finn telling him of the agreement. Draft a memo you plan to give O. 8 SUE Is the covenant enforceable (run with the land)? Intent (presumed here), touch and concern (support for adjacent building), privity (tenorial/arises when a covenant is created in a lease); yes, covenant runs at law; equitable servitude may be a notice problem since F took before he got letter, but inquiry notice (yes). Could analogize this to an easement by implication or necessity Subdivision rights Question Do not write a lot!! Statute of Uses = Source of modern trust; common law statute applicable in every jurisdiction except Louisiana; common law statute is a statute passed by Parliament in England before either 1776 or 1606 (founding of Jamestown); notion of the common law theory is that a free born Englishman carries his common law with him. When you create an inter vivos trust, that falls under the law of gifts (Chapter 8); legal title to trustee for the benefit of the beneficiaries; inter vivos transfer, not a testamentary transfer; currently valid and outside the Statute of Wills (probate estate); if you want to make a testamentary transfer, a transfer effective at death, you have to make a will.  Other Lifetime Transfers Outside of Probate System 1. Life Insurance 2. Retirement Plans 3. Wage Benefits 4. Intervivos trusts 5. Pay on Death Accounts (POD); modern form of totten trusts – Matter of Tot NY court decided that if you open a savings account, you get a passbook, and the person put on the passbook “In trust for X”; The court said X gets the money (if there is any) when the person who wrote this died; this is how the courts validated this; in theory, this is an exception to the Statute of Wills. Had to use magic words “IN TRUST” at common law. Today, POD accounts or taker on death accounts (TOD); take account to bank in name of successor. [C] Introduction to Guardianship: Generally, the tendency now is to have a guardian of the person (minor, elderly person) and a separate guardian of the property (new innovation (last 15 or 20 years). You may need a guardian to manage assets (property); understand the term guardian ad litem guardian in terms of particpating in litigation. Notes And Questions: 9 1. Deciding whether an adult needs a guardian may be tricky because the adult may disinherit you (destroy relationship). Estate v. Wagner, 522 N.W.2d 159 (Neb 1994). 2. The court held that the guardian’s lawyer owes a duty not just to client but to the ward (disabled person) UPC and Restatements (tested on PA only in yellow book) - In PA: PA has borrowed from the UPC, but you cannot rely on the language of the UPC to find out PA law. - PA has a concept called the AUGMENTED ESTATE: approach taken in PA and NY, UPC adopted it, but changed it in 1990. 1.03: Federal Wealth Transfer Taxes - Introduction to alert you to the complexities of these death taxes; FEDERAL LEVEL 1. Federal Estate Tax 2. Federal Gift Tax 3. Generation Skipping Tax (GST) [A] A (Somewhat) Unified System The system works like a large beaker, and you use the unified credit up to a point to offset taxes. Example: Current Gift tax (annual exclusion --- $12,000 (to each donee by each donor – husband and wife separate donors)) and estate tax exemption as of 2007 is $2 million dollars. IF you give a single individual more than $12,000, you have to file a gift tax return (filed quarterly) Exemption of $2.0 mil means that you can make gifts of up to $2.0 mil to everyone and anyone without having to pay any federal gift and/or federal estate tax (in life or at death). The $20,000 lifetime gift will generate a gift tax, but the $2.0 mil dollar exemption will generate a credit. You have a total of $2.0 M under the unified credit. Can use part of the estate tax to offset any tax due on a gift over $12,000. Let’s say the gift tax rate is 45% and the unified credit on $900,000 ($2.0m X 45%). Let’s say that a $20,000 (amount over the $12,000 given) would generate a $9,000 tax, and the unified credit equals $900,000. You owe a debt of $9,000, which reduces your unified credit to $891,000. You are reducing the credit by the amount of tax the gift has generated in theory. You can give $12,000 per person away during your lifetime, and that is completely exempt from taxation. Anything over that, file a gift tax return; interrelated to estate tax stuff. 10 Second gift taxed at a higher rate because it comes on top of earlier gift. Add $20,000 to the beaker on the left (not taxed on it), but theory is that the used up unified credit. $891,000- $12,000 = $878,000. General Principle: If the client can afford it, use up the unified credit by giving away the total lifetime gifts and use up the unified credits because the income from the property given away and the increase in value of the property is then lower and out of the estate. That type of gift is an estate planning gift. Special rules dealing with Gifts to Minors. Question: Mom gives a blouse and then $12,000 at end of year. Ignore gift tax return? NO – Total amount of gifts in the taxable year exceeds the gift tax exemption. Should file a gift tax return. All of this is related to interstate tax estate The Gross Estate All of the estate is taken in gross estate. Just because property is not in the probate estate, it does not mean that it is not in the gross estate for federal estate tax purposes. This means you need to include insurance policy death benefits, 401K plans, joint property, POD accounts and property in life time trusts. When a married couple holds joint property, ½ of its value is in the gross estate of the first to die. The value of the joint tenant share is based on the percentage of contribution. Total value is in the estate of the last joint tenant. If the decedent has a life estate plus a general power of appointment (meaning you can appoint the remainder to whoever you wish, including yourself), it is equivalent to a fee simple that is pulled into the gross estate for federal estate tax purposes. Powers of Appointment: Typical in a trust to establish a trust. If you have a special power of appointment, you may avoid taxes. On the other hand, the Code is more generous to property received with receipts attached. ***Life estate + a general power of appointment = fee simple (pulled into the gross estate for federal estate tax purposes.) She owns it outright.  The Marital Deduction - The gist of the marital deduction: After 1981, you can leave property to a surviving spouse and 100% of what you leave to surviving spouse qualifies for the marital deduction and hence is not taxed. Property must be given outright to be part of the marital deduction. - When the second spouse dies, that person will presumably have most of it left, and it will be taxed then. 11 - This was not always the case. Before 1981, only 50% qualified for marital deduction. - ANYTHING YOU LEAVE TO SURVIVING SPOUSE QUALIFIES FOR THE MARITAL DEDUCTION. - In relying solely on the marital deduction, you may waste the unified credit, so it may be that you do not want to leave everything to the surviving spouse. - Often times, you may leave property to a surviving spouse in a trust. - Qualified Terminatable Interest Property (QTIP): Assume H dies first, and W is the survivor. In H’s will, H may leave property to a surviving spouse in trust, to pay income for W for life and give W power of appointment for the remainder, and you want it to qualify for the marital deduction, you have to get W a fee simple. Give W a life estate + general power of appointment (equivalent of fee simple); problem is all of that property will be included in W’s estate when she dies. - If you do not want it to qualify for the marital deduction, leave W a life estate and a special power of appointment of some kind (power to appoint remainder to anyone but herself, her creditors, her estate, or creditors of her estate). It is not a fee simple. W has a life estate and power to appoint kids…; when W dies, this will not be included in her estate. Therefore, you can set the trust so that it does or does not qualify for the marital deduction (LE + GPA (functional equivalent of fee simple) Congress has voted to phase out estate tax 2000: Related to gift tax In 2010, estate tax eliminated and no more step up in basis, and in 2011, the estate tax comes back (sunset provision) at the 1996 rates. Rather than having to pay an estate tax, you would have to pay capital tax on assets sold based on the original basis to the decedent. ABSURD!! Makes it very difficult to do sensible estate planning The Ethics of Representing Husbands and Wives NOTE: Confidentiality problems when 1 attorney represents both husband and wife PROBLEM : Theoretical possibilities are: 1. Single lawyer/firm representing each party separately 2. Set it up so lawyer represents family as a whole 3. Set it up so single lawyer represents parties jointly – get confidentiality waiver. 4. Separate lawyers (if serious conflicts/confidences that pose problems; most careful) PA Supreme Court Case: Maritrans Law firm representing business competitors; different lawyers represent different businesses, and business were in competition with one another 12 (leakages); Law firm argued that they put up a chinese wall in the firm but this argument failed, and they were subject to ethical discipline. Pearce article Represent both parties: get it straight up front; waiver form if problem (full disclosure)  Using the Unified Credit REMEMBER: In addition to federal estate tax (estate, gift, GST), you have state inheritance taxes. In PA, there is also an estate tax (a tax designed to pick up money because people evade federal tax/supplemental tax). 4 Examples in book 1-1A Judy and Phil: assets of $4.4 mil in Phil’s name; one of two estates uses lifetime exemption and marital deduction. Unified credit wasted. No matter who dies first, the estate will have a taxable value of $2.4 M 1-2 Equalize the estates: make sure each estate has $1.2 mil – that alone leaves same result What do we do? Credit shelter Trust HOW TO EVADE THESE TAXES: Credit Shelter Trust to take advantage of lifetime exemption and marital deduction. 1-1(B) When Phil dies, he creates a trust, and funds the trust (testamentary trust) with everything he needs to make the maximum unified credit ($2 mil), everything else goes directly to Judy; unified credit covers everything in trust, and marital deduction covers the rest. At Phil’s death, no tax is due. At Judy’s estate, her unified credit covers $2 mil of the $2.4 mil, and her estate pays taxes on only $400,000. Must be a non-QTIP. Put enough money in the trust to provide sufficient income for life. She will have less than complete ownership and they have to decide up front whether this is a good idea. Need to make sure survivor has enough to live on. Next example shows how to set it up so it doesn’t matter who dies first EQUALIZE ESTATES When you set up credit shelter trust, make sure that it does not qualify for marital deduction (do not give surviving spouse a fee simple equivalent (only special power of appointment); cost of doing that is surviving spouse may not realistically have access to those assets. SKIP GST SECTION: Generation Skipping Tax Three ways to run into skip problem 1. Remainder (taxable termination) 2. Special power of appointment (tax distribution) 13 3. Direct skip For wealthy people: Skip wealthy generation and give it to younger generation; now we have GST tax to make people pay for this; repealed, so you can get back to old skipping. Problems 1. Harry and Wilma were married, and Harry died recently. At Harry’s death, the following items of value were: a. Harry’s gross estate is $4.2 mil. (fed) Does not include trust with special powers. b. Assume Harry’s will gave probate estate to Wilma. What is Harry’s taxable estate? What is the marital deduction? All of it (life estate and probate estate); Harry’s taxable estate is 0 because of marital deduction. c. See book – formula set out put life insurance in and take it back out; taking advantage so that when Wilma dies, you can use her unified credit to shelter $1 mil, and there will only be tax on $200,000. 2. See book 3. did not do CHAPTER 2: INTESTATE SUCCESSION PA Section 2101 IF you die without a will (intestate), your property will pass to your statutory heirs (defined by PA intestacy statutes starting at 2101). 2103 Shares of Others than surviving spouse. RULE OF THUMB: Down up down up down (descendants, parents, brothers/sisters, nieces/nephews, grandparents, descendents of grandparents PA statutes track common law scheme of descent and distribution H’s Family Tree If you die without a will, who gets your property? Your intestate heirs as spelled out in your state’s statutes (PA 21 Section, particularly 2103) Before statutes, this was governed by common law rules of descent and distribution Might come into play as to who might have standing to challenge your will as well TERMINOLOGY: 1. Heirs: At common law, “heirs” is a term of art; esoteric learning required, so stay away from this term in drafting; when drafting an “end limitation,” for property, do not use the 14 term; at common law, the term meant heirs in indefinite succession; today, most courts would assume heirs in the next generation. REFERENCE TO INTESTATE SUCCESSION. 2. ISSUE (DESCENDANTS): Issue are your direct descendants (H’s children, grandchildren, great-grandchildren and so on (capable of inheriting a fee tail)). 3. ANCESTORS: Parents, grandparents, and so on. At common law, parents and grandparents could not inherit; at common law, no lineal ascent. Today, as in PA, parents are included in the category of heirs 4. COLLATERAL HEIRS: Distinct from descendants (parents, descendants of parents, grandparents, and descendants of grandparents; sisters, brothers, and aunts). 5. At common law, a surviving spouse was not an heir; wife=widow (dower); widower (curtsey); abolished in PA. 6. In diagram, H has a paternal first cousin; they share a common set of grandparents; the relationship between H and the son of his first cousin is that Xcp is H’s first cousin once removed; the relationship between C1 and Xcp is that they are second cousins; q is H’s first cousin twice removed; q is c’s second cousin once removed; g1 and q are third cousins. 7. Prince Charles is the heir apparent to his mother. He will not inherit only if he predeceases her or renounces (abdicates). Queen Elizabeth II and her sister Margaret (daughters of King George); QE inherited crown when she did not have any child; her sister M would be the heir presumptive (presumptions are rebuttable); once QE has a child, that child would replace the heir presumptive. [B] SURVIVORSHIP Uniform Simultaneous Death Act (USDA) - Originally, drafted in terms of common disaster: prevents the assets from passing rapidly through one or more estates - Today, the order of death is often able to be determined with 1/240th of a second with scientific advances. - Under UPC and in PA, there is a general survivorship requirement of 120 hours or five days (PA 2104(10)); put in to avoid business of determining order of death; flat survivorship requirement under intestacy statutes. - With a will, do not use survivorship without defining it as survival by 120 hours or 5 days (or 30 days). For the marital deduction, you can make the requirement that the spouse survive by up to 6 months without blowing it. [C] CHOICE OF LAW Real estate passes under the law of the state where the property is located. often you need to open an ancillary estate in the state in which the real property is located. Personal property passes under the law where the decedent was domiciled. UPC ~ PA but not identical; generalize to the extent that whenever you are talking about intestate succession (down up down up down aside from the rights of the surviving spouse); 15 that’s as far out on the family tree as you go (descendants of grandparents (down up down up down). KEY THING FOR BAR EXAM. [D] Protective Provisions PA does not have many – negligible, per Gray. Notes and Questions 1. These intestacy rules are purely mechanical and only govern the probate estate. They do not take into account family situations or the individuals needs of certain members of the family. Often times, they are not adequate. If you do not like the statutory pattern of distribution, make a will. a. Basically speaking, the intestate statutes do not take into consideration other forms of wealth. EXCEPTION: 2109.1 ADVANCEMENTS (PA): must be declared in WRITING – Use the term advancement only with an intestate estate; the term under a will is a satisfaction. Example: when one kid gets property ahead of the other, one will say that he is being treated unfairly (usually the problem); companion situation parent writes a will leave half property to each kid; one kid got extra money during lifetime; since decedent wrote a will, it is not called an advancement, but rather a satisfaction (ademption by satisfaction). ** IN PA, it is uncertain whether you need a writing to have a satisfaction (you need evidence); PA does not have a statute governing satisfaction but does governing advancements. b. What you could do to take into account other forms of wealth transfer, allow a surviving child to take a forced share based on an augmented estate (for certain purposes, you pull in certain property that passes out of probate); at the moment in PA, a surviving spouse can do that; surviving spouse in that case can, if left out, renounce the will and take a forced share; in calculating the forced share, it is calculated against the augmented estate. YOU CANNOT DISINHERIT A SPOUSE UNLESS YOU REALLY PUT YOUR MIND TO IT (take the risk of defrauding a surviving spouse)( you could try a trust, but there might be ways around this); generally, you CAN DISINHERIT YOUR KIDS (EXCEPT LA)!! PROBLEMS 1. Separately owned stocks only pass by intestacy 2. REVIEW OF PA Statutes 2102: Surviving Spouse is an intestate heir; if you read through this, different than UPC 2103: Shares of Others than Surviving Spouse: After Spouse (down up down up down): 1. issue 2. parents 16 3. brothers, sisters, or their issue 4. grandparents (paternal v. maternal) 5. Uncles, aunts, and their children and grandchildren (look to 2104 common law degrees of relationship) 2104(1) talks about taking in different degrees; 6. Commonwealth (escheats to the Commonwealth) 2104 PA does get into different degrees of relationship; this statute modifies common law In all states, a surviving spouse is an heir under insistency under current law. Not the case under common law – spouse would get only dowry brought to the marriage. Common Law Degrees of relationship: When H dies children would inherit equally. If one of the children would die first, the grandchild of the dead child would inherit the child’s portion again equally under substitution by relationship. - Assume that when H dies, survivors are paternal uncle and maternal first uncle. - At common law, who gets the property would be determined by degrees of relationship; o Between H and his uncle; count back to common ancestor and then count forward; two steps back to grandparents, one out to uncle = Uncle in 3rd degree of relationship o H and maternal first cousin: 4th Degree of relationship o At common law, uncle gets everything because he is closer in degree of relationship. Doctrine of Blood of the first purchaser – H inherited RE from Mother. Only heirs were paternal uncle and maternal 1st cousin. Under common law, RE inherited from the mother’s side would stay in the mother’s family, ie the 1st cousin. This Doctrine has been abolished. Look at: 2104(5) Source of Ownership – Statute that repeals Doctrine of the Blood of the First Purchaser This section repeals the doctrine of the blood of the first purchaser; At common law, if H died intestate, and survived by paternal uncle and maternal first cousin, under degree of relationship, everything to uncle. But, suppose H had inherited the real estate from his mother’s family, the real estate would pass out of maternal family under degree, so the doctrine blood of first purchaser made it that if H inherited property from his mother’s side of the family, then the property would stay on the maternal side, and the maternal cousin would get everything knocking out uncle; abolished in PA by 2104(5). 3. UPC: when children are all descendants of H and W, W gets everything (survivor). The theory is that the surviving spouse would want to take care of such children. 17 a. PA – 2102(3) Share of Surviving Spouse: Shannon $30,000 plus have remainder, totaling $60,000; Kate would get $30,000. b. Kate predeceased family, gets nothing; Shannon did not survive by 5 days, so she doesn’t get anything (PA 2104(10) or UPC); PA statute prefers nephew to uncle according to statute even though they are in the same degree (at common law, uncle and nephew would split.) Qualifying to Take 2102 READ OVER A COUPLE OF TIMES AND MEMORIZE FOR BAR!! Questions 1. UPC has draft proposal for significant others. Often in these situations, the will will be challenged on the basis of mental capacity. 2. How strictly should courts determine divorce statutes? In PA, look at 2106(a) Spouse’s Share (DIVORCE). No more common law marriage in PA, abolished in 2005 effective 1/1/2006. Committed partners – make sure there is a will, set up trusts and have power of attorney. However, make sure that what you do may be undone if there is a split. [B] CHILDREN OF UNMARRIED PERSONS US SUPREME COURT CASE: Trimble v. Gordon - PA 2107 Persons Born Out of Wedlock (a) Child of mother (b) Marriage of Parents (deleted because of Trimble v. Gordon) (c) Child of Father 1. Married 2. Father openly holds child out to be his/supporting 3. Clear and convincing evidence (evidence of paternity/prior court determination) No question that person born out of wedlock is an heir of the mother; the question is whether they are an heir of the mother. Notes and Questions 1. Equitable Adoption is not recognized here, so equitable legitimization probably wouldn’t work either. 18 2. Kid can’t inherit from sperm donor 3. DNA evidence (reasonable reliable at this point, so should be allowed) [C] Adopted Persons PA 2108 Adopted Persons SHORT RULE: The adopted person is placed into the family of the adoptive parents for purposes of inheritance Adopted child may inherit from natural kin but not natural parent Equitable Adoption (Adoption by estoppel) is not recognized in PA according to old case law (Benson v. Nichols 92 A.2d 139). It’s an old case, so PA courts today may change this. UPC provision different than PA ADOPTION OF AN ADULT Problems and Question 1. In book 2. book 3. 2104(9) Person related to decedent through two lines – A person related to the decedent through two lines of relationship shall take one share only which shall be the larger share [D] Half Bloods No difference in PA (2104(3)) – whole and half bloods take the same UPC takes into account relationship [F] Posthumous Children - conceived before death, but born after; they inherit - PA 2104(4) - Mother may predecease the child as well today Question (pg. 59) Recent Federal Court of Appeals case saying child conceived after father’s death allowed to inherit; opens up a brand new issue with rules governing closing a class.\ [G] Identifying Next of Kin MAXIMUM IN PA – Descendants of Grandparents; older PA case where you had laughing heirs; current statute puts a stop to that 19 2.03 Allocating Shares [A] Spouses [B] DESCENDANTS AND COLLATERALS IMPORTANT SECTION PA Statutes are screwed up like UPC Compare 2104(1) (passing by representation) to 2514(9) – Inconsistent statutory language ***Very important for calculating intestate distribution and the language you might want to put in a will to describe what one should take. [B] Descendants and Collaterals Use diagram at top of 63 to illustrate this FOUR TYPES OF DISTRIBUTION: 1. Strict Per Stirpes – If you write a will, stay away from the term in PA (spell out that property is to be distributed per capita by representation in accordance with the language in Section 2105. - Go to the next generation (A,BC), even though everyone is dead, split everything 1/3rd each and go down from there; A’s descendants will get 1/3rd, K will get 1/6; U and V would split their parent’s 1/6th which is 1/12th each for U and V; W gets 1/3rd; since C had three children, O will get 1/3 of 1/3 which is 1/9; X being a descendant of M will get 1/9th and Y and Z, descendants of N will each get half of 1/9, which is 1/18th each for Y and Z. 2. Per Capita With Representation (old common law per stirpes/common law inheritance distribution; for centuries, it was called per stirpes) PENNSYLVANIA - Skip an empty generation; since A, B, and C are all deceased, you skip it and go to the next generation and make the split there; each gradchild is accredited with 1/6th each; K would get 1/6th; U and V get 1/12th; W would get 1/6th; X would get M’s 1/6th; Y and Z would each get 1/12th. If N were alive, Y and Z would not get anything under per capita by representation. - IN PA, if you look at Section 2104(1). – Taking in different degrees (shall pass by representation); Section 2514(9). – Lapsed and void devisees and legacies; substitution of issue. – (per stirpes) here it means common law per stirpes, which is equivalent to per capita by representation. 3. Per Capita Distribution 20 - Refers to strict per capita - Not going to run into it in an intestacy statute - Someone might in a will direct property to be distributed per capita, but unusual - Per capita equals “by head” - Referring to diagram on 63, just count up the number of heads that survive I (8 descendants here, so each get 1/8th of I’s estate) 4. Per Capita at Each Generation - UPC does not recommend per capita by representation anymore and it adopted North Carolina’s per capita at each generation - Go down to First generation with class members: 6 of them, 2 survived, K and O each get 1/6th; then, as to the desecendants of the other 4, you go down to dispose of the other 2/3 of the property evenly amongst next generation; you have 6 great-grandchildren, so each gets 1/6 of 2/3, which is 2/18 or 1/9. PROBLEMS: IN BOOK (pg. 66) 1. (a) A (1/3); D (1/3); E (1/6); F (1/6) (b) A (1/3); D, E, F (2/9) 2. PA D, E, F (1/3 each) UPC Same 3. PA E, F,G (1/3 each) UPC Same 4. B gets $30,000 plus ½. Of the remaining amount – C gets ½. E gets nothing being the spouse of predeceased child. G & H get 1/3 and J and K get 1/6. 5. I survived on mother’s side by 1st cousin and on the father’s side by an uncle and his two children. PA – Uncle gets ½ and 1st cousin gets ½. If Uncle were dead, then his children would get ¼ each. UPC – The same. 6. Eugene died leaving two relatives. Terri is the granddaughter of Eugene’s father’s grandfather. Constance is the daughter of Eugene’s mother’s grandmother. Who takes Eugene’s estate under PA? Escheats to the Commonwealth because PA only goes to the descendants of grandparents (SAME FOR UPC) 7. Dealing with descendant’s of grandparents, so start by splitting in half; on maternal side Rose’s heirs: half split between maternal and paternal. Then there is no distinction 21 between whole and half blood relations. On mother – each one of the four surviving gets 1/8. On the father’s side, the three get 1/6. UPC and PA is the same 8. Skipped 9. Skipped Biggest drafting problem in PA is the use of the term per stirpes. If you are drafting, use the term per capita by generation as it has been defined under UPC and used in Title 20 Section 2104(1) of PA Statutes Annotated. Jarndis v. Jarndis: case remained open for decades until equity finally closed it when there was nothing left; Livingston v. Jefferson: stayed open for almost 100 years. Chapter 3 WILLS Last Will and Testament – until 1540 could not write a will to transfer real property. Prior to 1540 could pass personal property by will. The Planning Process - To avoid intestacy statutes; basic skeletal form (gathering info, identifying property, client’s goals, choosing appropriate language, etc.) The Creation of a Will [A] What’s A Will [B] The Mental Element  Intention In re Estate of Kuralt: He wrote two letters, the second is inconsistent with the first if you consider the first a will; his paramour was Shannon, and his wife did not know of her; died unexpectedly and Shannon claims that his 2nd letter constitutes a holographic codicil (entirely in writing of testator, signed at the end) to the 1994 will. The issue is whether or not the decedent had the requisite testamentary intent or a present intent to make a future codicil. On the surface, it is question, but with extrinsic evidence, court decided that it was a valid holographic codicil. The decision here does seem to carry out the intent of the testator although imperfectly expressed. PROBLEM? Testamentary intent; other element is the tendency on the appellate level to show deference to district court (single instance case). CARDINAL RULE FOR INTERPRETING A WILL: To carry out the intent of the testator if it is determinable. You mean to say that you can construe a letter as a will? Yes, and PA is very loose on this principle; it doesn’t even need to be in the testator’s own writing (friendly letter). Doesn’t even have to be on paper; just signed at the end. (2502) 22 Typically, a nuncupative will only applies to small items of personal property and in extreme situations (military); PA does not allow them, but New York and Ohio does. Why does PA not require witnesses? Quaker heritage (Quakers would not take oaths) Notes and Questions: 1. Skipped 2. A document that is by its terms contingent on the happening of a future event may still exhibit testamentary intent. Conditional wills 3. Taylor v. Hodges: Conditonal Wills are generally recognized in PA (Morrison’s Estate 361 Pa. 419; 65 A.2d 384 (1949); PA recognizes will only to take effect upon the occurrence or non-occurrence of some event or contingency; language validated: Should I die… In case of my death … In case I do not return … In case I do not survive the operation …; If you are drafting the will, you want to stay away from these types of things because they create litigation.  Testamentary Capacity Minimum requirements – know what you own, know who you want to leave it to, understand the plan to dispose of the property and know that you are making a will and understand how it all works together. These are the tests in PA. (1) REQUISITE AGE: You have to be 18 or older (2501) (2) Minimum testamentary capacity: no mental illness or insane delusion (3) Free from undue influence (4) Free from Fraud **Four elements of testamentary capacity: Age, mentally capable, free from undue influence, and free from fraud. PA cite to mental deficiency: Estate of Riechel 484 Pa. 610; 400 A.2d 1268 (1979) Testator is required to know to prove capacity: (1) Minimum mental capacity to form a will (understand it is a will at the time it is executed) (2) Capable of making an orderly plan (3) Capable of understanding the extent of your property (4) Know who are the natural objects of your bounty – who gets what or doesn’t get. (5) Valid testamentary intent Recent Arizona case: a man in his 40s, retarded (mental age of 12 year old); extensive collections of things that were of value; both parents died; a neighbor took him in and took care of him; the collections were well-ordered; he had two or three older brothers who he didn’t get along with; he wrote a will, leaving everything to the neighbor woman and the brothers 23 challenged the will as to whether or not he had minimal testamentary capacity; the court went through this test and said YES. Suffering from a mental illness, retardation or disease does not necessarily mean that you do not have the requisite mental capacity; even if you are civilly committed to a mental institution, you do no lose your civil rights. In Re Estate of Srittmater: Extreme man hater left her property to the national women’s party; characterized as an extreme group at the time; devise knocked because she was deemed not to have the requisite mental capacity; probably not the same result today. Split personality. Notes and Questions (pg. 82): An insane delusion that has no effect upon the will’s provision is irrelevent. An insane delusion is a belief, adhered to against reason, impossible under the circumstances, which leads to an unnatural disposition. It is sometimes difficult in a particular case to separate mental deficiency from delusional problems. A lawyer preparing a will for someone who clearly lacks testamentary capacity would be committing fraud. 7. Theoretical issue with whether court should be able to alter what will wanted.  Undue Influence Factors of undue influence: 1. The existence of a confidential relationship 2. the influencing beneficiary’s participation in some part of the will’s preparation. 3. the extent of secrecy and haste 4. the extent the new plan changes earlier plans. 5. the extent the beneficiary’s benefit is unwarranted or unfair in light of other possible claimants 6. the testator’s susceptibility to influence 7. the existence of independent advice PA cases that define undue influence Taylor’s Estate 223 A.2d 708; Millman’s Estate 203 A.2d 202 Imprisonment of body or mind, lack of free agency subject to present fraud, threats, physical or moral coercion; one can be a victim of undue influence in part or in whole. Leaving children out of a will in and of itself is not evidence of undue influence (Ross’s Estate 462 A.2d 780) 24 Standard of Proof in Pennsylvania: Generally speaking, PA follows the preponderance standard; most jurisdictions use clear and convincing evidence; the opportunity to revoke tends to rebut the claim of undue influence; usually run into problems with this where someone had a confidential relationship with the decedent (doctor, lawyer, clergyman, etc.). 97 a2d 14 Williams v. McCarroll – standard of proof is preponderance. The general rules on confidential relationship is that when there is a confidential relationship and thet decedent had limited mental ability, that will shift the burden of proof to the proponents of the will. Typically, the burden of proof to show undue influence is on the challengers. Age: person who files will for probate has burden; in other cases, the persons challenging the will have the burden of proof, but that burden of proof may shift with undue influence when person exhibiting undue influence on the decedent has a confidential relationship with defendant and decedent had limited mental ability. Olsen v. Corporation of New Melleray: Mr. Finney, unmarried 72, lived on a farm with his unmarried sister; the will at issue here was prepared by O’Connor and O’Connor and one of the attorneys witnessed the will and prepared a codicil and was one of the witnesses to the codicil, which gave most of decedent’s property to the church (atty. was one of the directors/representer of the devisee of this money); contestants were nieces and nephews who never bothered with this guy; jury found for contestants; this court agrees because they do not want to overturn the jury’s decision. Evidence points out that testator was in weak mental condition and there was a confidential relationship; (1) Confidential relationship + (2) Weakened mental capacity = Undue Influence Issue in the case is related to a mortman statute (dead hand): in 1290, quiet torres also passed in England; Statute of mortmane prohibited individuals from giving property to the church on their deathbed. Modern statutes that prohibit that in this country are referred to as mortmane statutes. PA had a mortmane statute until 1975, and in PA, the mortmane statute was declared unconstitutional by the State Supreme Court in St Cavill’s Estate 459 Pa. 411; 329 A.2d 503. Flavor of deathbed statutes in this case. Notes and Questions (pg. 87) SEE BOOK PROBLEMS 3. What more would you want to know before deciding if the undue influence claim might stick. Sounds like there is a confidential relationship and limited mental ability; if Robin has become ill, then you have two conditions by which someone can argue undue influence; absent same sex marriage, you are going to have to plan for your client well ahead of time (before sick). Get evidence to show sound mental capacity (get a report from a psychiatrist). 25 Look at problem 1 on page 89 and 90 for Wednesday and look at PA statutes First Problem on Page 89: 1. Get into the issues of confidential relationships; nowadays, this is not enough money to fool around with ($9000); anyone with a claim under $10,000, don’t bother with it (rule of thumb). If you were going to litigate something like this, argue undue influence: the most commonly-identified factors are: - The existence of a confidential relationship (yes) - The influencing beneficiary’s participation in some part of the will’s preparation (yes) - The extent of secrecy and haste (no) - The extent the new plan changes earlier plans (not enough facts here) - The extent the beneficiary’s benefit is unwarranted or unfair in light of other possible claimants (this does not look unreasonable) - The testator’s susceptibility to influence (we really don’t know) - The existence of independent advice (he talked to plumber) Hard case: In a case like this, this is a good checklist to go through  FRAUD 1. Fraud in factum (execution): Testator conned into signing wrong document; challenger has burden of proof. 2. Fraud in the inducement: Arch-typical example: suppose that father wants to leave substantial amount of property to his son, but is concerned about son’s relation with his wife; son misrepresents facts of relation with wife to father and father leaves everything to him; testator misled as to a material fact; if the testator had known the truth, he would not have left the property as he did. 3. Mistake: Father calls up neighbor who doesn’t know anything about the son’s relationship, says looks good to me. Father leaves everything to son. Not fraud. Just relied on incorrect information. Problem (pg. 90) Was it fraud in the inducement? Daughter told mom father left everything to brother. Mom executes will leaving everything to daughter. Look at the dollar amounts. Possible depending on additional facts. Was there in fact fraud here? What’s the difference between most of the father’s estate and the entire estate? Was there a significant difference and does it really constitute a misrepresentation? We need to find more objective facts. Even if determined to be fraud, did it really have any effect? What sums of money/property are we talking about? Was it an innocent misrepresentation or a serious one? 26 Remember: son and daughter in law case from last time. Testamentary capacity: 18 or over, no fraud, no undue influence, capable mental capacity. MISTAKE: Generally speaking, if the testator makes a mistake in fact, that is not enough to knockout the will (you need to show fraud in the inducement); dealt with later in this book. [C] Will Execution  The Policies 1. Ritual Function – reduces possibility that testator was acting in a casual or haphazard manner. 2. Evidentiary Function – Written statement of intention can have the advantage or preserving in permanent form the language of the testator. 3. Protective Function - protecting the testator against imposition at the time of execution. 4. Channeling Function (recognizeable order) Section 2502. Form and Execution of a will. Every will shall be in writing and shall be signed by the testator at the end thereof, subject to the following rules and exceptions: (1) Words following signature. -- The presence of any writing after the signature to a will, whether written before or after its execution, shall not invalidate that which precedes the signature. (2) Signature by mark. – If the testator is unable to sign his name FOR ANY REASON (Exam question, guy signs by mark, not clear why, no long discussion necessary), a will to which he makes his mark and to which his name is subscribed before or after he makes his mark shall be valid as though he had signed his name thereto: Provided, That he makes his mark in the presence of two witnesses who sign their names to the will in his presence. Dual Presence Test. (3) Signature by another. – If the testator is unable to sign his name or to make his mark FOR ANY REASON, a will to which his name is subscribed in his presence and by his express direction shall be as valid as though he had signed his name thereto: Provided, That he declares the instrument to be his will in the presence of two witnesses, who sign their names to it in his presence. Dual Presence Test. Subscribed at his direction – someone signed his name at his direction Declares the instrument to be his will in the presence … – Publication rule - You do not even need the date in PA - READ 2502 OUT LOUD!! [a] In Writing Nuncupative wills Soldiers and Sailors wills 27 Nothing in PA says you can use video or audio – make sure it is writing in PA. Don’t use a video or DVD. Can use this as supportive documentation in preparation of will that you think might be contested as with gay couples. Best solution - create a trust with all assets going into the trust and having the survivor receive the trust. Make sure that powers of attorney are in place and health care/living will. [b] Signed PA CASES: Initials Okay Father Okay TX Rubber stamp Be careful with signatures at other places on the document - Sometimes lawyers insist on initialing each page – Grubbs Estate, 174 Pa. 187; 34 A.2d 573 (1896)(you can sign on each page); wouldn’t do it because if you miss a page you’ve produced litigation, just sign at end of text; if you have multiple pages, refer to the number of pages in the text of the will. Have witnesses even if not necessary just to be safe (PA). [c] Attested in the Testator’s Presence Not a big deal in PA unless you have signature by mark or by another, where PA has the dual presence requirement. Authors tell you that almost everywhere except PA, you need 2 witnesses (VT-3) In Re Demaris’ Estate: Will signed in doctor’s office; Issue as to presence of testator while doctor witnessed will. Dr. was not in the line of sight of testator while secretary was. Conscious Presence Test: Liberal trend Any of the senses that a testator possess may be employed to allow that witness was in presence of testator. Line of Sight Test: Old, strict interpretation Disinterested witnesses – as the doctor and nurse were not named in the will, there was no real problem with signing outside of the exam room. At the end of the opinion, the court uses the term substantial compliance In PA – with the dual presence requirement for signatures by mark or where another signs at the request of the testator, witnesses must be in the room. Notes and Questions 1. UPC does not require the witnesses to sign in each other’s presence, but within a reasonable time (2-502). 28 2. Publication Requirement (word not used in PA and you do not have that in PA unless it is signature by another). 3. Difference: You can understand why you want the testator to sign in the presence of the witnesses – prevent fraud; the other way around does not make too much sense. PAthere is no case law on this, but the dual presence test is in the statute for signature by mark or another. To litigate, you would have to get into the case law of other jurisdictions. 4. Interested Witnesses - Stay away from this!! Get individuals who are completely independent to witness the will. Also, get people who are significantly younger than the testator and staying in the neighborhood. Don’t have any one in your office witness a will - [d] By Competent Witnesses (1) Mentally competent (and younger than the testator) (2) Disinterested In Pennsylvania – Title 20 Section 5921: You can have interested witnesses in PA, but if there is a challenge, it becomes a jury question (PA does it case by case); but an interested witness is not automatically disqualified here; In practice, get two disinterested witnesses + a self-proving affidavit. Make sure there is a residuary clause in the will. Estate of Parsons: California case with 3 witnesses; two of the witnesses were named in the will as beneficiaries; Neilson filed a disclaimer to disclaim his $100 nominal gift; will challenged; this court reversed and found the gift to the other witness void. I: Whether the disclaimer validated the second signature and made it disinterested (NO). Challengers are intestate heirs, no residuary clause here. The California statute did not invalidate the whole will; it just knocked out the interested party’s gifts. Worried about FRAUD here. Statute read quite literally. In PA, a little looser, but you might run into a challenge if there is a question of fraud or undue influence. DISCLAIMERS/RENUNCIATIONS – name taker under the will can renounce or disclaim the gift. You do not have to take it. Way you renounce in PA – §6201 – Right to Disclaim – A person to whom an interest in property would have devolved by whatever means, including a beneficiary under a will, an appointee under the exercise of a power of appointment, a person entitled to take an inter vivos transfer, a donee under a third party beneficiary contract (including beneficiaries of life insurance and annuity policies and pension, profit – sharing and other employee benefit plans), and a person entitled to a disclaimed interest, may disclaim it in whole or in part by a written disclaimer which shall: 1. describe the interest disclaimed 2. declare the disclaimer and extent thereof; 3. and be signed by the disclaimant. 29 The right to disclaim shall exist notwithstanding any limitation on the interest in the nature of a spendthrift provision or similar restriction. Supernumery witness – having an extra witness to a will Could the lawyer been sued for malpractice for interested witnesses/no residuary clause? Yes Problem (pg 101): UPC Wanda gets full $50,000 (statute page 93) Less of two Wanda gets $40,000 [e] Some Other Rules 1. Publication: Testator must tell the witnesses that the document is a will. RULE: No requirement of publication in PA (Brantlinger’s Estate 418 Pa. 236). But remember about signature by another, testator must declare that the instrument is his will in the presence of the two witnesses. 2. Order of Signing: Witnesses after testator’s signature generally Question: Contrary to the common understanding of choice of law and ethics (outside scope of this course) [f] Attestation Clauses and Self-Proving Affidavits Gray’s Explanation: When you probate a will, you have to prove up the signatures (if challenged); witnesses to the will help, but they have to be brought in to testify; evidence is a little better than proving by writing itself; it’s easier to have a self-proving affidavit, PA 3132.1. Statute spells out the form – USE IT. Self-Proving Wills; if you have the affidavit, you can avoid having to bring in witnesses; make testator and witnesses sign will and affidavits; notarized, self-proving on its face (you don’t have to bring in witnesses to testify (more difficult to challenge the will). If there are no witnesses on the will – have to bring in two people that say that is the testator’s signature. If you have witnesses, you must bring in witnesses to prove the signature was testator’s signature. If witnesses are dead or moved away – you have a problem. Use the affidavit. REMEMBER – witnesses and testator sign both the will and the affidavits. Problems 1. Checklist for Executing wills 2. Draft a simple will (see model will at beginning of the will/form books)  Holographic Wills 30 Other states, a will entirely in the hand of the testator, signed at the end, then you do not need witnesses; sometimes the state requires that the holographic will be dated ((PA – no; Revercomb’s Estate, 315 Pa. 424; 172 A.2d 850(1934) (you do not need a date on a PA will)). Notes and Questions: 1. Consistent with the UPC’s general approach, intent can be shown by extrinsic evidence and/or portions of the will not in testator’s handwriting. In states that require the holographic will to be entirely in the testator’s handwriting, cases go both ways as to whether or not to allow it to come in as a holographic will 2. Proof question. Problems (pg. 106-107): 1. Case that this is based on said yes (Estate of Black, 641 P.2d 754 (Ca.); split of authority; court in this case concluded that the handwritten portions were dispositive. Traditional view - must be completely in testator’s handwriting. No fill in the blank forms. 2. Material provisions state: No based on 1981 Arizona case, 630 P.2d 1039 Estate of Johnson; reporters of UPC severely criticize this. 3. Estate of Wong, did not work in Ca. but would probably go through in PA. 4. Shannon wrote 1995 in the corner of her handwritten will? Is that close enough if has to be dated? Split on authority. In other states, it is easy to run afoul on technical requirements. ** Friendly letters can be construed as wills in PA  Mistake in Execution In Re Will of Ranney: involves a screw up with a self-proving affidavit; the pages of Russell’s will were not numbered or attached before execution; witnesses were to be the two secretaries in the law office (bad even though many people do it), and the screw up was that the witnesses signed the self-proving affidavit and not the will; The court held that this will can be admitted to probate because it substantially complied (bears resemblance to Cy pres (“close enough”)) with the requirements of the statute (spirit should control over the letter, and we will overlook this). Statement talked about excused noncompliance, and the Restatement backed away from that: The NJ court was using substantial noncompliance; does the court have the power to excuse noncompliance? No. There’s a difference between saying that something came so close and letting it go with substantial compliance than literally giving court the power to dispense with requirements when they do no like the rules. NOTES – self-explanatory Fudge language: 2-503 31 Pg. 111 Mann article: Salutes the carrying out of the intent of the testator (cardinal rule for interpreting wills); excused noncompliance seems to be too much for most people; the article does point out that the statute in South Australia and later jurisdictions have adopted the excused non-compliance approach (far away from technical rules; extreme reliance on judicial discretion); ideological issue. Harmless error – court attempts to deal with the problem Estate of Sky Dancer: 2000 case; In this case, we are not dealing with a minor deviation from the forming requisites of the preparation or execution of a will. Here, the “Will” or at least the dispositive portion of it, cannot be attributed to the decedent; bad will (not a will at all under any definition); Author dipped into theory here Notes: 1. Substantial compliance focuses on being close while harmless error (excused noncompliance) allows courts to focus directly on the intent of the testator. A third approach is reforming the document. At equity you need mutual mistake to reform a contract. 2. Alexander Excerpt: Someone signed will at beginning (no go even in PA) Question: 1. 2-503 of UPC: excused non-compliance The traditional rules provide a decent amount of flexiblity; skeletal system of rules is sophisticated enough that there’s a good deal of room for maneuver; it is objectionable to create a situation where we do away with the rules completely; another problem with giving a dispensing power (discretion to courts) is that the system does not emphasize developing a sense of judgment or restraint as it used to in the past (lack of emphasis on judgment right now). If the quality of judicial restraint is lacking, then you would be reluctant to adopt this wide open approach of excused non-compliance; you can correct errors with substantial compliance. We do not have a proceeding to reform in this area because have to show mutual mistake – sine qua non to reform a contract. A will by definition is unilateral. PROBLEMS (pg. 118) 1. PA, this is a valid will: “Finally, I just want you to know, you’ll get everything when I’m gone.” (Ritchie’s Estate, 480 Pa. 57; 389 a2d 83). Friendly letter. Testamentary disposition that qualifies as a will. In this state, private letters qualify. 2. PA Yes, you have a testamentary disposition, signed at the end; UPC yes; other states maybe not because witnesses did not sign in testator’s presence; holographic will 32 maybe, but not dated; substantial compliance and possibly excused non-compliance may come into play here. In states with presence requirement you have a problem. Might also qualify as a holographic will but is missing date.  Who Might Challenge a Will? [STANDING] 1. Intestate heir 2. Someone given property under an earlier will 3. Creditors 4. Certain fiduciaries Take a look at earlier wills and make sure they are all revoked by putting clause in most recent will stating all earlier wills revoked. Determine if any parties have been cut out and might seek to challenge the new will. PROBLEM: standing issue = Civil Procedure - In re Estate of Getty, 85 Cal, App. 3d 755 (1978) Ct in case on which this is based said NO – prior wills did not give her anything either so why would she have standing.  Structural Elements Will Challenges NO Contest Clauses (in terrorem clauses): If you challenge the will, you do not get anything; in PA: Section 2521. Penalty Clause for Contest. A provision in a will or trust purporting to penalize an interested person for contesting a will or trust instituting other proceedings relating to the estate or trust is unenforceable if probable cause exists for instituting proceedings. Statutes like the one in PA have lessened bite of these type of clauses; you may win or lose a challenge on mental capacity, even if you lose, you still get the money under the PA statute as long as there is evidence for your claim. Carrot stick approach – give child $250,000 with a clause in it if he contests will, he gets nothing. Courts are divided as to whether these should be adopted. Some adopt that only frivolous challenges would cause no contest clause to be upheld. In PA – no contest clause not much use because have adopted probable cause clause. Other Devices to Forestall Challenges: 33 1. Explanation - IF you want to leave out a family member, just explain what you are doing and why; if one share is reduced because you made a lifetime gift (satisfaction) just say so to forestall the challenge. Be careful how it is worded – libel or mental capacity can be questioned. If you give a lifetime gift, you might want to explain why you lower the benefit in a will. 2. Living probate – not in PA. 3. Put the property in trust during your lifetime set it up with future interests so that it acts like a will. 4. Marriage 5. Adoption - Adopting an adult probably will not work. 6. Cohabitation Contracts – Contract should be honored.  Conduct - Video taping an explanation of what you are doing an why - Psychiatric report Same sex partners – may want a psychiatrist’s statement to aid with challenges. Problem (pg. 123): MARRY HIM to protect against greedy nephews; if that’s not in the cards, provide an explanation as to why she is leaving everything in the will to Luke; throw in a no contest clause (or leave the nephews something). If there is a question as to mental capacity, get a psychiatric report done at same time as will; put the property in a living trust; adoption not a good idea, but a possibility; probate the will while Florence is still alive (some states allow it). Components of the Will Attestation clause – might be a good idea to state how many pages. [A] Integration Number pages and have reference in will to number of pages in the attestation clause. Cite: Estate of Van Gilder 220 A.2d 21 (1966) (5 different pieces of paper, all with different dates, sheets folded up, found in a drawer, each paper signed, but modified the earlier; PA court let the whole thing be probated as a will and four codicils) [B] Incorporation by Reference: If a will refers to another document, the document has to be in existence when the will was written; if the document was written later, it’s testamentary in nature and violates the Statute of Wills. To incorporate another document in a will by reference, that document must have been in existence when the will was written. Doctrine of Incorporation by Reference is an aspect (corollary) of the Doctrine of Independent Significance. [C] Doctrine of Independent Significance: 34 References to facts outside the four corners of the document refer to situations that might change after the decedent writes his/her will. Any reference to the will to outside facts that might change are subject to the doctrine of Independent Significance. Changes in those facts must have significance outside the will. The theory is that you cannot use changes in fact to make a testamentary disposition. Any acts that the decedent does subject to those external facts must be of independent significance. If they are not, then they are testamentary acts, and are invalid because to make a testamentary disposition, you need to make a will or codicil. EXAMPLE: Suppose in Gray’s will, he leaves all of the furniture and other property in his summer home in Erie, Pa. to his daughter (D); in the ordinary course of events, he might buy furniture, paintings, etc. He gets into a dispute with his daughter and has the moving company take all furniture out of the house so that when he dies, she is disinherited. That is not an act of independent significance; he only did that so she would not get his property at his death (for a testamentary reason); therefore, the act of emptying out the house was not of independent significance, and it invalid because it violates the Statute of Wills; EXAMPLE 2: If you sell your furniture that is an act of independent significance!! Understand what a testamentary disposition is. The fundamental common law theory is that to make a testamentary disposition, you have to write a will. Now, there are exceptions to this. A testamentary disposition is a disposition of property at your death, but until you die, you can do whatever you want with the property because you own it in fee simple; but if you still own it at your death, it goes under your instructions if you write a will. There are other things that are close to being a testamentary disposition, but they are not so regarded. Ex.) Michelle has a life estate and her kids have a remainder. This is not a testamentary disposition because if Michelle only owns a life estate, she cannot do whatever she wants with that property. When Michelle dies, that life estate dies with her, and she is obligated not to commit waste. Take a revocable inter vivos trust. Gray gives property to a trustee to pay him income for life with a remainder to his kids; why is that not a testamentary disposition and why do I not need a will to do that? Because in theory Gray has given property away subject to a condition subsequent, so his power is not completely unfettered (it’s close, basically a legal fiction). Doctrine of Independent Significance: Testamentary disposition is the basis of this doctrine. If I move the furniture out because I want to decorate, that is an act of independent significance, and that’s alright; or if I have to sell it for some reason. If you move the property solely with the intent to change the testamentary disposition, then it’s invalid, because your testamentary disposition was not changed via will. - It’s easy to confuse the date the will was written and date of testator’s death; here, look back at date of execution or forward at what was owned at death. - Problems: pg. 129 35 Are the following bequests valid? (a) The automobile I own at my death. (Yes) (b) The contents of my safety deposit box at the Last National Bank… (Yes, unless stuff ) (c) The contents of my safety deposit box at the Last National Bank to the individuals indicated on the envelope contained therein. PROBLEM: gets you into a writing; the argument would be that it was an attempt to make a testamentary disposition without making a will; the other side would argue that it is valid because the envelopes predated the will (how?); what if dates on envelope postdated will argue each envelope was a holographic codicil to the will (tough without testator’s signature on each envelope. It would help if the word codicil was written on the top to show testamentary intent clearly; the only other way to save this would be excused noncompliance (dispensing power); could try substantial compliance, but not likely because without the signature, not a close case; everything arises from the basic proposition that if you want to make a testamentary disposition, make a will. Primary and Secondary Inferences: Fact-finder = jury For primary inference, jury is making a credibility determination; drawing a secondary interest is drawing a logical deduction (this witnesses testified that X pulled the gun out of his holster and shot him at a vulnerable part of his body). INTENT IS ALWAYS A MATTER OF DRAWING A SECONDARY INFERENCE. Doctrine of Incorporation by Reference: Corollary doctrine to independent significance; if the will refers to another document, the document has to be in existence at the time the will is executed. ***Simon v. Grayson: California case where we were looking for a contemporaneously written later at the time of the will, but we find a letter dated after the writing of a will. However, the letter was dated prior to the date on the codicil of the will. The codicil made no mention of the letter, by recited, “Except as expressly modified by this Codicil, my Will of March 25, 1932 shall remain in full force and effect. The court saved this by saying that the codicil REPUBLISHED the will; separate problem dealing with the fact that the dates do not match, but the trial court overlooked that. Used the doctrine of republication to get around doctrine of incorporation by reference. *** Gray likes this case! Court fudges this. They are hesitant to adopt the English rules. This is more like substantial compliance. We can ignore the dates, etc. Notes and Questions (pg. 126-127): 1. Maybe the letter, if all in the handwriting of the testator and signed at the end, was a holographic codicil. In PA, it would just have to be signed at the end. Excused 36 noncompliance (dispensing power may be another argument). PA would not really worry about testamentary intent. In other states fact that not witnessed would be a problem. 2. Typically stated requirements for a document to be incorporated by reference include: 1. The writing must be in existence at the time the will is executed. 2. The will must describe the writing as in existence at the time the will is executed. 3. The will must describe the writing with sufficient detail to identify it. 4. The writing must fit the description. 5. The will must show an intent to incorporate the writing into the will. UPC eliminates number 2 3. Deals with Pretermitted heirs. Could be a child born after will was executed. As we will see in Chapter 6, pretermitted children and spouses have the right to take an intestate share. In note 3, the child was not pretermitted because she was born after the will was executed but before the codicil was. Pretermitted spouse was married after writing of will. 4. UPC §2-513: allows wills to refer to a separate signed writing which identifies who should get specified tangible items of personal property which allows testator to change the writing after the will has been executed. Not yet adopted by PA (although you might get away with it in PA if the separate list was signed, and then argue that the separate list is a will or codicil). – Gray thinks this is a sensible provision to have. Reason is if it is not and after will is executed, testator tears up list and makes another list. That later list would constitute a testamentary disposition and wasn’t properly executed and therefore violate the Statute of Wills. Problems: 1. Leave the power in the hands of the executor to distribute the large amounts of jewelry; let devisees decide, or executor sells the stuff and splits up the proceeds; could have client come in every two months and write a codicil, but that’s very cumbersome. The way around this is to put in revocable inter vivos trust. The settlor can be his own trustee. 2. NEAT and clever argument: “To my brother James I give ten dollars only. This will shall be complete unless hereafter altered, changed or rewritten.” Oklahoma court said this handwriting scribbled at the bottom of the will was a holographic codicil and this handwriting affectively published or republished the type written will and incorporated the type written document. Treated it as two documents and got away with it. BENDING THE RULES!! 424 P.2d 414 explains this scandal!! Otherwise the statement “this shall be complete” is a holographic revocation. 37 Problems p 129 1. OK 2. If can prove took stuff in and out of box, then might be a problem. 3. This is a problem. If signed envelopes, maybe [C] Independent Significance – often times need to look to extrinsic evidence outside the 4 corners of the will. Interpreting Wills: Extrinsic Evidence [A] Patent and Latent Ambiguities: Falls under category of mistake: Patent ambiguity - one that is apparent from the face of the document whereas Latent ambiguity - one only discoverable by considering evidence extrinsic to the document. The classic theory is that you cannot use evidence outside the four corners of the document to correct a patent ambiguity. The traditional view is that you can use extrinsic evidence to straighten out latent ambiguities. The modern trend is to ignore the technical rules and to determine the intent of the testators, you explore extrinsic evidence. Trend is to allow extrinsic evidence in. ** In Re Estate of Gibbs (Gray likes this case): Wealthy testators with messed up will (street addresses, no middle initials); Two types of latent ambiguity: mis-description (two or more persons or things exactly measuring up to description or no one or things exactly matches the declarations or descriptions but some do closely); Although they talk about latent ambiguities, this is not a case of latent or patent ambiguities (smoke screen), it is a mistake arguably. The court took extrinsic evidence, and concluded that there had been a mistake and they give the money to Robert W. If you are entitled to look at the extrinsic evidence, then this is a justifiable result. Former employee gets his money, but the court could have approached this in a much more narrow and sophisticated way. Guess is that carelessness by law firm caused this. *****Notice the court here talks about the English Doctrines to denying probate to specific words or phrases (there is case law in this country on that). The English approach determines a mistake by identifying devisees, all of which were employees except for the one identified (it’s close); so once you figure something is wrong here, you can conclude that there is a mistake, the middle initial, the address, so we deny probate to those to things, and it is simply a gift to Robert Krause of Blank Wisconsin (this is a latent ambiguity – which Krause in Wisconsin). Who is Robert Krause? Now you can use extrinsic evidence to identify him (a narrower, more precise approach). Notes and Questions: 1. Although the question posed is whether extrinsic evidence is necessary, the trial court hears it. 38 2. TO ROBERT KRAUSE. Latent ambiguity (neither person fits the description exactly). To my longtime employee Robert J. Krause. (YES because neither person fits it exactly). 3. Skip 4. Skip 5. Restatement of Property: modern trend to include extrinsic evidence. 6. The attorney would be liable to who should have gotten the property (in most jurisdictions). In malpractice cases, extrinsic evidence is admissible. Keep up that malpractice insurance. Problems: 1. “I give my money and coin collection.” (What is money and what does it include?) 2. I give my farm. (If I own more than one farm, problem) 3. To the Heart Association. (Maybe more than one) 4. Equally to my brothers, David and Richard, and their children. Rule (2 Resolutions) in Wild’s Case: If you make a gift to David and his children (words of limitation), 1. - if David has no children at this point, you end up with a fee tail at common law for David and under a modern statute you end up with a fee simple (PA Fee simple for David); 2 - if David has children, then this is a gift to David and his children at co-tenants (common law (medival - co-tenants for life with rights of survivorship, today - tenants in common in Fee Simple, you don’t want); Problem; if David’s children are minor children, we have a mess. Then there would have to be guardians assigned to the minors to protect their interests. What you would end up with is dictated by Rules in Wild’s Case. NEVER MAKE A GIFT TO X AND HIS CHILDREN! Sloppy and poor draftsmanship. Rule is still followed today. Gift to X and his children – at common law. 1. If X has no children – effective on date of testator’s death – therefore at common law would get a fee tail but now X would get a fee simple. 2. If X has children – at common law, X and his children would co-tenants for life so would be tenants in common but now do not need magic word and their heirs so X and children would be co-tenants in common. Net result in #2 is horrible – X is now a cotenant with his minor children, succeeded in tying up the property and made a real mess of things. This is not a matter of ambiguity as problems with Wild’s case. To avoid this, create a trust – can create a testamentary trust. Give A the right to income for life with reversion to the kids and various other powers – mortgage, convey property, etc. [B] Interpretation or Reformation? NO REFORMATION RULE Reformation typically not applied to will law 39 Flannery v. McNamara: White, the decedent had a defective will, leaving everything for his wife, not providing for a substitute take or residuary clause; Mrs. White predeceased her husband, which is called a LAPSE. The two sisters of the deceased wife claimed that they were entitled to the estate. The theory that they advanced was that they were left out by mistake, and the court should reform the rule. The court said no and did not adopt the reformation doctrine. Attorney did not ask the question about what you want to happen if wife predeceases or include a residuary clause. There is no ambiguity here. Footnote 10 – Estate of Branigan - 609 a2d 431 Notes and Questions: 1. Reformation or modification has been accepted in a few jurisdictions where the purpose to achieve tax objectives (In re Branigan, 609 A.2d 431 (1996 NJ)—decedent set up two trusts in his will, A and B, done at a time when the marital deduction only applied to 50% of your assets. A trust qualified for marital deduction and B trust did not. Early 80s, changed the rules, and this guy’s will was never changed. NJ Supreme Court changed the terms of the will to get the maximum tax savings). Court was asked to make other changes to the document, and it refused. 3. IRS won’t give retroactive effect – even if the court changes the will, the IRS doesn’t have to follow the court’s ruling. It has been argued that you can put a provision in the will allowing courts to make changes (bad idea). Terminology: Be careful!! If I write a will, and the person I left property to a person that dies PRIOR TO THE EXECUTION of the will, that is a void gift; but if the named person dies between the execution of the will and testator’s death, that is called a lapse. To A for life, remainder to B. If B survives testator but not life tenant, that is NOT a lapse, it is merely a failure to survive the life tenant. Every state, including Pa, has an anti-lapse statute, which overcomes the lapse when the person who predeceased the testator is related to the testator (daughter dies before testator, grandchildren could take her share under an anti-lapse statute); PA is narrower on this than most states. §3.05 Revocation Only proper way: Have a later will (put a date on the thing) that meets all statutory requirements that expressly revokes all prior wills; if you only want to make some changes, then make a codicil. 40 §2505 Revocation of a will No will or codicil in writing, or any part thereof, can be revoked or altered otherwise than: 1. Will or codicil – By some other will or codicil in writing 2. Other Writing – By some other writing declaring the same, executed and proved in the manner required of will; or 3. Act to the document – By being burnt, torn, canceled, obliterated or destroyed, with the intent and for the purposes of revocation, by the testator himself or by another person in his presence and by his express direction. If such act is done by any person other than the testator, the direction of the testator must be proved by the oaths or affirmations of two competent witnesses. (1) In extremis (2) Specific acts to destroy and revoke a will (may raise a question) (3) By Operation of Law The revoking document itself must satisfy will execution rules (not tough in PA) [A] By a Writing Problems arise if a later will is inconsistent with a prior will, but lacks a clause expressly revoking the prior one. Courts struggle with where to draw the line between the second writing being a codicil supplementing the first will or a new will replacing it. UPC Section 2-507 (c) and (d) Doctrine of Inconsistency: To the extent that the second document is inconsistent with the first, then the second document governs. Problems (pg. 147): 1. No, her revocation is not effective because this is a direction to someone to destroy a will, and it is not any good unless everything is complied with (In Re McGill 128 NE.2d 194 (NY 1920)). Had the letter said, “I hereby revoke, …” then that would have constituted a valid revocation, but the letter here is only a direction. In Pa, this is no good because it is not an express revocation, it is only a direction to tear up a will. 2. Inconsistent second will. Assuming second document valid, it revokes the first with respect to the car. With respect to the money, you get into the issue of whether the second document disposes of the whole estate. Give extra $1000 to Marie and the rest to Frank. Leaves a lot open. § 2507d. Not a complete disposition – treat as a codicil. [B] By Physical Act In Re Estate of Bakhaus: cut off signature of will to revoke it; this court upheld it as an act of revocation. 41 Pg. 150 Notes and Questions: 1. Rhetorical 2. Courts usually interpret destruction and obliteration quite literally, requiring complete destruction or complete masking of the written material, respectively. 20 Pa. 2505. Revocation of a Will – A later will that expressly revokes a prior will Laninger’s Estate, 74 D&.C. 2nd 520 – PA District Court case that says lineouts are okay-opposite of Rhode Island case. 3. Usually, revocatory acts must be done by the testator or in the testator’s presence at his direction. 4. Sometimes a previously executed will cannot be found after a testator’s death. If the will was last seen in the testator’s hands, courts will presume the testator revoked the will (rebuttable). 5. Partial Revocation by physical act (Laninger’s Estate) Problems (Pg. 151) 1. Illinois Statute a. PA maybe under Laninger’s estate b. Same c. Okowitz’s Estate, 403 Pa. 82, 169 A.2d 84 (1961): the word “void” written across the document will not revoke a will. 2. If the executor destroyed the will as Margaret directed, the revocation would not have been effective in PA because the act of tearing was not done in the testator’s presence. 2505(3). 3. Assuming that the facts as given could be proven, the will was not revoked, and it should be probated. Then, the court will impose a constructive trust (a trust that arises by operation of law); legal title passed to Sidney, but he is not entitled to the benefit of it because of her wrongdoing. Father Divine Case was a similar case where a lady left all of her property to a church. WRONGDOING EQUITABLE REMEDY (court imposes a constructive trust). 4. Martina’s will kept as a memoranda marked null and void signed by testator. a. The will is not revoked by Act; the statement does not qualify as a holographic document revoking the will because not in testator’s writing; in Pa, okay under 2505(2) because you can revoke a will by some other writing executed and proved in the same manner required by wills. b. Yes, lawyer is likely to be liable to Martina’s heirs for malpractice in most states. 5. NO – note 4 on page 151. [C] Operation of Law Dependant Relative Revocation: simple explanation the key to this material is that you have to be able to distinguish the doctrine of revival and the doctrine of dependent relative revocation (DRR); 42 Revival - the essence of it is that you run into the doctrine of revival when you have a good second will that is revoked (WILL I and WILL II and WILL II is good and then revoked, the question is does that revive WILL I) 2506 in PA – in writing; To get into DRR, you have to have a bad second will!! Then the question becomes did the testator revoke WILL I conditionally (on the assumption that WILL II was valid, and since it isn’t, is WILL I not ever revoked since there wasn’t a valid second will). GOOD SECOND WILL REVOKED REVIVAL BAD SECOND WILL DRR (Was Will I revoked conditionally?) DOCTRINE OF REVIVAL Remember, to get into the doctrine of revival, you have to have a good second will that is revoked, the question then becomes “Does that revive the first will?” Notion that you would prefer the old will to no will at all. § 2506. Revival of a Revoked or Invalid will. If, after the making of any will, the testator shall execute a later will which expressly or by necessary implication revokes the earlier will, the revocation of the later will shall not revive the earlier will, unless the revocation is in writing and declares the intention of the testator to revive the earlier will, or unless, after such revocation, the earlier will shall be re-executed. Oral republication of itself shall be ineffective to revive a will. PA IS VERY STRICT ON THIS! PROBLEMS (Pg. 154) 1. Assume PA on this a. You would have to have a document that expressly states that Marcus intended to revive Will I or Will I would have to be formally re-executed in PA b. IN WRITING in Pa c. Same as B – revival has to be in writing. 2. Estate of Van Guilder, 220 A.2d. 21 (Pa. 1966) (the whole thing is valid). 3. Tearing up the revoking document; whether the second document really qualifies as a will because of the conditional language; assuming the second document qualifies as a will with testamentary intent and he tears it up, no revival in PA. The real question is whether or not the later document qualifies as a will because of the fudge language. Dependent Relative Revocation (DRR) Choice is between the old will and intestacy. 43 BAD SECOND WILL; then the question becomes whether the revocation of the first will was conditional or dependent upon the validity of the second will? ****In Re Estate of Patten (GRAY LOVES THIS CASE): Donald, the same guy, gets the money under either will, so he wants one of the wills probated because if neither will is validly probated, he gets nothing and Ella’s kids split the $100,000. Since the second will is bad, the argument here is whether or not DRR should be applied; in other words, whether the first will was revoked upon the condition that the second will was valid. RULE: If the will last seen in the possession of the testator and cannot be found, it is presumed to be revoked. DRR can only be applied where the evidence to revoke the first will being conditional on the second will is clear and convincing. THERE IS NO EVIDENCE OF INTENT THAT THE FIRST WILL WAS REVOKED CONDITIONALLY. The condition that revocation of a will is based upon the validity of the new will must be proven by substantial evidence of probative value. BAD Decision because it may have killed off DRR since you are never going to find evidence of that kind. You could never apply DRR under this case. The real issue becomes what would the testator have intended had she realized the problem? Would she have preferred to die testate or intestate? Presumably testate If you would have asked her she would probably say she never even thought of it. Problem with the opinion is that they are looking for intent when most lay people would never even consider the issue. What would she have intended if she had thought about it? If you are going to apply DRR. PA DOES NOT LIKE DRR!! IT IS DISFAVORED! However Holts Estate deals with the same problem as Mississippi case from book. PA BAR EXAM wanted a discussion of national general law first, and recognize DRR before getting to PA. Notes and Questions: 3. Courts have disagreed about whether to apply DRR to revocations by writing. Split of authority on this issue. DC and Mississippi are opposites. PA follow Mississippi on this and would not apply DRR to a case where there is an express revocation on a later will. Halt’s Estate, 405 Pa. 244; 174 A.2d 874 (1961). DRR is recognized in PA; the case that applied it is IN Re Shelley’s Will 463 Pa. 430, 345 A.2d 596 (1977). 44 PA – on this issue however where entire 2nd will is bad, there is authority that will apply DRR – as in In Re Shelley’s Will DRR applied more narrowly in PA. 4. It is possible, but very rare, for DRR to realize the testator’s first choice. Go through Problem1: Revised will, same basic scheme Will II over intestacy, in other words, the court applied DRR to Will II; The third fact scenario (Estate of Alburn (Wis.) 118 NW2d. 919) Diagram 1. Revival First will revoked Second will good, then revoked, 2. DRR First will revoked Second will BAD, Was Will I revocation conditional? 3. DRR First will revoked and not revived Second will GOOD, Revoked, Was revocation of Will II conditional on reviving the First will? (note 4, problem 1) (Gray knows of no cases in PA that have gotten into #3) 5. Dispensing Power PROBLEMS (pg. 159) 2. The $5000 is crossed out with $7500 written above and initialed by testator. Gets you back to NOTE 2 on pg. 150. Deals with lining out; If interlineation accepted (Laninger’s Case in PA has some authority, it’s a revocation of the first disposition; the addition of the $7500 is going to be bad in most states unless holographic will or codicil qualifier; in PA, there is authority that initials are enough for a codicil in PA; if it’s not good, then the reference to $7500 is treated like a bad second will, and you get into DRR. If the change were to $2500, same anaylsis, then of course the DRR issue might be the change in amount (CHANGE IN AMOUNT + initials = new will or codicl; if valid, laws of state; if invalid, DRR.) 3. Gets into interested witness problem; not in Pa; Ca. case, effective disclaimer, if Peter was an interested witness in the second will, it would only knockout the provisions to Peter. Do you resort back to the first will or not. Bad second will or bad part thereof gets you into DRR: if the second will expressly revoked the first will, PA doesn’t apply DRR, but here we don’t know that for sure; we just know that second will is inconsistent with the first will. If no inconsistency to the gift vis a vis Peter, maybe no revocation, if there was, DRR. 4. If second will was never effective (completed) to begin with since not witnessed (in states except PA), first will was never revoked. Not a DRR case. Second will never witnessed, so the second will was never complete. Interested witness, bad second will. MAKE SURE YOU KNOW situations 1 and 2 cold. 45 Question last year on exam involving testamentary dispositions. The Ethics of Safeguarding Wills -Self Explanatory -Wisconsin Supreme Court: the original will should be delivered to the testator and only kept by attorney upon specific, unsolicited request of the client. Notes and Questions: 1. Best practice is to give the original will to the testator. Attorneys keeping document does lead to charge of overreaching. 2. Don’t let law firm that revised the will represent executor. Possibly subjected to malpractice (conflict of interest). Contracts Regarding Wills - The Constructive Trust doctrine is part of the law of remedies - Distinguish mutual wills from joint wills; you can enter into a contract to write a will, but as a result, you end up with mutual wills and joint wills; Oursler case points out some of the problems with this. - General PA law on this are in favor of free revocability (majority) even though it is a mutual/joint will unless you can prove that there was a binding contractual agreement; Estate of Imbruglia 479 Pa. 95, 387 A.2d 851 (1978) (free revocability presumed absent an express agreement to the contrary applying to both mutual and (joint wills)). Estate of Kester 477 Pa. 243, 383 A.2d 914 (1978) (joint will). Paralleled by Oursler case - Mutual will is usually used where H and W have been married before and they have two separate wills that interrelate to one another. (Ourseler v. Armstrong Case) - Joint will: A single document with at least two testators (stay away). Gray recommends against joint wills Oursler v. Armstrong: Famous author with two kids from first marriage and two from second; the basic idea with respect to his property is that it is split evenly between the kids whether he or his wife dies first; he died first, and his wife changed her mind; she made a new will, leaving everything to her two kids; here’s an attempt to impose a constructive trust, and this court refused to do so; the wife had only a moral obligation, but no legal obligation because the presumption of free revocability took over; NO EXPRESS PROMISE IN WRITING APPEARED TO HAVE BEEN MADE BY GRACE nor is there any evidence of an implied promise. The dangers of mutual wills!! 46 FREE REVOCABILITY (TESTAMENTARY FREEDOM) Notes and Questions: 1. What should have been done here was to not have fooled around with mutual wills, but he should have set up an INTERVIVOS TRUST, income to the survivor of H&W for life, then distributed to the four children equally. Must structure the powers carefully. 2. Majority in Oursler requires a promise and not merely a confidential relationship. It’s the difference between doing this by rules or by dispensing power. You could litigate it. 3. Joint wills breed litigation. Avoid them. 4. Many jurisdictions require that a contract to make or not to revoke a will must be in writing. 5. Not a good idea. 6. Contracts not to revoke wills are almost always a bad idea. a. A survivor with power to consume the joint property can make gifts to others; Trust: give someone a life estate with a power to consume the principle (can create a problem); a power that allows the life tenant to livei n the style in which they have become accustomed is fudge (power to consume); so even when you set up the trust you have to set up powers properly. b. no c. no d. yes e. yes f. no famous story – put the property in a trust Difficult to anticipate problems with contracts, so put the property in a trust and stay away from contracts to make a will. Problems (pg. 166) 1. Difficult to represent both – play around with questions on you own. Chapter 4: Will Substitutes It introduces in a more detailed way non-probate transfers. To do a testamentary transfer – you are supposed to create a will. 47 Making an inter-vivos trust – convey a present interest – in theory it is different. Even if all you have to do is send a paper stating you have revoked the trust – you have in essence given up a stick in the bundle of rights. Causa mortis gifts – gift that is given with thought of impending death. Revocable The authors are emphasizing here is that you understand what a testamentary disposition is, the difference between a gift and a will; in theory, these non-probate transfers involve a present gift of some kind; you create a joint tenancy now; money in bank account is a present transfer analogous to a trust; intervivos gift (donative intent, delivery, and acceptance); a testamentary disposition is a transfer to take effect at death (THERE IS NO PRESENT TRANSFER); writing a will effectuates a testamentary transfer; Lifetime Gifts When you make an inter vivos gift, it is irrevocable (donative intent, delivery, and acceptance). There are things analogous to that Henkle v. Henkle: 220 acre farm owned by Mrs. and she was elderly so she let her grandson operate and manage the farm. She decided that she was going to give the farm to the grandson by writing a deed giving herself a life estate to herself (which you can do today) with remainder in him. The grandson predeceased her, and died intestate, so the property went to the no good granddaughter in law, and Mrs. wants the farm back and she cannot get it back because she made a present transfer. You keep a life estate and give away the remainder, that’s a present transfer, and you cannot change your mind. BE AWARE OF THIS AS AN ATTORNEY! It’s fairly common in rural areas as a type of estate planning for elders to give themselves life estates and remainders to kids; should be advised against; This attorney should have put the property in trust. Check with relevant title company before you reserve yourself a life estate even though the statute permits it. THIS ATTORNEY DID NOT ANTICIPATE WHAT MIGHT HAPPEN. Questions: 1. Make a trust; do not make a revocable deed!! Trusts can be revocable, irrevocable, etc. Set up trust so she has income for life, remainder to grandson, revocable, so if he predceases her, she can revoke it. Could do a power of appointment. 2. Usually gifts are irrevocable. Gifts causa mortis (conditional gifts, revoked upon the happening of certain events; the presumption is that when you make a trust, it is a gift, and irrevocable; if you want it to be revocable, you need to say so). Problems (Pg. 175): 1. Fee simple subject to executory interest. Different from a testamentary disposition because it cannot be revoked. You’ve retained a fee simple subject to an executory interest, once you do that, you cannot change your mind. As a practical matter they have a life estate. 48 2. Check signed and left on the table prior to suicide. Can you have a gift causa mortis subject to suicide. If she dies, yes, if survives, no, it’s revoked. In Pennsylvania, you can argue that it’s a holographic will (especially if put on there at my death) problem is that there is no direct expression of testamentary intent. In other states, you could maybe have a holographic will because you don’t have witnesses, but part of the check is printed, so that’s going to be a big problem. Uniform Gifts to Minors Act PA adopted it in 5301—do not make gifts directly to minors. Do not want to give property to minors – would have appoint guardians, etc. Joint Interests PA – tenancy by the entireties – does not avoid taxes Just because you avoid probate does not necessarily mean you avoid taxes Common law rules – joint tenancies 100,000 in joint account – depends on who put in what. Whoever deposited it, owns it. When the first of the co-tenants dies the presumption is that the one who died owned it all. Have to look to evidence to overcome this presumption. With H and W it doesn’t matter. Gross v. Gross: Guy marries in his 80s and wants his joint interest back and you can’t go back. Had he been properly counseled, he would have put the property in a revocable trust. The deed was never delivered, so how could it be a valid conveyance? If a deed is recorded, it’s presumed to be delivered. Kid does not have to convey his property back. Recorder of deeds is a third person therefore it was delivered. Transfer was absolute. Once you make the conveyance it is irrevocable. NOTES AND QUESTIONS: 1. Need to remember to think of remarriage. 2. Ohio provision – if it is not revocable, don’t fool around with it. 3. Conveyance by one joint tenant severs the joint tenants and makes them tenants in common, cutting of right of survivorship (Doctrine of unilateral severance). To protect one of this, make an agreement requiring notice, would have to have a very elaborate trust. Thomas L. Shaffer Legal Interviewing and Counseling - The traditional jurisprudence is that your only observation as a lawyer is to carry out client’s wishes within the realms of the law. You can let them steer as close to illegality as they want within the law (Holmes). 49 - Nothing that says you cannot have additional practice as a lawyer [B] Multiple Party Accounts - Make determination as to whether a right of survivorship was created or whether or not someone merely has a cosignature on the account. - Convenience accounts v. Making someone a survivor on the account - Pay on Death accounts and things like this are from In re Totten, 71 N.E. 748 (NY 1904); case dealt with one of the old passbook accounts, “X in trust for Y.” Y is the beneficiary of this alleged trust; this is real close to being a testamentary disposition, but the NY court validated it. Not a testamentary trust because can still take out money – have to have magic words – trust – otherwise it is an attempt to make a testamentary trust. Property in Marriage Some states including PA have tenancies by the entirety. Protects property from creditors of just one spouse. §4.04 REVOCABLE LIVING TRUSTS: A trust created in a will is testamentary and is subject to probate; a trust created while one is alive is inter vivos and it can be made revocable; there is a present transfer even though you can revoke it very easily. [A] Validity – When are revocable trusts valid? Farkas v. Willliams: A revocable trust where the trustee is an investment company. The trust was in Farkas’ name in trust for Williams; argument was that this was an invalid testamentary transfer. Technically, there’s been a transfer to the trustee; technically, to do whatever you want, you have to sign a paper and send it to the trustee (not quite as free as if you owned the property outright). You’ve relinquished the right to do something with the property without signing a letter. Because he had to send a letter, then it is not a testamentary transfer. It is well established that the retention by the settlor of the power to revoke, even when coupled with the reservation of a life interest in the trust property, does not render the trust inoperative for want of execution as a will. NOTES: 1. Subsidiary law of wills, i.e., these trusts are becoming so common that they are essentially will substitutes. 50 2. Presumption is that the trust is presumed to be irrevocable. Testamentary capacity is usually required. Trust document should say whether and how it is revocable. 3. Trust should say whether and how trust is revocable – if silent most states assume irrevocable. PA – assumes that trust is revocable unless clearly stated that it is irrevocable. [B] Ignoring Trust Form State St. Bank & Trust Co. v. Reiser: Where a person places property in trust and reserves the right to amend and revoke, or to direct disposition of the principal and income, the settlor’s creditors may, following the death of the settlor, reach in and satisfactions of the settlor’s debts to them, to the extent not satisfied by the settlor’s estate. - Do not think that by putting property in trust that you safeguard it from creditors. During the life of the settlor, the assets in a revocable trust can be available to pay creditors. After death, assets may be taken from trust to pay excess debts after the assets of the estate are exhausted. Pour- Over Wills Dry Trust – inter vivos trust set up prior to death – when testator dies assets are poured over into a trust. This is an unfunded trust (shell trust). In PA provided for in §2515 Can have wills that pour over into trusts Can you have shelf trusts that are unfunded? Life insurance proceeds, other assets, etc. get poured over into trusts; author explains how there was a problem at one time with the doctrine of incorporation by reference and independent significance, but now it is convenient. To have a valid trust you have to have a res (thing); Doesn’t a dry or unfunded trust violate this? Technically yes, but we over look it. Life insurance trust can be set up to accept the proceeds of the life insurance policy. PA 2515 (YOU can have an unfunded trust for these purposes in PA) Clymer v. Mayo: Does the statute of wills apply to unfunded trusts in case of divorce? (PA 2507(2)); without a statute, go to the courts. Here, get involved with incorporation by reference and independent significant. Massachusetts court chooses to apply the Statute of wills provision to trusts prospectively. Reference to Sulliven and Burkin, the Mass. Case. Courts often apply the law of wills to trusts – when couples divorce any reference in a will is ignored. Makes sense to apply will doctrines to trusts. It makes sense that the guy should not get the money. The courts struggled to come out with the correct answer. 51 §2507.2 Wills shall be modified upon the occurrence of any of the following circumstances – 1. 2. Divorce – If the testator is divorced from the bonds of matrimony after making a will, any provision in the will in favor of or relating to his spouse so divorced shall thereby become ineffective for all purposes unless it appears from the will that the provision was intended to survive the divorce. §6111.1 Modification by divorce. If the conveyor is divorced from the bonds of matrimony after making a conveyance, any provision in the conveyance which was revocable by him at the time of his death and which was to take effect at or after his death in favor of or relating to his spouse so divorced shall thereby become ineffective for all purposes unless it appears in the governing instrument that the provision was intended to survive the divorce. §6111.2 Effect of divorce on designation of beneficiaries If a person domiciled in this Commonwealth at the time of his death is divorced from the bonds of matrimony after designating his spouse as beneficiary of a life insurance policy, annuity contract, pension or profit sharing plan or other contractual arrangement providing for payments to his spouse, any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse predeceased him unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce. Unless restrained by court order, no insurance company, pension or profit sharing plan trustee or other obligor shall be liable for making payments to a former spouse which would have been proper in the absence of this section. Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment. NOTES: 1. Known as subsidiary law of wills. 4.05 Life Insurance And Other Contracts Life Insurance: whole or universal New gimmick – life insurance policies are transferred to a trust. If you have indicia of ownership then it is included in your estate. However if you set up trust correctly, the insured could borrow on the policies and not have them included in your estate. But, you should technically pay a gift tax if put in trust – this is typically not done. PROBLEMS: 1. Sarah - USDA does not literally apply to this because they did not die simultaneously. So, the question is do the rules governing intestate succession (2104(10), by analogy, does it apply to the life insurance proceeds (assuming we do not have a statute governing 52 that. Court could go one way or another. Literally, the statute only applies to intestate succession. Would have to have provision put in life insurance policy. You could try to argue that subsidiary law of wills should apply. 2. Don’t let your clients get hung up on avoiding probate; with young children, you should write a will to provide guardians for them. The life insurance policies should have secondary beneficiaries who are the guardians of the children. 3. The provision in the will did not change the beneficiary in the life insurance, so Margaret gets it. The life insurance proceeds pass outside the probate estate. If you want to change the beneficiary, contact the life insurance company. Annuities – possible investment alternative – invest a sum of money and get so much back a year for a period of time – 6,000/yr for 20 years. Problems (Pg. 199): 1. Margaret gets the life insurance. A will cannot change the beneficiary of the life insurance policy. It appears from the will that Margaret was not not intended to get life insurance policy. The issue is whether she was entitled to get the car. Close to argument on advancement or ademption by satisfaction. Does she have to sacrifice the car to get the life insurance? Is there an elective share required here? In re Schaech’s Will, 31 N.W 3d. 614 (WIS). 2. Put some of the mutual funds in Pay on Death or totten trust accounts. As to the rest of it, how tough is it to write a will. There is no reason to avoid probate here. Maybe spend a grand or two probating the estate. Winnebago and the car are personal property. It’s bad enough to create a remainder in realty, but it is total folly to create legal future interests directly in personal property. Intestacy may be the best answer for this guy. The 3 kids would take equally. Chapter 5: Changed Circumstances Question 1 – should this doctrine apply to inter vivos transfers? On one hand would be a good idea but on this particular case, it could be abused. Unmarried partners might set up trusts and other arrangements that would be subject to attack. Acts of the Property Holder Be sure to use terms properly – advancements and satisfaction – 2 kids, a and b, estate $1,000,000. During lifetime a gets $250,000 to buy house. Under testacy rules, was the $250,000 an advancement or a satisfaction. 53 Advancements – intestate - $250,000 should come out of A’s share – this is an advancement. Satisfactions – testate (full name is ademption by satisfaction) – die with a will - $250,000 is satisfaction and should be deducted from 50% share [A] Advancements: When you die intestate, the argument is that you might have made an advancement on someone’s intestate share. (PA 2109.1. Advancements.) Add §2109.1 from PA statute. Has to be in writing – given to an heir in advance of what he would have received. How do you calculate an advancement: If the donor has made an advancement, courts conduct a Hotchpotch calculation; to determine everyone’s shares, add the advancement to the estate to create a hotchpotch, then divide it among the takers. The estate of course, does not have that much, so when you distribute the estate, you credit the taker who received the advancement that value of her advancement. NOTES: 1. PA Advancements must be in writing 2. Court said yes; UPC said no; in PA (no) 3. 2109.1 tells you how to do the valuation. Problem (in book) Pull advancements back into the estate $150,000 / 3 = $50,000 Florence – $50,000 Lucille – $30,000 Naomi – $20,000 [B] Satisfaction: Technical name is ademption by satisfaction; later in the chapter, we go into ademption by extinction. Devises in a will can be adeemed by: (1) Satisfaction (already given to devisee; ~ to advancements but for testate decedents) (2) Extinction (not in the estate when testator dies) Ademption by extinction – if I said that I would leave my Lexus to X and then I don’t own a Lexus, X does not get anything. If I gave the car to X before I died then the gift was adeemed by satisfaction. Question: The traditional answer is that the doctrine of ademption by satisfaction only applies to property that passes under the will; you could make an argument about this today with the subsidiary law 54 of wills. Should the will doctrine of ademption by satisfaction applies to trusts and life insurance. Good argument with trust, not very good for life estate. [C] DIVORCE PA 2507(2) – provision in will for surviving spouse is knocked out if you get a divorce. THIS STATUTE DOES NOT APPLY TO SPOUSES OF RELATIVES. Vasconi v. Guardian Life Insurance Co. of America: First wife’s name was still on life insurance policy; trial court gave her the proceeds and Supreme court applied subsidiary law of wills to life insurance. Pa 6111.1 & 6111.2 governs this issue by statute. Notes and Questions: Acts of Beneficiaries [A] Disclaimers - You can always disclaim a gift; in this context, a gift made under a will, it does happen (renunciation or disclaimer); Why? To avoid taxes normally (brother whose one year younger disclaims the gift, treated as a lapse, goes to kids and skips a generation of taxes). - PA 6201 - 6207 – gift to the person disclaimed is treated as a lapse if they predeceased the testator. 6202 – within 6 months of decedent’s death. In Re Estate of Fleenor NOTE 5: Survivors may want to disclaim their gifts to keep the property out of the hands of creditors or to keep government benefits. Can you disclaim to keep out Medicaid? Controversial area of medicaid planning. To get nursing home care, you have to spend down all of your assets and then you get the Medicaid money (Federal money administered by estate); meanwhile, you’ve bankrupted yourself; to get around this, give everything away to your kids; Feds have a 3 year lookback period; If you’ve made gifts three years before you’ve applied for Medicaid, then they will not allow assistance (+ criminal penalties); for trusts, there is a 5 year lookback; so to plan out carefully, you have to keep enough assets for 3-4 years and then go broke; lawyers are allowed to do Medicaid planning; courts do not use lookback provisions for disclaiming the gift as far as Gray knows the regs. Problem (pg. 217) If Art disclaims, his will lapses, and if this occurs, the three grandchildren of his take by per capita by representation PA 6205(b) treating the disclaimer as a lapse, even though it doesn’t use the word lapse. [B] Assignments of Expectancies 55 A living person has no heirs Prospective heirs do not own any property rights; a prospective heir has no transferrable property interest. We describe any rights they might have as a mere expectancy. “A” could enter into a valid contract with somebody to give whatever they inherit to another when someone dies (You can contract your expectancy away, but you cannot transfer it away as a property right). [C] Misconduct Slayer’s Statute In re Estate of Safran: You kill the parent so you can’t inherit from them PA 2106(C) Very detailed slayer’s statute in PA (CHAPTER 88); if you kill the decedent, you can’t inherirt from them. Notes and Questions (pg. 224) 1. (a) yes (b) yes 2. 2106(a) Spouses share in PA (neglected, 2208 applies to the right to elect; a surviving spouse can renounce a will and take a forced or elective share; no right of election if you desert, abandon, or neglect for a year. 3121 applies to the family exemption PROBLEMS 1. Court will impose a constructive trust (equitable remedy because property was obtained unfairly) 85 NE2nd 168 (NY 1949). 2. No 3. Per capita by representation; this is created as a disclaimer or lapse; Alice is knocked out and the children would take by representation 5.03 Changes in Property Classification of Gifts comes into play with Abatement and Extinction (1) Increases in Property (2) Ademption by Extinction (3) Abatement All three of these problems raised here are governed by the way in which you classify property that passes at death; in other words, you have one key that satisfies three problems. [A] Classification of Gifts (1) Specific Gifts Gifts specifically identified (My oak desk, my house on such street) (2) General Gifts Gifts of money (legacies, $3,000 to Marcha); 100 shares of GE stock to Marsha (NO MY) 56 (3) Demonstrative Gifts RARE; testator intends to come from a specific source (bank account, money market account), but which can also come out of general estate assets. (4) Residuary Gifts Leftovers “everything else I own” Type of Gift determines: (1)The Type of gift will determine whether devisees will get increases (stocks, cows have calves) or not (2) The Type of Gift that it is will enter into play when applying ademption by extinction; Specific gifts will become extinct more easily than general gifts (3) The Type of gift you are dealing with will determine the order of abatement (which gifts get sacrificed and in what order to satisfy estate? Generally, it goes from residuary to general to specific. PROBLEMS (pg. 227 – See book for examples) [B] Dividends and Stock Splits RULE OF PA: West Key Number 754 Specific gift (my), then X gets all 200 shares; but if it’s a general gift, X does not get the increases. General gift – no increase given for stock split Specific gift – increase given PA 3541 – ABATEMENT STATUTE [C] Ademption ADEMPTION BY EXTINCTION: In my will, I leave my 2003 Camri to X. When I die, I do not own this item. Since this was a specific gift, X doesn’t get anything even though I may have bought a replacement car two weeks ago. Had it been a general gift of all my cars, then the gift would go. LORD THURLOW’S RULE. SPECIFIC GIFT WILL PROBABLY BE ADEEMED and the general gifts will not 1. I leave J 100 shares of Dana Corporation common stock. (general) 2. I leave J my 100 shares of Dana Corportation common stock. (specific) 3. I leave J all my shares of Dana Corporation by common stock. (specific) Page 227 Type of Gift comes into play when: 1. Increases (stock split and dividends) 57 2. Ademption by Extinction 3. Abatement 20 PA 2514(17) Change in securities. – If the testator intended a specific bequest of securities owned by him at the time of the execution of his will … In re Estate of Dex Traditional Doctrine of Ademption by Extinction (Lord Thurlow’s Rule/ Identity Doctrine): Means that the item that was devised in the will is not in the testator’s estate or isn’t owned by the testator when the testator dies; if the testator replaced his 2001 Camri with a 2004 Lexus, the devisee of the Camri does not get the car under Lord Thurlow’s rule because the property of the specific devise is not in the testator’s estate when he dies. Wasswerman v. Cohen: Deals with a gift made in a trust, not literally a testamentary gift, but the question is whether Lord Thurlow’s rule should apply; the trust provided that the trustee was to convey an apartment building to the trustee on the death of the settlor, but the settlor never conveyed the property to the real estate trust in the first place (in fact, the settlor sold the property). Is Plaintiff entitled to anything? The court says no under the standard, traditional approach. The court applies the identity principle. The named property was not in the trust when the property was conveyed. - Ademption by extinction and the identity principle comes into play with a SPECIFIC devise only. Footnote 7: Court made modifications to the identity theory: (1) When a conservator or guardian disposed of the property, then you might avoid ademption by extinction (testator incapacitated). (2) Conservator sold, and then repurchased stock that was the subject of a specific legacy and that had been split twice, before the death of the testatrix. Court held that the gift was not adeemed. PA deals with ademption by extinction statutorily. Notes: (Pg 231) 7. PA CASE – Court applied the identity theory and declined to trace a gift when the Urban Redevelopment Authority acquired land and testator put most of the proceeds into bonds although Testator’s will left the real property to his son. 8. MY CAR will be read as the car at the time of the testator’s death; 20 PA 2514 (16.1 & 16.2) Read over: you may avoid the identity principle when a guardian, conversator, attorney in fact has acted on behalf of the testator with respect to a piece of property 58 no longer in the estate. Subsection 18 talks about nonademption when there is a balance on the property. 9. In Pa, under 2514(18), he would get the insurance proceeds if gun stolen right before death; UPC looks to testator’s intent as opposed to applying the identity principle. Questions (pg. 233): 1. Yes because they are taking a law of wills and applying it to trusts, but they don’t like the identity principle. 2. Rules; you start giving courts plenary power to look at intent, then everyone has to litigate everything. Problems: 1. Same as in PA (insurance proceeds) 2. In PA, under the identity principle, it’s not the same car, so ademption by extinction comes into play and the gift of the Jeep is extinct. Under the UPC, you would get into the intent of the testator as to whether or not the new car was a replacement for the old one devised. [D] Abatement and Exoneration The order of abatement comes about ini a situation where when you probate the estate, there is not enough money to pay the debts and what gets sacrificed first. RULE OF THUMB: residuary, general, specific 3541. Order of Abatement - You can change the order of abatement in a will, and you may want to consider that when the residuary clause contains the majority of your important devises. - Write out statute later because it was read aloud. - Subsection B deals with demonstrative legacies which is deemed to be specific gifts for this purpose. Exoneration: The general common law rule is that a specific devise transfers free from any outstanding mortgage which must be paid by the residuary estate (doctrine of exoneration). PA DOES NOT FOLLOW THIS! 2514(12.1). – Property subject to a security interest: Even general direction to executor to pay debts does not take away the security interest in the property; to get around this, the will must say so explicitly (that X is to receive the property free and clear of the mortgage/security interets. In re estate of Dex 596 A.2d 1143 (1991) (illustrative of what was just said. PA SAYS NO RIGHT OF EXONERATION EVEN THOUGH SPECIFIC GIFT. PROBLEMS (pg. 234) 1. Change the order of abatement 59 2. Think whether you want to give that specific car or not and getting into ademption problems. 3. What happens if one predeceases the testator? LAPSE Lapse A gift lapses when a person to receive something under a will predeceases the testator after the will is signed. If a gift in a will lapsed then the gift would pass under the residuary clause. If there was no residuary clause then passed under intestacy. Void gift – if person getting something under a will dies before the will is sign the gift is a void gift. Suppose - Leave to A for life, remainder to B. Both A and B survives testator, but B dies before A. Failure of remainderman to survive the life tenant. WE SHOULD ALL BE ABLE TO DRAFT A WILL SEE BOOK pg 14 -Anti-lapse statutes vary from state to state, but the gist is that when certain devises, typically relatives, predecease the testator, the gift lapses at common law, but the statute avoids the lapse, typically allowing descendents of the predeceased relative to take in place of him/her. - PA 2514 9-11: narrower than most: read aloud. PUT STATUTE IN HERE. only applies to issue, siblings, and issue of siblings (nieces and nephews) MEMORIZE FOR THE BAR!! Very narrow protective category of the statute. - Author points out and PA statute is clear that you can avoid the anti-lapse statute in the will if you do so expressly by providing for a gift over. ***Estate of Kehler (PA controversial case): devises named specifically (brothers and sisters); brother predeceased testator and his daughter tried to get the devise through 2514 (9); here, they allow the daughter of the deceased to take even though the language specifically said that it would only go to the named brother and sister if they survived. PA supreme court found through 2514(9) that the daughter of the predeceased sibling should take; DO NOT USE THIS language in PA because it is ambiguous; so, say that if anyone predeceases the testator, that that sibling’s share shall go to the other siblings (if that’s what you want); spell it out and set up substitutional gifts; “survive or survivors of them” is meaningless language in PA to exclude nieces and nephews; this language is not enough to avoid the anti-lapse statute in PA at least. Is this a class gift? No, it is a gift to specifically named individuals under the traditional theory even though the four of them are brothers and sisters since their specific names were used; where that clause is a problem; There is authority out there that when there is a gift to a class so described, there is an implied requirement of survivorship (surviving testator or life tenant if gift to remainderman). This implied requirement of survivorship would not apply to children but would apply to grandchildren; varies from state to state; irrelevent here because this is not a class gift. 60 PA antilapse statute applies whether you have a gift to individuals or a gift to a class; but you may run into some twilight rules; authorities obscure and mixed up on this that you can almost argue whatever you want. (CHAPTER 9). Notes (page 238) 1. Under traditional rules, a lapsed gift to a residuary beneficiary goes to intestate takers, unless saved by an anti-lapse statute. PA is the opposite on this 2514(11). IN PA, you can have a residue of a residue. Traditional rule is that there is no residue of a residue. PA’s anti-lapse statute applies to class gifts (2514(9)) so you can have a residuary of a residuary. Disputes arise whether a gift is even a class gift. 2. Majority Rule: Using survivorship language is the most common way to avoid an anti-lapse statute. DOES NOT APPLY IN PA to avoid anti-lapse statute as explained in Kehler. Do not rely on survivorship language. Have to spell it out expressly Nebraska case, contrary to PA The authors say that one rule of constructions is that a gift to one person “or” someone else places a condition of survivorship on the first named, with the second person as the alternative beneficiary. Gift over to X or Y; remember thought, some courts interpret & as or and OR as &. The words “& her heirs” are words of limitation, not words of purchase, but when you get into things like this, the courts can basically do whatever it wants past a certain point where the rules break down. 3. A power of appointment gives one person the authority to direct the transfer of property held by another. Typically put property in trust to pay income for life to someone. Problems with giving power to the trustee. You can have one beneficiary pick a later one. General principle is not to rely on an anti-draft statute to save you. It might not. Therefore think all the permutations through. 4. We never know when the law of wills is going to apply to subsidiary wills. § 2514 9-11 These don’t come up too often. Typically only for rich people and drafted by law firms who would know all the considerations. 5. Define survivorship in the will. Define survive in the will – by how long? 5 days, 30 days, etc. 6. Indiana Choice of Law case: court bends rules, who knows what you get. 61 Problems (page 240) 1. Terry’s will includes a clause giving property “to my sisters Mary, if she survives me, and Jane.” (a) If Mary predeceases Terry, leaving a daughter, Meghen, does Meghen take a share? Maybe (see below). (b) If Jane predeceases Terry, leaving a daughter Janice, does Janice take a share? Yes, the antilapse statute clearly applies and there is not gift-over. Janice would get the whole thing. Here, we have a gift to specific individuals, antilapse statute in PA applies, except that you can argue survivorship language, but that’s a problem under Kehler in PA, so you could argue that and means or, and then it’s a substitutional gift to Jane. Plausible that you could set up a will contest and settle it. Language is not precisely the same as Kehler (distinguish it; maybe a case of first impression). Court often picks the result they want and then bends the rules to come out that way. Chance to change the will rebuts undue influence (too broad of an argument here) 2. Joint will (stay away) and mutual will: When Harry died, under this joint will, the property is owned by Nancy for life, remainder to Gordon, then Gordon died, is this a lapse? NO because Gordon survived the testator (the first one to die). The remainder vested at Harry’s death, so Gordon’s vested remainder goes under his wills or to his heirs, not under the anti-lapse statute. (a) Deal with Ademption by Extinction and the problem of a lapse; do you want all paintings or this painting specifically identified and what happens if Rebecca predeceases the testator. Have to provide for if anti-lapse statute kicks in and what if Rebecca predeceases the testator. What is painting doesn’t exist or if it gets burned up by fire, etc. (b) Since this does not look like a lot of my stock, devise as a general gift; don’t forget about the anti-lapse issue. What is Agnes predeceases the testator. Notes and Questions: UPC criticisms are that they are too complicated. Makes sense to apply anti-lapse to other documents. UPC provides definition of survivorship. 62 Note 3 – makes it harder for draftsman. What do you have to do to make the gift stick? Don’t get bogged down trying to learn the UPC provisions. However, if you had a case with a survivorship provision and you wanted to argue that the anti-lapse statute should apply, you not only have Kehler case but you could also argue UPC. Problems: 1. Clearly, a substitutional or alternative gift (NANCY); part b, if Nancy predeceases Tanya, leaving descendants, the UPC (2603c1) would have it go to Ben’s kids; but under standard theory and PA, it would go to Nancy’s kids. At CL substitutional gift would knock out the anti-lapse statute 2. The authors go through this one because in PA, anti-lapse would apply, one living child Richard gets 1/3, Ralph’s four kids get 1/12th each, and Joseph’s three kids get 1/9th each. Same under UPC but inconsistent. Grandchildren take by representation. Chapter 6: Protecting the Family The power of the dead hand on property: In advising clients, avoid trying to talk clients out of schemes that will tie up the property for generations; may seem sensible now, but in the future, it may not. Disinherited Spouses: Difficult but not totally impossible. [A]Community Property (AZ, CA, NV, NM, TX, WA, WIS); if in Pa, you could have a problem if you have someone that moved from a community property state; the community property rule is that once community property, always community property. If you run into this situation pertaining to community property, do not try to handle it yourself because it is very complicated. PA: marital property only if you have a divorce or separation proceeding; otherwise, PA follows the common law. Notes (page 254): 2. If in a community property state, any income she took would be community property. Increases in the value of her own assets remain separate. Only go under marital property if there was a divorce or separation. 63 3. Every community property state is a little different as to what share each spouse has. States differ on increases of property in marriage, contribution, income, etc. Goes to the importance of record keeping. Problem Half of the second $20,000 belongs to Grace because the remainder $20,000 to purchase was paid out of Lew’s income. [B] Dower – still hangs on in approximately 3 states Common law method to protect a surviving spouse; community property in states that have it serve that function (derived from Roman civil law). Abolished in PA in 1950s. Not an adequate protection for surviving spouse. Dower: surviving wife/widow by operation of law got a 1/3rd interest for life in all real estate owned by husband at any time during marriage. Scheme to protect the widows of nobility. Curtesy: surviving husband/widow by operation of law got a life estate in all real estate owned by wife if children. IN PA, if a surviving spouse is disinherited, since there is no dower/curtesy, there is a set of provisions allowing surviving spouse to renounce the will and take a forced or elective share. Surviving spouse is an intestate heir. PA Chapter 22 Elective Share of Surviving Spouse (forced share) PA Augmented Estate, so it’s not simply the probate estate that the forced share is taken against; UPC abandoned this, but NY retains it. Problems (pg. 255) 1. Yes, common law dower applies to any real estate owned by husband during marriage; If he had the joint tenancy before marriage, the house would not be part of Ellen’s dower interest (Yes in medieval times and modern times in Great Britain). [C] The Right to Elect - not in Georgia (only one year support for surviving spouse) - LA is different – kids also have right to elective share - Elective share varies from state to state 64 §2204 Doctrine of defrauding a surviving spouse – do not try to help people engage in schemes of this sort. In re Estate of Cross – 664 NE2d 905 – Ohio case  The Basics Notes and Questions – page 257 1. Constructive Trust 2. Homestead provisions: (minimal in PA) 3. Homosexual relationship – not getting into 4. Under UPC, the trust established for an incompetent surviving spouse eventually passes back through the estate of the spouse against whom the election was made. Standard is that when there is an election, the trust passes through the estate of the person who made the election. 5. England: plenary power for elective system; under the civil law system in LA, not only do you have a spousal share, you cannot disinherit your children altogether. 6. Conflict of authority. 556 a2d 252 – Md case right of election took precedence. Fl case girtman 542 s2d 1033; NY case 225 ne2d 540 – went the other way.  Exceptions The right of election is the right to renounce the will and take the forced or elective share; in some states, it’s keyed into intestate share, but not in Pa; the forced or elective share is not taken solely against the probate estate; other things will be included, and this will vary from state to state; Certain property is pulled back in for purposes of taking the elective share; Suppose you and your client really want to disinherit the surviving spouse; advising someone to do this crosses the ethical line (defrauding a surviving spouse); as a matter of common sense, the right to elect has to be taken against more than the probate estate; for a long time there is a question as to making gifts to disinherit surviving spouse (well, gifts a year or two before you die will probably be pulled back in); another technique is to put the property in a trust; trusts are very flexible documents; put it in a trust, income to settlor for life, remainder to kids from first marriage; can I use that to empty out my augmented estate and deprive my spouse of the right to renounce the will and take a forced share? IT DEPENDS ON WHAT STATE YOU LIVE IN. See next case. Dumas v. Estate of Dumas: Wife established own trust for her assets and her daughters and the husband did the same for his daughters; he also had the right to withdraw assets and revoke; H died nine days after divorce; she argues that he defrauded her with the creation of his trust for the 65 benefit of himself and his daughters; A valid, non-testamentary trust executed by a settlor and in existance at the time of his or her death bars the settlor’s spouse from claiming a distributive share in the trust assets under the statutes of descent and distribution even though the spouse is a trustee, derives all of his income from the trust, reserves the right to revoke or amend the trust and to withdraw and deposit assets. No evidence of fraud here, but he managed to disposed of a lot of assets not subject to her election; it can be argued that this should type of problem should be handled by a rule whether statutory (PA) or by case that says that property in a trust where the husband has the right to revoke solely, that that property gets included into the augmented estate of which the surviving spouse can take from as part of his or her forced share. Fraud doctrine is inadequate to handle this kind of problem. Sometimes called a pour over will Approaches to Focus on: (1) Fraudulent Intent (2) Illusory Transfer Dissent: if you were in Mass w/ Sullivan case or in PA, how would you get around it? Dissent in Dumas (Pg. 260): “As to any inter vivos trust created or amended after the date of this opinion, we announce that the estate of a decedent . . . shall include the value of the assets held in an intervivos trust created by the deceased spouse to which the deceased spouse ALONE retained the power during his or her life to direct the disposition of those trust assets. To avoid this, under the Massachusetts rule, give a power to somebody else or to set up a power that has to be exercised jointly. 20 PA 2203(a) tougher than Massachusetts for purposes of the right of election; see paragraph at end; very difficult to deprive surviving spouse of right of election in PA; don’t advise someone to commit fraud. An irrevocable trust cannot be pulled back into the estate in PA while a revocable trust of any kind (either the decedent retains all the powers or even if a child has been given the powers) will be pulled into the estate. Notes and Questions (Pg. 262) 1. That is the way it is set up. 2. Make the trust invalid for purposes of invasion of spouse’s right to elect, but not for other purposes. Problem (A) Ethical problems where this action might evade right of election; if it doesn’t she’s probably giving Sam far fewer assets than he would have got; getting into cloudy area (B) Personal ethics Note 4 – You can try to shop for a state that allows a trust that is not subject to being pulled back into the estate to disinherit a spouse. 66  The Uniform Probate Code: Took the original augmented estate from Pa and NY; 1990, changed this all around. The Augmented Estate in PA 2203. – Right to election; resident decedent. – ON TEST Make calculation to determine the augmented estate. Assume H dies first. At time of death, H owns property worth $100,000. Let’s further assume that the administration expenses are $10,000 (funeral, paying for probate). $90,000 is the adjusted probate estate. Within one year of this death (UPC 2yrs, PA 1 yr), H made gifts of $100,000. The value of these gifts is pulled back into the augmented estate, making it $190,000. Suppose W gets property outside the property of the estate (jointly held property (property that passes outside the probate estate)) as a surviving spouse, amounting to $50,000. It’s this calculation that is not properly spelled out in the statute; The augmented estate is $240,000. The elective share is 1/3, which is $80,000. Notice that she gets credit for the $50,000 she received as a surviving joint tenant (2204a8), so you deduct that $50,000 from the 80 to get $30,000 as the net elective share. (or would you prefer income for life?) She has to make a decision which one would give her more. Items that are excluded from the augmented estate: (1) property conveyed jointly (2) Life insurance proceeds (3) Pensions (4) Powers given to other persons Does the right of election apply when the first spouse dies intestate? Yes In PA 2210(b) – TIME LIMIT – 6 months after death or after probate estate open, whichever is later. 20 PA 2206 – in whole or in part? Gray doesn’t know what that means, maybe to cover property that passes under the laws of another state. (Chapter 22 is badly drafted) PA Rule: You cannot pull an irrevocable trust back into the augmented estate. In Re Estate of Kessler 419 Pa.Super 142.;615 a2d 65 Present UPC Approach: Two basic differences: 1. The augmented estate includes property also owned by the surviving spouse. 2. The percentage varied with length of marriage. Problems 1. Under a traditional approach, ie, PA, include the $100,000, 2203(4) included if Barb created this joint tenancy in the first place more than one year before her death, so add in the $100,000, life insurance is excluded, half of joint bank account ($5000) included, half of house ($95,000) in joint tenancy. So the net result in PA is a net augmented estate of $300,000. 1/3 of that is 100,000, so the right of election is 0 because the bank account 67 and the house is deducted from the elective share, which is $100,000. Stock portfolio has nothing to do with it in PA. Under the UPC, the augmented estate would include all of Bill’s assets, including the $50,000 stock, his $50,000 interest in the life insurance, Bill’s half of the house and bank account $140,000, plus the $300,000 from above giving and augmented estate of $500,000. Since they have been married12 years, the surviving spouse gets 38% of $500,000 (~$190,000). Deduct amount he’s already gotten and it turns out to be 0. Under the UPC approach, he is not only credited with what he received from Barb outside the will, but also what property he owns outright in his own name. 2. (b) The way the UPC calculations work, it probably will not be a big deal because if Bill has substantial assets, they will be thrown into the net augmented estate. Also, they have only been married four years. Not a major problem. (a) In a common law state, such as PA, surviving spouse will have a substantial right of election. To make sure Bill doesn’t get anything, you have to empty the augmented estate, so that there is not much there for the augmented estate. Number one, there are ethical problems in doing this (even though Bill is loaded). This all should have been handled by a prenupt but wasn’t. If you are going to empty the estate, and irrevocable trust or trust held by someone adverse is the only way to get the $ out of the probate estate in PA. Aside from everything else, you have to leave enough so that Barb can live on it. With respect to Mark Morris, you have the issues of confidential relationship and unde influence. Whatever Barb does, she needs independent advice from lawyer. Another technique that is mentioned is to make some provisions in the will for something substantial (life interest versus certain amount outright by elective share; also throw in a no contest clause). REMINDER: This is not the same ways things are done in a divorce proceeding; marital property in PA is different; pretty much everything is thrown in there. Estate of Hanau v. Hanau: Texas case with community property; lived in Ill. before moving to Tx; stock acquired in ILL separate or community property; The general rule is that property which is separate in the state of the matrimonial domicile at the time of its acquisition will not be treated for probate purposes as acquired in Texas. The court refuses to adopt this rule and instead, the Tx court was able to trace it to retain its character as separate property for probate purposes. Careful accounting saved the day!! Elective share not same as divorce Notes: 2. Quasi-community property 3. community property state to common law state move: property acquired as community property does not lose its vested character because you move. 4. Lydia lived in one state and owned real estate in another. The will had to be probated in both states. Her widower was unable to elect against the will in one state and take it in another. 68 Prenuptials: NY case opposite of PA case. In Re Estate of Grieff: Decision essentially says that prenupts are suspect to some degree and will be scrutinized by the courts. PA Courts: Simeone v. Simeone: essentially takes the position that a prenupt is a contract to be treated like any other; consideration of other factors, such as knowledge of other parties and reasonableness of other party is inappropriate; we are not going to scrutinize these agreements more than we would an ordinary bargain. Full disclosure is required. (104 Hlrev 1399 -- reviewed); Concurring – contracts of adhesion (prenupts), but nothing unreasonable here. Dissent: Refers to case three years prior (Estate of Grier 533 A.2d 423 – opposite plurality opinion). Reasonableness of this kind of agreement is not going to be examined in PA. Pappy view – contracts of adhesion – but no reason to avoid. Dissent- inequitable and unfair agreement. McDermott opinion – 516 Pa 492; 533a2d 423 – went the other way Notes and Questions (pg. 286) 1. Barry bonds issue 2. cite 3. rhetorical 4. self-explanatory Problem 1. No, a lot of problems arise. This may be a same sex issue. Forgotten Spouses or Children (Pretermitted Heirs/Children) Opposite of lapse – child conceived after will is written. PA 2507(4) Modification by Circumstances – Birth or Adoption Child gets intestate share after setting aside what goes to surviving spouse. PA 2507(3) deals with pretermitted spouses A pretermitted child is a child born after the will was executed and before the testator’s death. A posthumous child is construed to be born on the date of his conception (if it will help him). Some states, not including PA, require a testator to expressly disinherit a child (except for LA, you can disinherit a child, some states require you to do so expressly in the will). 69 Many if not all states would say that you can have a statement in the will evidencing your intent not to give anything to a pretermitted child if one shows up. Some states take extrinsic evidence and some do not. PA appears to be like MA UPC provisions – much more complicated Note 3 – page 290 Designed to protect people who are unintentionally omitted from a will. Choice of law problem. Under most, NY law would apply as in case 379 a2d 1256 (1977) Mistaken belief child is dead – UPC treats as a pretermitted child problem. UPC is more humanitarian. Problems – page 290 1. 2504 – read statute tells you what PA provides UPC – would get nothing 1. a. PA, go to 2102(3) first $30,000 plus ½ balance; you may problems with property passing outside of probate. b. nothing in PA because at this point, she is no longer a pretermitted child; the will was revised, meaning it was a new will or codicil. UPC – gets fishing pool c. As a pretermitted child, he would get the share he would take from intestacy aside from what the surviving spouse gets (PA). UPC – 2302a2-4 – half the fishing pool d. Would not make any difference in PA – it is not other provisions UPC – has part for provisions made outside the will e. No because this does not apply to nonprobate assets UPC – non probate asset – does not affect it. 2. Give the property to Donna if she survives me (defined at beginning of will), if she does not survive me, then to my children who survive me in equal shares, and for any child does not survive me to his/her issue per capita by representation, and if a child does not survive me with no issue, then to the children who do survive me, and if no children survive me, a gift over to somebody else. If one of children does not survive me I don’t want their share to go to their descendants but to my other children – would take care of Keller problem. 70 Avoid having a remainder gift to heirs – would have to go through how to determine heirs. Need to spell it out. If there is literally no one, give it to a charity or someone. When dealing with minor children, provide for guardians for the minor children. May want to set up a testamentary trust for the kids. Intentional Disinheritance 1. Ethan is not a pretermitted child in PA 2. Gift to Larry lapsed, so maybe under the anti-lapse statute, Ethan will get the $20. Problems – page 292 1. I intentionally omit. 2. Yes – anti-lapse statute applies 3. it is a stretch to call him a pretermitted heir – not sure why author left question in here. Question – page 293 For minor children that would be a good idea. For right now, LA is the only state that has this provision Charitable Gifts Cavill’s Estate 459 Pa. 411, 329 A.2d 503 (1974) Pa’s mortmain statute was knocked out – opinion by Justice Nix Public policy Limits Posthumous meddling- trend is to allow testamentary freedom. Conditional gifts in a will: Generally speaking, in a will, you cannot leave instructions to destroy property. Gifts in a will or trust conditioned on were struck down in the past. Today, testamentary freedom of contract is an issue. Older NY case giving settlor lifetime income with marriage approval. NY court struck down the restriction s tending to discourage lawful marriage. Illustrative of the older approach. In more recent cases, the more modern tendency is to uphold conditions of this type. As a whole, however, these are a bad idea. Shapira v. Union National Bank restrictions frowned upon at one time. Notes – page 297 1. Understandable – courts do not usually go along with destroying property 2. Sometimes upheld and sometimes not. a. Won’t be upheld – why consent, it restrains all marriage. b. Encouragement to divorce but court said no. c. Doesn’t like son in law – court upheld restriction. d. Court cut off Harold’s interest even though older case. 3. Conditional gifts based on lifestyle may well fail – what makes them think they can control kid when dead. 71 Hecht v. Superior Court – public policy case Question is whether this is a property right. Rest on CA policy – impregnating unmarried woman. They reverse decision and sperm was not destroyed. Notes – page 303 1. If sperm donor was liable as a parent, no one would agree. 2. Act 3. If they are reasonable, honor them. Problem – page 303 1. Dead hand stuff – you should avoid. 52 Va 80 – Mattox v. Mattox Shapira v. Union National Bank15 ne2d 825 – ohio You should talk client out of stuff 2. Test Question – prepare answer ahead of time and copy into book. Excellent summary of all chapters. Usually adds a couple of small provisions so make sure to read the question through. Page 303 Draft answer ahead of time 40 points PROBLEM 2 VERY IMPORTANT!!!! First exam question, in PA Chapter 7: Planning For Incapacity In PA, Chapter 54 5404 (B) MODEL FORM §5601 - Powers of attorney Miller v. Miller-- Millers move out of house when too ill to care for them selves. Grandson Danny is given durable power of attorney. He used power of attorney to convey their house to himself and wife, Tonia. Danny and Tonia separated and divorced. George found out about Danny conveying the house to Tonia and himself and wanted the deed re-vested to him, so he sued them. Court set the deed aside, only Tonia appealed. George said improper use of power of attorney. This falls in doctrine of Constructive Trust--no clause in power of attorney to change survivorship or make a gift. This is a breach of trust in fiduciary relationship. 72 Notes and Questions pages 310-311 1. Fill out what is needed and it will ensure everything is right. Have to consider Medicaid-- have to see what power of attorney is allowed to do in your state. 3. Powers of attorney, can either be immediately effective or can be written to “spring” into effectiveness upon disability. Divergent opinions on this--hard to prove when someone is “disabled” Springing Powers: not favored by Gray because you can never tell when the triggering event has occurred. Problems with durable powers of attorney: (1) Staleness POWERS OF APPOINTMENT Springing Power power of attorney that comes into effect when the principal becomes ill or disabled. 5602. Form of Power of Attorney (a) Specifications of powers. – 23 items are set up like a checklist, so if you don’t absolutely trust the person to whom you are giving the powers, then don’t check all the boxes. PROBLEM: One of the biggest problems with durable powers is that third parties might not honor them. Another problem with this is staleness and unfamiliarity. PA Statute 5601--presume are durable--56:02 (a) gives specifications of power--agent, do need power of principle-only has power to make limited gifts 5601.2(b) limited gifts (c) unlimited gifts--principle may authorize an agent to make any other gift only specifically providing for and defining the agents authority in power of attorney. If want to make unlimited gifts have to spell out in text of power of attorney. Medicaid--if want to go into nursing home--Medicaid will pay for it if spend down all assets, have to make impoverished in order to get government to help for it Feds have 3 year look back--any assets transferred within 3 years of applying for Medicaid will credit you as having them and won’t pay for the nursing home for that amount 5 year look back for trust--if you apply for Medicaid. Ability to make general gifts by clause allows to give gifts away--have to keep at 3 years worth of assets Principle--give everything else away--pay for 3 years and then apply for Medicaid 5602 – If want to grant power to make general gifts, have to spell it out. It is not in the checklist. 73 Feds have a 3 year look back from applying for Medicaid and a 5 year look back for trusts. Make sure you spell out the general gift provision in the power of attorney to allow for Medicaid planning. Keep three years of assets in the estate and give the rest away. Have Medicaid take over paying for it after that point. PA statute is a little broader (liberal) than most on this 5602(a) Specification of Powers Exclude from gift tax – medical care and tuition A decision has got to made as to whether the attorney at fact can make general or specific gift Amended in 1992 to allow Medicaid planning Long Term Care Insurance – Add information 5404. Advance Directive for Healthcare (b) Form - nursing homes will come up with a new form of this kind every year; nursing care form asked if you wanted food withheld or water. Surrogate trumps your living will--someone must make final decision--judgment Guardianship of person or of the property--can use power of attorney to use property with just guardianship of person Cruzan Case Chapter 8: Trusts Material in chapter 9, nowadays, typically deals with trusts (complicated stuff); and admittedly, trusts that are set up for wealthy people. 8.01 An Overview – lays the fundamental groundwork as to what is a trust; we do not even talk about powers of appointment until Chapter 9. [A] History - Derived from Statute of Uses (1536) – trustee only has the seisen. If the trustee was given some sort of active function or duty then the Statute of Uses did not apply. Splits title between legal title (trustee) and equitable title (owner). - To have a valid trust, it must be an active trust; [B] Modern Trust Law - Divides the responsibility from benefits: trustee has legal title and beneficiaries have equitable title. [C] Express, Resulting, and Constructive Trusts 74 (1) EXPRESS – transfer of legal title to a trustee where the settlor expressly intends to impose active duties on the trustee for the benefit of one or more beneficiaries. (2) Implied by law (1) Constructive Trust equitable remedy. Courts will impose a constructive trust on property as an equitable remedy. (2) Resulting Trust, also known as equitable trust A trust that arises by operation of law. Suppose S (settlor) conveys property to T and his heirs (at common law, & his heirs were words of limitation, magic words to give T a fee simple) to pay the income to A for life. (Those are the terms of the trust). T has legal title and A has equitable title. This trust is a direction to pay, so it is an active trust that does not get executed by the Statute of Uses. When A dies, there’s a blank, so what happens? Since A has a life estate and S has a reversion (equitable reversion in S the grantor) That is what is called a resulting trust (= equitable reversion). You cannot give it to T because T is not supposed to have a beneficial interest in the trust. In this case, trustee would have to give legal title of property back to S. Another name for equitable reversion is resulting trust. [D] Terminology Beneficiaries – cesti qui trust Property in trust – res Creator of trust – settlor Trustee – entitled to be paid for services; manages property and not entitled to benefits from property Trust is not an agency relationship trustee has legal title, beneficiaries have equitable title. Trust does not establish a debtor creditor relationship Trust is not a bailment trustee has legal title not just possession Inter vivos created between or amongst living persons Testamentary trust is a trust created in a will (** DON’T CONFUSE) Presumed that a trust is irrevocable (consistent with law of gifts); if you want it to be revocable, say so; dacey trust, or inter vivos living trust is supposed to be revocable, but you still have to say so. Choice of Law Notes and Questions page 333 1. Would be attempting to defraud surviving spouse 2. Other substitutes for truss in other countries 8.02 Creation of a Trust (1) Declaration (I declare myself as trustee holding the property for the benefit of A; you can make yourself your own trustee; you can create an oral trust, but when land was involved, then it has to be in writing. 75 (2) Transfer (Typical settlor transfers property to trustee; some of gift rules apply) (3) Voluntary (gift; most of the ones we talk about) (4) Contractual (consideration) The only real importance between voluntary and contractual is that as a voluntary trust, the property that’s conveyed to the trust has to already be in existence; it cannot be a mere expectancy; BE CAREFUL WITH THIS!! Future interest: TO A for life, remainder to Gray; Gray can convey remainder into trust; the theory is we only talk about present future interests with enjoyment postponed. What’s the difference: Suppose I anticipate inheriting property from the parents; my status as a perspective heir allows me to make my expectancy interest as the subject of a contractual trust, but not as a voluntary trust . Speelman v. Pascal, 178 N.E.2nd 723 (NY 1950s) (Pascal was a Broadway producer in the 1940s; purchased the rights of the estate from Shaw and bought the rights to turn the play into a musical (MY FAIR LADY); as part of the deal, he had entered into a contract with a secretary would receive 5% of the proceeds from any musical that was produced. The question was whether the 5% letter as it was could be the subject of the trust. The court said yes because essentially, it is contractual right and a contractual trust. YOU CAN CONTRACTUALLY CONVEY AN EXPECTANCY WHICH YOU CANNOT CONVEY AS A GIFT. FOUR REQUIREMENTS TO CREATE A TRUST : (1) Trust Intent to create a fiduciary relationship (2) Property (res) and delivery (EXCEPTION dry trust life insurance proceeds) (3) (definite)Reasonable Ascertainable Beneficiaries (exception charitable trusts) (4) Trustee [A] INTENT – Not only do you need expression of trust intent, but you need minimum capacity (18, extent of property, etc.); a simple statement of hope, wish or recommendation may not be enough. Trend today is to be more accepting of carrying out testator’s intent than rules of evidence, so extrinsic evidence may or may not be let in by court. Burton v. Irwin: The gist of this is that we are talking about a will of Mrs. Mallory who died in 1967. She appointed brother executor and trustee of her estate. The contest is whether Brother is entitled to keep whole thing or was there a trust created. Brother won because the language Trustee and my brother knows my wishes is Precatory (not mandatory) language. So the property goes to William period. Court said not sufficient language to create a trust here. Could have maybe gone the other way but no trustee name (not even enough to get to a semi-secret trust). Language in a will or a trust that says that the estate is to be devised according to my wishes – precatory language. No evidence of intent to create enforceable duties. –Precatory Language 76 Notes and Questions: Most cases like Burton are based on surrounding circumstances and not just the precatory words. (Recommendation, request, wish, desire, trust, hope BE CAREFUL) PA CASE: Estate of Cornbilt, 241 A.2d 524 decedent left all of rest and remainder of property to sister and brother who are instructed as to my charitable wishes. Court said mere precatory language that is not enough to create a trust. You need to have the intent to create enforceable duties in somebody. So if you have not spelled out beneficiaries, you haven’t created duties in anyone, so it’s precatory. It’s fair to say that cases from more progressive states are going to try to find some evidence that the language was not precatory. In contrast with Estate of Cornbilt, Levin v. Fish, 404 S.W.2nd 889: decedent left property to his son and daughter, and in his will he said, “It is my desire that my son and daughter use their assets to continue to pay for the support of their aunt”; see, the decedent had been paying for the support of his sister. Son and daughter were mean and cheap, so it was argued that the language constituted a trust. Aunt won. Sometimes it is difficult to tell if you are dealing with mere precatory language or the intent to create a trust. In Re Estate of Zuckerman (Totten Trust): Couple died together in an auto accident after having lived together for 12 years. A year before Rotfeld died, he put property in trust with Rotfeld in trustee for Zuckerman (no formalities). Is this valid to pass property onto Zuckerman estate; close to totten trust; if you put the name Rotfeld in trust for Zuckerman means that when Rotfeld dies, it goes to Zuckerman. The words in trust are magic words. He has given away the ability to do what he literally wants with the property because he has to get someone to sign off on it, making a present transfer. Totten trusts come from a NY case, antecedent of Pay on Death accounts. Person put money in a pass book account that said X in trust for Y. Even though X kept the pass book and had use of the account during his life, any amount left had to go to Y. NY court said that even though it was a testamentary gift it did not have to be in a will – passes outside of probate estate. Notes: 1. Trustees owes a fiduciary duties to beneficiaries to invest trust assets prudently. In theory, he could have recovered but it is not likely. More like a totten trust. 2. Rules of testamentary capacity applies to trust today generally. 3. Testamentary capacity is applied to capacity to create a trust. A trust may be invalid is induced by fraud, duress or undue influence. 4. If one person gives property to another subject to a requirement that the donee pay a person some amount of money, courts will say that the donee takes free from any trust, 77 but subject to an “equitable charge” in favor of the third person. The third person would have a security interest in the property given to the donee. Problem: 1. FLAVOR OF A LAWSCHOOL/ BAR EXAM QUESTION (pg. 339) The Connecticut case (169 A.2d 641, 1961 Nye) Woman announced that she was going to donate books to a law school. Did before she could finish packing and shipping but had sent a memo to the school listing the books to be transferred. Court held that this was a valid gift to the law school. Gift and trust issue. Gift analysis clearly donative intent, acceptance is presumed, but what about delivery (substitute delivery of memo was sufficient (although strict rule is that small items of personal property have to be physically delivered)); Had the court gone the other way and said that this was not a valid inter vivos gift (regularly asked about issue on bar when you have an invalid/incomplete gift, the courts cannot construe the gift as a trust to save it; no real estate, so could be oral; no trust language here). You cannot impose a trust to save an invalid gift. YOU NEED TO USE THE MAGIC WORDS “IN TRUST”. Had she stated that I hold these books in trust for the library until they are delivered, then a trust is created. For real estate the trust must be in writing under the Statute of Frauds. Gift requirements – donative intent, delivery and acceptance. Acceptance is presumed. Usually delivery of a substitute item is not actual delivery and is not a valid gift. 2. Insurance Policy purchased by father with interest to be paid to minor daughter until age 21 then pay out principal. Wife went to court stating that this was a trust and wanted it invaded to support daughter’s needs currently. The last thing that the insurance company wants in this situation is to be a trustee (do not want broader responsibilities). This is a contractual agreement. (Pierowicz v. Metropolitan Life, 275 N.W. 789). What are you making interest payments to a minor for? Locking things in for a large number of years is not a good idea because of changing circumstances, inflation, etc. Lawyers are supposed to anticipate this. Administration of a trust is under the general administration of the court, in PA, Orphan’s court. Discretionary and support trusts should be set up so someone can invade at some point. [B] Trust property (RES) Kully v. Goldman: property rights in football tickets were a mere expectancy and could not constitute the res of the trust. No contractual rights. More theory than substance. The court really decided this because everyone would be bringing these kinds of quarrels to the courts. Right to sports tickets might be subject to divorce proceedings. Notes and Questions: TEST QUESTION Page 342 1. A contingent remainder is an interest which one can place in a new trust. The contingent remainder is a property interest that is capable of being subject to a trust. We construe this future interest as a present property right. IMPORTANT: Property in trust, income to Andy for life, and at his death, to whomever Andy appoints at death in his will and if no will, in default then to Matthew. Andy has a life estate and Matthew 78 has a contingent interest. This is a general testamentary power of appointment. This is proper. LE + power of appointment, if power is not exercised, you should have a gift in default if the power is not exercised. For purposes of determining whether a remainder is vested or contingent, the fact that there is a power of appointment here is irrelevant. Thus, in reading this, there is a life estate in Andy and contingent remainders in Dawn and Matt (because of the survival requirement for each of them; either successive or alternate contingent remainders because of “if” clause). There is also a reversion, and since this is a trust, there is an equitable reversion, and another way of describing this is a resulting trust. THE MAIN POINT IS THAT A POWER OF APPOINTMENT DOES NOT MAKE A CONTINGENT INTEREST (REMAINDER) VESTED AND IT DOES NOT MAKE A VESTED INTEREST (REMAINDER) CONTINGENT. Ignore the existence of the power of appointment. Notes and Questions 342, 343 1. Oscar had $5000 in trust for income for life to son, Andy. During his life and at Andy’s death giving to whomever Andy appointed by will. If didn’t appoint to other son Matthew, if Matthew didn’t survive to his sister Dawn, she has contingent remainder and could place property interest in new trust --contingent remainders now alienable, transferable is beneficial interest in spend thrift trust --Andy had testamentary power of appointment, only exercised in will, can’t do inter vivo trust --have express provision--exercising power --If Matthew had survived Andy--contingent remainder --power of appointment--doesn’t make it contingent--remainder vested or vested remainder contingent --ignore existence of power in this case For purposes of determining whether contingent or vested, ignore power of appointment 3. Gray does not agree with this case. Any property right should be transferable. Looked like tax evasion and 7th circuit wouldn’t allow that. Today, you should set up a written trust and transfer the property to the trust and comply with IRS regs. You can not have an unfunded trust. LIFE INSURANCE TRUSTS (DRY TRUSTS) 2515 PA Gordon v. Portland Trust Bank Contrary to the older doctrines that say you have to have a res. Older tax cases may not apply to property law in general. Gordon v. Portland Trust Bank Can you have a shell trust to catch life insurance proceeds. Traditional rule – couldn’t do it because you had to have a res. Life insurance policies to bank as trustee--Albert retained series of rights. Bank held insurance policies as trustees. Wife claimed didn’t create trust - just testamentary disposition later revoked by will as long as a live trust is dry. Supreme Court of 79 Oregon--didn’t follow--insurance as trustees; insurance rights secondary. Case affective authority--dry trust with life insurance with proceeds funding the trust. Rationally life insurance policies not res to be held to be trust Notes & Questions – page 344 1. Skip PA 2515. Devise or bequest of trust – Now you can have a dry trust, or a trust that receives funds from an insurance policy. 2. Remainder and future interests may be the subject of a trust 3. Brainard v. Commissioner: Orally declared to his wife and mother the profits he would make from trading stocks in 1928. The IRS said that he did not create a trust, and the court agreed; but be careful because just because this was not a trust for these purposes, it could have been for other purposes. Have to be careful with these tax cases, particularly the old ones. Their analysis of property law is wrong. 4. Self-explanatory 5. Declaratory trust v. Transfer trust: I can simply state that I am holding property in trust for someone else (declaratory); now, if a third person is involved, the gift rules come in; even if making a declaratory trust, a writing is helpful (for real estate it has to be in writing). Life Insurance – can transfer the proceeds from a life insurance policy to a trust. Theoretically could buy life insurance policy, borrow against it and put the money in a trust. You have gotten a million dollars out of your estate. But Gray does not advise trying it. You may run into a problem with the gift tax. [C] BENEFICIARIES (cestui que trust) 1. TRUST INTENT 2. RES 3. BENEFICIARIES 4. TRUSTEE Morsman v. Commissioner: Made a trust, making himself trustee for a trust for nonexistant persons (a living person has no heirs). Without living beneficiaries, the trust failed; the authors tell you that this is bad trust law in note 3 on page 347. Only knocked down because it was for trust purposes. This court incorrectly states that intestate heirs in insufficient (WRONG). Property law wise – this is a very bad opinion. Notes and Questions (pg. 347): 1. Separation of title: 80 a.. 3rd Party Trustee b. Ascertainable Beneficiaries (brother (if he is living at my death and there are no other takers in this case; if no one else is alive, then you should leave it to a charity (END LIMITATION)). Point is to not use heirs as the period at the end of the sentence. 3. For trust purposes, the tax case is thought to be wrong. The settlor of a private trust can be the sole trustee and a beneficiary so long as other beneficiaries will be ascertainable within the Perpetuities period. Morsman should not be followed. 4. Court in this case said that you did not need an ascertainable beneficiary here before the trust was created. 5. Merger Doctrine would apply if the trustee is the sole trustee and sole beneficiary; that is not a valid trust. You have to have a beneficiary different from the settlor in some respect. Unidentifiable Beneficiaries and Resulting Trusts: Clark v. Campbell, 133 A. 166 (N.H. 1926): the court in Clark rejected the trustee’s argument that they had a valid power of appointment. It applied a stricter rule for trust beneficiaries than is generally applied to the identification of beneficiaries powers of appointments; the generally accepted principle (traditional rule) is that you cannot give a trustee as broad of discretion in exercising a power of appointment (pick beneficiaries) as you can give a beneficiary. You could give this to a beneficiary, but not a trustee. Convey to the trustee with income to W, the beneficiary, for life and has the power to appoint whomever she chooses (general) or amongst my friends (special) to get the remainder; if you attempt to give this same power to the trustee, you will run into trouble. You cannot give broad discretion of that type to the trustee. You can give trustee broad power to invade principal, to pay or not pay income, but in terms of choosing beneficiaries, you cannot give the trustee the same discretion as you can the beneficiary in selecting beneficiaries. Avoid using fudge terms to identify beneficiaries (relatives, friends, etc.) Using the term relatives, causes problems. In Great Britain, you can give a trustee as broad as a power as you want for purposes of picking beneficiaries; that type of trust is called an executory trust. Doctor v. Hughes: instead of abolishing the doctrine of worthier title, Cardozo extended it. NY got rid of this in 2000 Authors also tell you the rule that you have to have identifiable beneficiaries does not apply to charitable nor honorary trusts. Uniform Trust Code – adopted in PA 81 Other Situations Where a Resulting Trust Might Arise: 1. Illegality 2. Impossibility 3. Violation of Rule Against Perpetuities 4. Surplus Income 5. Incomplete Disposition: 4 Possibilities to fill in the Gap 1. *Give all income to surviving life tenant 2. Paid to estate of the deceased beneficiary 3. Paid to estate of settlor as property not disposed by his will (resulting trust) 4. Accumulated and paid to person entitled to principal of the trust estate. The most commom approach is to imply a gift of income to the surviving life tenant PROBLEMS (Pg. 352) 1. Testamentary trust to be distributed amongst my employees. Case law on this is in conflict. Some courts say yes (doctrine of independent significance) or no (indefinite beneficiaries). Notice this is property to be distributed by trustee to the employees. Had this been a power given to a life tenant, it would have been perfectly alright, but giving the trustee the power, you aren’t sure what you’re going to end up with. 10 p2d 219 – State of WA case (no) 235 NY State 642 – State of NY case (YES) – determine the # of employees at death. Today might depend on the number of employees 2. Valid giving of powers because given to individual not trustee; could argue that precatory language and imposed a constructive trust; maybe whether there was a gift over (residuary clause); if disposition invalid, it passes under residuary clause in will. 3. Invalid because of illegality 4. Moss Case 224 N.W. 425 (Michigan 1929): You have to provide that the trustee give the assets to such persons or persons as identified by: strict objective criteria or some identifiable non-trustee person. [D] TRUSTEE If for some reason there is no trustee, the court will appoint one. A trustee needs court permission to resign. The gist of this is that in a properly drafted trust, you should provide for a successor trustee. You can have co-trustees – pick an odd number, but you are probably asking for trouble; you have to have a mechanism to resolve problems between them besides going to court. A trustee is a fiduciary, and the trustee’s powers cannot be delegated; a trustee is entitled to be paid for his services, allowed to hire attorney and accountant for their services; to be a trustee, it is a hands on task. 82 In Re Estate of Rothco. Estate included 798 painting and his will created a trust with three trustees including an attorney, museum director and college professor. Prof just signed anything put in front of him. Fraud – paintings sold to museum for much less than value that one executor was a director. All three surcharged for difference between amount sold for and their worth. [E] TRUST PURPOSES – must be a legal one. [F] Formalities for Trust creation 8.03 The Nature of a Beneficiary’s Interest [A] Mandatory Trusts  Right to Income Trusts  Annuity Trusts  Unitrusts [B] Discretionary and Support Trusts DISCRETIONARY: Where the trustee has discretion to make payments from income or principal to beneficiary SUPPORT: Limited to those purposes for the necessary comfort of the beneficiary (educational purposes, necessities) ****GOOD CASE Emmert v. Old National Bank of Martinsburg: Testamentary comfort and support trust that is discretionary (may be used); Trustee refused to give Frank $100,000 so he sued. Frank showed that he was heavily in debt and his only income was from trusts. This court reverses. Bank refused to give over the money because they were afraid to be sued. Pitfalls to discretionary and support trusts. Notes and Questions 2. If they gave Frank the money then they could be sued 3. Read aloud – Fudge language Bart Leech Material Colburn v. Berlingame, 214 P 226, 190 Ca. 697 (Ca. 1923): CASE SUMMARY PROCEDURAL POSTURE: Plaintiff remaindermen of an estate appealed a judgment of the Superior Court of Los Angeles County (California), which was in favor of defendant wife of the estate's decedent in the remaindermen's action against the wife for the purpose of requiring her to render an account of the estate's property, seeking to enjoin her from disposing of the property, 83 and seeking a bond to protect the remaindermen's interest. OVERVIEW: The remaindermen were the decedent's brothers and sister-in-law. The wife was remarried and her new husband had quit his job. Apparently fearing that the estate would be dissipated, the remaindermen filed suit, seeking an accounting from the wife; seeking to enjoin her from disposing of, selling, or encumbering the estate's property; and seeking a bond to protect their interests. The trial court sustained the wife's demurrer to the remaindermen's complaint. The remaindermen appealed, arguing that the will gave the wife a life estate only and the demurrer was improperly sustained on the ground that the wife was bequeathed an absolute estate in the decedent's property. Upon review, the court affirmed the trial court's judgment. The court held that there was nothing in the trial court's order to indicate the alleged grounds for the court's action. The court found, however, that the demurrer was properly sustained because although the wife was bequeathed a life estate, the decedent had directed that the estate was in the wife's absolute control, without requiring a bond, and therefore, the complaint failed to state a case entitling the remaindermen to relief. Defendant was Lenora Berlingame (W); suit for an accounting; property given to her in H’s will; W was trustee and life tenant; W remarried and plaintiffs in the case are the brothers of the first husband; To W for life and remainder to brothers; W invaded principal under the support language to provide for her second H and the family of first H did not like this. Professor Leech says that the issue is similar to giving a trustee discretion (in this case, W is trustee and Life tenant). They raise questions as to the limits on the power. Usually, these powers recognize conflicting intents. Three solutions: (1) give life tenant an unlimited power of dissipation (no institutional beneficiary) (2) Testator may want to limit the amount (payments to widow) GRAY DISAGREES - Nobody takes into account inflation – put in a recalculation for inflation in the amount to be paid. (3) Impose a vague limitation but provide that the judgment of someone is conclusive on this point (not a good idea with an institutional trustee) Best solution: have a trustee CA case – but probated in PA Comfort benefit and support language – causes issues. To set a formula up to deal with inflation, set up a Porter’s wage clause – clause that allows for increase in a mathematical way. Notes: Comfort and support are relative terms – what one person is used to is not the same as another. Should a trustee consider other resources available to the beneficiary when determining the pay outs from the trust? It has been found that a trustee is able to take other assets into consideration. PROBLEM (pg. 364) Suppose you are in a situation where you want the trustee to be generous, you might want an institutional trustee or you could have a clause that limits their liability. 84 Alienability – trust interest can be attached by a creditor and therefore alienate the beneficiary from the trust. Problem on Page 366 1. (a) Amy can assign her trust interest because it is not spendthrift (b) Can’t really devise a life estate interest (c) RULE IN CLOBBERIES CASE: Bob can assign is remainder whether its vested or contingent equitable remainder in the trust. Some authority that it is contingent. (d) Can contingent remainders be inherited? Yes because it depends on what the contingency is; I think this is vested, so it would pass to Bob’s intestate heirs since he died without a will; (e) and (f) creditors of both could reach interest Problem – page 368 These are the types of things you should talk clients out of. Parents are worrying too much. There is nothing here that warrants setting up a spendthrift trust – life is for the living. Carl is 26, of age, given the amount of money involved, absent additional facts, I would give him the money. It’s the dead hand problem. Based on these facts, their fears are exaggerated. The only way to do this is set of a trust withholding principal until he reaches a certain age (stupid). [C] Transfers of Beneficial Interests in Trust  General Principles  Spendthrift Provisions and Other Restraints on Alienation Not freely transferrable beneficial interest in a spendthrift trust [a] Restraints on Voluntary Transfers [b] Restraints on Involuntary Transfers Established Validity of spendthrift trusts in US: Nichols v. Eden, 91 US 716; generally accepted in PA CASE SUMMARY PROCEDURAL POSTURE: Appellant, the assignee in bankruptcy of a son of the decedent, brought an action against appellees, the executors and trustees of the decedent's will, to subject the bankrupt son's share of trust income to the assignee's administration for the benefit of the son's creditors. The Circuit Court of the United States for the District of Rhode Island dismissed the assignee's bill, and the assignee appealed. OVERVIEW: The decedent devised her estate to the trustees who were to pay the trust income to the decedent's children for their natural lives. The decedent's will provided that the interest of any child would cease if that child could no longer personally enjoy the income because of bankruptcy or insolvency. The will further provided that the trustees had discretion to reinvest a bankrupt son's share of the income until that son had a wife or children capable of receiving the trust forfeited by him. The assignee argued that the devise to the bankrupt son was void as being in fraud of the rights of creditors. On review, the Court held that the bankrupt son had no vested right in the decedent's estate that could be subjected to the control of the assignee. The Court reasoned that the limitation that the devise terminated upon bankruptcy was valid and that a court 85 of equity would not interfere to control the trustees in the exercise of discretion vested in them by the decedent's will. GIST of spendthrift trust The beneficiary (spendthrift) is protected from himself; combined with discretionary power in trustee and may be support language as well; trustee has power to make transfers to beneficiaries in such amounts and at such times that the trustee thinks is necessary; beneficiary cannot anticipate and thus cannot alienate his or her rights under the trust (cannot be assigned to creditors). So what? Since the interest cannot be tranferred, the trustee has to hand the money personally to the beneficiary every time, so if he spends it before creditors can get it off of them, then the creditors are out of luck. As a practical matter, it makes it more difficult to borrow against the interest. Settlor is entitled to put restrictions on how his or her money is used. NOTE (pg. 370) 1. Spendthrift trusts do not cut off creditors, but they put them at a disadvantage and cannot force the trustee to pay the creditor directly. Spendthrift clauses are effective in bankruptcy. Have to catch guy with money in his hand 2. John Chipman Gray – not accepted 3. Ohio case from 1991 (when Ohio recognized spendthrift trusts) – finally recognized. You cannot set up a spendthrift trust for yourself. § 6112 of Pa Probate Code now § 7743 – adopting the Uniform Trust Code Nor can you set up cross-trusts (I set up spendthrift trust for your assets and vice versa). Start with Shelly case Shelley v. Shelley – PROCEDURAL POSTURE: The Circuit Court, Multnomah County, Oregon, granted an injunction to plaintiff second wife restraining defendant trustee from disbursing any of the assets of a trust of which defendant ex-husband was a beneficiary. Defendant first wife also brought a garnishment proceeding against the trustee. The trustee, a bank, finally brought a bill of interpleader tendering to the court for disbursement all of the funds held in trust. OVERVIEW: The ex-husband had disappeared and his location was not known at the time of the suit. The trust placed no conditions upon the right of the ex-husband to receive the trust income during his lifetime. The court held that public policy required that the interest of the beneficiary of a trust should be subject to the claims for support of his children. The court also held that the duty of the husband to support his former wife overrode the restriction called for by the spendthrift provision. The court held that the beneficiary's interest in the income of the trust was subject to the claims of the second wife for alimony and to the claims for the support of the ex-husband's children as provided for under both decrees for divorce. The court also held that the ex-husband's interest in the corpus was not made immune from the claims. However, by the terms of the trust, the disbursement of the corpus was within the discretion of the trustee, and 86 therefore, the ex-husband's right to receive any part of the corpus did not arise until the trustee had exercised his discretion and had decided to invade the corpus. Combination discretionary, support and spendthrift trust. Court had to figure out if spouses and kids entitled to support, and they decided that both were entitled to income and as to the principal only the children. The children as issue were beneficiaries, and the court invoked the emergency language to provide support for them. Fairly complicated. RIGHT OF DEPENDENTS IN face of Spendthrift Trusts: PA 6112. Spendthrift Trusts. Income of a trust subject to spendthrift or similar provisions shall nevertheless be liable for the support of anyone whom the income beneficiary shall be under a legal duty to support. Asset Protection Trusts – Medicaid Trusts – Questions – page 377 1. Offshore trusts (ethical question) – Not a good idea 2. Medicaid trust 3. Dilemma for legislators 4. Medicaid trusts – supplemental needs trusts. Pullman Case – Nebraska Case Medicaid funds are administered by state agencies. There is an overlay of federal regulations along with state regulations. NE Dept. of Health and Human Services decided that corpus of trust was a disqualifying asset for a woman who applied for Medicaid to pay for nursing home. Nebraska Supreme Court found trust was not to be taken into consideration for Medicaid purposes. Trust stated that W was to get money for life for her support but corpus to go to another. State said that means that the trust should pay for the nursing home depleting the corpus. Income was to come from trust but not the corpus. Irrevocable discretionary testamentary trust – set up by H upon death. PA does not follow this for the discretionary portion of this decision. Self Settled trusts are included in the 5 year look back rule for Medicaid for assets put into an irrevocable trust. Questions – page 379 1. Wrong if setting up a trust to avoid past creditors. If set up to avoid future creditors – Gray doesn’t know – does not think it is wrong if creditors will not be misled. 8.04 Reformation, Modification, and Termination [A] Reformation and Modification Based on Ambiguity and Mistake [B] Termination and Modification Prescribed by Settlor [C] Termination and Modification By the Trust Beneficiaries  The Clafin Doctrine Clafin v. Clafin: 87 The Clafin doctrine is followed expressly by PA where statute doesn’t solve matter (Bosler’s Estate, 107 A.2d 443): the basic Clafin doctrine with respect to early termination of a trust state that the beneficiaries cannot get together prior to the original date of termination of the trust and have it terminated early if to do so would be contrary to settlor’s intent or material purpose. After settlor’s death, there is no termination of the settlor’s trust if it is against the settlor’s intent or material purpose. Corollaries to the Clafin Doctrine: Prior to 6102 1. A spendthrift trust cannot be terminated early. 2. If there is an age limitation in the trust, that shows intention for no early termination – if not entitled to distribution at age 30, then can’t terminate early. 3. Discretionary or support trusts: The presumption is that they cannot be terminated early. Bossler’s estate - 407 a2d 443 PA case that followed this but has been superceded by the probate code §6102. 4. Contingent remainderman – can’t be terminated early. Kamerly’s estate 35 a2d 258 5. Emergency situations – where real estate is held in trust and life tenant can occupy property for the remainder of his life – NY case – property was dilapidated and unlivable. Court allowed the trust to be terminated or made allowance to alter terms. 293 ny supp2nd 16 – Estate of Frank 6. If you have minor beneficiaries or unascertained beneficiaries, court may appoint a guardian ad litem; traditionally, PA wouldn’t allow that, but the statute overrides that now. On the other hand, if no material purpose would be served by keeping the trust going, early termination would be allowed if all beneficiaries request it (with legal age and vested interest) It is possible, in spite of the Clafin doctrine, to get an emergency termination of trust, for example where the property has deteriorated. In Pennsylvania, Section 6102(a). Termination of Trusts** HINT ON EXAM** READ ALOUD – ON EXAM – Different from Claflin doctrine which is more limited. § 7740.2 is new section  Indestructible Trusts [D] Judicial Modification or Termination Doesn’t do the kids much good if the parents starve. Problems (pg. 388) If settlor alive, can get their consent. (a) (a) Under Clafin doctrine, no termination due to age limitation – early termination would defeat one of the material intents of the trust. In PA, may be terminated. 88 (b) Under Clafin Doctrine, yes, you have vested beneficiaries who get together and want to terminate, assuming Robert is an adult (c) Under the Clafin Doctrine, no because it is a support trust – education or maintenance – same as support; Same result under 6102, although under its broad language, maybe get away with it under some additional facts. 2. No, based on WV case we talked about because if you make a mistake, the bank is liable. Now if there had been an indemnity clause, maybe. It is possible that she may have more children. That’s the problem with this. Otherwise, you would have vested interests and you could terminate. Based on a Massachusetts case where the court ended up appointing a guardian ad litem for any additional children Macy may have, and the court allowed termination under the Clafin document under the theory of virtual representation (she represented the interests of her unborn children). 117 ne 332 – MA case allowed – in theory the problem is she could have more kids. If there were any more kids we would rest on the doctrine of virtual representation – she would represent any future children she might have. Mayo Case: Liberal Would be allowed under PA 6102 8.05 Charitable Trusts (1) Beneficiary of a charitable trust is the general public and can be enforced by the attorney general – you can have indefinite beneficiaries since the beneficiaries are really the general public. (2) Not subject to RAP (3) Doctrine of Cy Pres – “as close as possible” We didn’t hit it, we staggered around it; the doctrine is derived from the equity courts; fell into disfavor historically in the late 1700s and seldom applied in US until 1960s. Allows the court to modify a charitable trust as a result of changed circumstances. Page 395 – Notes and questions 1. self-explanatory 2. old term was benevolent – don’t use that term – say charitable. 3. Evans v. Abney case – racial restrictions in covenant are unenforceable – involved fee simple determinable – US Supreme Court backslid – provision that property was given to town in GA to be used for whites only and if ceased to be so used, back to grantor – municipality could not run park and exclude blacks – therefore could not carry out terms of fee simple determinable and went back to grantor – US Supreme court said there was not state action – went back automatically to grantor. 4. Case cited would come under reverse discrimination 5. Enforcement issues Problem – Gray suggests we should chose to not represent this individual – reverse discrimination. 89 Cy pres – you came close so we will give it to you. Picasta v. Decal – English case where someone made a charitable gift to found a school for jewish orphans, and the equity court got a hold of it and said the established religion was the church of England; so the Lord Chancellor changed the word Jewish to Anglican (made cy pres unpopular); doctrine revived in 1960s. Run into these problems with FSD, so courts resurrected Cy Pres doctrine. Remember, courts cannot enforce racially restrictive covenants, so they use cy pres to modify these type of trusts (Evans v. Abney). Gives courts an enormous amount of discretion to do what they want. Gray does not like concept of equitable deviation. Three Requirements for Cy Pres to Apply: (1) A valid charitable trust to begin (2) It has to have become impossible to carry out the specific charitable purpose mentioned in the trust (Ex. “To veterans of the Civil War.”) (3) The settlor must have had a valid general charitable intent (i.e., the intent to benefit the public generally) Ex. Terms of a trust contain a gift to Drake University for educational purposes, etc., and a gift and Parson’s College over, “if either institution failed, then the money that was to go to provide scholarships to that institution was to revert back to the settlor’s heirs.” Court did not have the power to apply Cy Pres in this case because the settlor did not have a general charitable intent (item 3 was missing). 94 Michigan 1041 – Law Review Article on Cy Pres – is used often in museum law. REMEMBER: 1. A trust may be charitable for one purpose and not another 2. Do not use the term Benevolent in place of Charitable. Page 396 PROBLEM -- Decline working with this client because of the rules of ethics. In Re Estate of Wilson – Two trusts; the Wilson trust said that the trust was to pay expenses of top male graduates asserted by superintendents; court applied cy pres by eliminating the certification requirement through the superintendent; Trial court used cy pres to get rid of gender discrimination in Johnson trust and this court reversed, saying the trial court could not go that far. Shows how the use of the doctrine was acceptable in one situation and not in another situation. Trustees could discriminate but state could not. Doctrine is viewed with some suspicion. 90 Note 3 on Page 402: Need for third requirement to apply cy pres as in example above In past has used charity to tear down Berlin wall on past exams– can court give money to another charity? That depends on whether there was a general charitable purpose in the trust. Alternate gift would not allow it. Not sure if adopted in PA yet. 5. Authors point out that there is an exception to RAP with gifts to charities. It would be difficult to run into this in PA, but on the bar, you might run into this. If you have a gift over from one charity to a second charity, even though the gift over to the second charity centuries from now, nonetheless the gift over does not violate RAP. This is known as The Charity to Charity Exception to the Rule Against Perpetuities. For the exception to apply, there has to be a gift over from one charity to another charity. Chapter 9: Planning For The Future: Successive Trust Interests Read excerpts from Bart Leach’s lectures in 1960s (Active Reformer; advocate of judicial activism) Go over handout for review (same review sheet he uses for bar review class): 1. A has FSA 2. A has a FSD and O has a possibility of reverter in FSA (they have to go together); if A violates the condition, title automatically reverts back to O. (Automatic defeasance to grantor). 3. A has a fee simple subject to condition subsequent and O has a right of re-entry in FSA (power of termination); if A violates the condition, O can get the title back, but O has to exercise the right of re-entry to get title back. O’s regaining of title is not automatic. 4. A has a fee simple subject to an executory interest in B. If A violates the condition here, the title does not go to O, rather to B, a third party. Could not have this in England until after the Statute of Uses in 1536. Title automatically conveys to B. 2-4 Represents the three types of defeasibility – subject to being cut off. 5. Historical way to create a fee tail. Most states see this as a fee simple absolute. 6. Life estate 7. Life Estate Pur Autre Vie. Life estate for the life of another person and this is inheritable. 8. You are making the life estate or the term of years defeasible, that is subject to being cut off. If A the tenant violates the restriction, A would lose the life estate of term of years automatically and title goes back to the grantor. A has a determinable life estate. 1-8 are used to illustrate the present estate interests in Gray’s bar review. With number 9, we analyze future interests. 91 9. A has a life estate and O has a reversion in FSA. 10. A has a fee simple determinable and O has the possibility of reverter in FSA 11. A has a fee simple subject to condition subsequent and O has a right of re-entry or power of termination in FSA. 9-11 review the future interests maintained by the grantor; Gray stressors that on the bar exam, if you have to guess, go with reversion because possibility of reverter and right of re- entry are very narrow. Now we get to future interests retained by third parties: remainders (vested (defeasibily/indefeasibly) or contingent) and executory interests 12. Remember, you don’t need the magic words anymore. Here, A has a life estate and B has a vested remainder in fee simple. As a practical matter, remainders follow life estates today. The standard definition of a vested remainder: A remainder is vested if it is capable of becoming possessory whenever and however the prior estate comes to an end (John Chipman Gray). In other words, a remainder is vested if it is ready, willing, and able to take at all times. 13-16: various examples of contingent remainders 13. A living person has no heirs, so we say that the remainder to the heirs of B is a remainder to a group of unascertained persons. As long as B is alive we don’t know who B’s heirs are. A has a life estate, the heirs of B have a contingent remainder in FSA, and O has a reversion. At common law, contingent remainders were destructible, so at common law, if A dies before B does, the remainder has not vested by the end of the life estate, and the contingent remainder is destroyed (Doctrine of Destructibility of Contingent Remainders). The destructibility doctrine still hangs on in four states, two of which are PA and Florida. 14. A has a life estate, children of B have a contingent remainder and O has a reversion in FSA. What happens if during A’s lifetime, B has a child, B1. B1 has a vested remainder subject to open (subject to partial divestment). Suppose B has two children, B1 and B2, and A, the life tenant dies, and a couple of years later, B has a third child, B3, does B3 share in the gift? No, because when A died, the class closes, the Rule of Convenience comes into play. The Rule of Convenience says that when you have a gift to a class, the class closes at the point of first distribution. The point of first distribution for a remainder is the end of the life estate. (666 NH 416, 31 A. 19 – states classic form of rule of convenience). There are some exceptions to this rule, but we will get into that later. Suppose that at A’s death, B1 and B2 are alive, B3 is not born yet, but B3 is conceived. In that case, B3 shares in the gift. The common law rule is that a person is born on the date of his conception if it will help him (Reed v. Long, 3lev 408 (1695)). 15. A has a life estate, B has a contingent remainder in FSA, and O has a reversion in FSA. Notice the remainder in B is subject to a condition precedent (if clause). So, the 92 remainder is not capable of becoming possessory whenever and however the prior estate comes to an end. 16. This remainder is contingent in form, but you need to ask the question, “How old is B?” A has a life estate, B has a contingent remainder in FSA, and O has a reversion as long as B is less than 21. If B is > or = to 21, then B’s remainder is vested in FSA and O has no reversion. So, you need to know how old B is. At what point does the person reach the age of 21? The day before his/her 21st birthday. 17-18 Defers until later; says this is where it gets complicated; basically it involves the difference between alternate contingent remainders and vested remainders subject to divestment. 17. A has a life estate, and B and C have alternate contingent remainders, and O has a reversion in FSA. 18. A has a life estate, B has a vested remainder subject to divestment, and C has a shifting executory interest in FSA. The key is “but if” which makes this different from number 17. Rule of thumb see but if, it’s vested subject to divestment, and anything else, alternate contingent remainders. This analysis is not technically correct though, it’s only a rule of thumb. 19. A has a fee simple subject to executory limitation in B in FSA (shifting executory interest) (3rd type of defeasibility). 20. This interest in B looks contingent. But they had a doctrine at common law that said you could not have a contingent remainder following a lease (term of years). So A has an estate for a term of years and B has an executory interest. You cannot have a contingent remainder following a term of years. Starting with 21 – merger, destructibility, Shelly’s Case, Worthier Title and Perpetuties 21. On the face, you have a life estate in A and A and his heirs have a vested remainder in FSA. MERGER A’s life estate merges into his vested remainder, so A has a FSA. Smaller interest mergers into the larger. 22. Merger A has a FSA (you can have merger as the result of a transfer) 23. A has a life estate, X has a vested remainder for life and B has a vested remainder in FSA. When B purchases A’s life estate, B has a life estate pur autre vie, which is presumed to be inheritable today. At common law and in England, X’s intervening life estate is knocked out when B purchases A’s life estate. In this county, X’s remainder for life is vested (BAR EXAM). NO MERGER HERE BECAUSE X’s REMAINDER IN LIFE ESTATE IS VESTED. 93 24. Assume X has not become a lawyer yet. X’s contingent remainder for life is destroyed when B purchases A’s life estate by the doctrine of merger. B gets FSA. 25. At common law and in PA, if A dies and B has not reached the age of 21, the contingent remainder is destroyed. A has a life estate, B has a contingent remainder in FSA, and O has a reversion in FSA. Suppose you are in a jurisdiction where the destructibility doctrine has been abolished or suppose you are dealing with a future interest that is not in land (maybe an interest in trust). (Destructibility should not apply to a beneficial interest in a trust). A dies and B is 19, during the intervening 2 years, the property goes back to O because O has a reversion in FSA (resulting trust). The other possibility that could apply here, and this would include income producing property (property in a trust), let the interest accumulate and give it to B when he turns 21. Have the cases give it to O for two years and the other half of the cases give it to B when he reaches 21. 26. 27. skip 28. A has a fee simple subject to executory limitation in B in FSA (shifting executory interest) (3rd type of defeasibility). 29. This interest in B looks contingent. But they had a doctrine at common law that said you could not have a contingent remainder following a lease (term of years). So A has a term of years and B has an executory interest. You cannot have a contingent remainder following a term of years. 30. On the face, you have a life estate in A and A and his heirs have a vested remainder in FSA. MERGER A’s life estate merges into his vested remainder, so A has a FSA 31. Merger A has a FSA (you can have merger as the result of a transfer) 32. A has a life estate, X has a vested remainder in life estate and B has a vested remainder in FSA. When B purchases A’s life estate, B has a life estate pur autre vie, which is presumed to be inheritable today. At common law and in England, X’s intervening life estate is knocked out when B purchases A’s life estate. In this county, X’s remainder for life is vested (BAR EXAM). NO MERGER HERE BECAUSE X’s REMAINDER IN LIFE ESTATE IS VESTED. 33. Assume X has not become a lawyer yet. X’s contingent remainder for life is destroyed when B purchases A’s life estate by the doctrine of merger. 34. At common law and in PA, if A dies and B has not reached the age of 21, the contingent remainder is destroyed. A has a life estae, B has a contingent remainder in FSA, and O has a reversion in FSA. Suppose you are in a jurisdiction where the destructibility doctrine has been abolished or suppose you are dealing with a future interest that is not in land (maybe an interest in trust). (Destructibility should not apply to a beneficial interest in a trust). A dies and B is 19, during the intervening 2 years, the property goes back to O because O has a reversion in FSA (resulting trust). The other possibility that could apply here, and this would include income producing property (property in a trust), let the 94 interest accumulate and give it to B when he turns 21. Have the cases give it to O for two years and the other half of the cases give it to B when he reaches 21. GRAY does not agree with footnote 3 on page 409. They are taking the position that the fee simple determinable is not an interest that is cut off or defeasible (that it comes to an end naturally, making it analogous to a life estate, and he disagrees). Gray concedes there is some authority for this, but in refutation, Gray cites Chesser & Burns Modern Law and Real Property, 16th Edition (English Authority). Page 410 – Contingent remainders Future interests Grantor 3d person Follow reversion remainders Cut off poss of reverter/ executory interests Right of reentry shifting v. springing Important because when you set up a trust – if done properly, you are going to end up with a string of dispositions and bump into some of these rules. Footnote 4 – page 411 See footnote 4 on page 411 (Edwards v. Hammon – if she reaches 21 (adverbial); compare Festing v. Allen ( children who reach 21 is adjectival; not part of American common law because after revolution)). LEACH: In Festing v. Allen, the limitation is part of the description of the taker!! Leach doesn’t like this and gives it to the residuary in both cases (reform). To a significant degree, American courts do not know what this means. There is no clear understanding. In US, you can find case law to support both sides unfortunately. Under ethical rules, you are obligated to cite a case in your jurisdiction directly against your point. KEY in English Case Law: Its how, if at all, the contingency is described with respect to the first taker that matters. FOR BAR PURPOSES: Look for “but if”; if not but if then is alternate contingent remainders; if but if vested subject to divestment. Have to know if you are drafting contingent or vested remainders. Paragraph on top of page 412: “In order to determine whether a remainder is contingent or vested subject to complete defeasance,…. This tells you that you really cannot rely on the magic 95 words “but if.” If the language of the condition is part of the description of the taker, that gives rise to your alternate contingent remainder construction. If the condition placed on the first taker is set of by an adjectival clause, then that sets up alternate contingent remainders. On the other hand, if the condition is adverbial or there is no condition subject to the first taker, then the interest is vested subject to complete divestment. Common Law Preference: Vested construction. Why? Because vested remainders were indestructible and contingent remainders were not. Does that make sense anymore? Well, the UPC would prefer a construction preference for contingent construction so that the property does not rapidly pass through more than one estate. Why? Tax purposes. Most states follow the common law preference for vested interests. PROBLEMS (Pg. 413) – GO OVER THESE 1. Classify the following equitable interests (i.e., state the title); a. Agnes has a life estate, Boyd has a vested remainder in life estate (American rule), Charlotte has a vested remainder in fee simple absolute (modern, don’t have to use and her heirs). When you have a life estate in a trust or income producing property, that means that the life tenant has an interest in the interest income that accumulates during his or her life. b. Alvin has a life estate, Alvin’s widow has a contingent remainder in life estate (don’t know who his widow will be until he dies), Jay has a contingent remainder in fee simple absolute (condition precedent), and Tammy (grantor) has an equitable reversion (or resulting trust) in fee simple absolute. This problem gives rise to the case of the Unborn Widow Gifts contingent on the survival of the widow may violate RAP (not in this case). c. ON BAR, Harriet has a life estate, Herb and Hazel have alternate contingent remainder in fee simple absolute (according to authors), O has an equitable reversion (resulting trust) in fee simple absolute. On bar exam say alternate contingent remainders. Under English theory, Harriet has a life estate, Herb has a vested remainder subject to complete divestment, and Hazel has a shifting executory interest in fee simple absolute. UPC would take the position that this is alternate contingent remainders because of its preference for contingent remainders (good argument to make to the court). d. Gilbert has a life estate, James has a vested remainder subject to divestment (no condition precedent), Vivian has a shifting executory interest. 96 e. Margaret has a life estate and Viola’s heirs have a contingent remainder in FSA, and Rebecca has an equitable reversion (resulting trust) in FSA. Nemo est tires viventes. In England and PA determine Viola’s heirs when the life estate ends (minority rule) – might well make a practical difference. It is not destructible because it is a trust – seisin is not involved. f. Carl has a life estate determinable and Fred has a vested remainder in fee simple absolute 2. Question about Eric &violet The executory limitation is similar to subordinate clause. Eric to life, E’s children ----------------- but if none of Eric’s children survives to Violet if she survives Eric. a. Eric has life estate; Jay and Katina - each have undivided ½ interest vested remainder subject to open, partial divestment subject to Violet has a shifting executory interest, subject to 2 contingencies b. Jay died leaving all his property to Lisa. Jay undivided ½ interest – vested remainder subject to open passes to Lisa So Lisa and Katina each own a ½ interest in vested remainder subject to open subject to shifting executory interest in Violet c. Violet’s interest disappears so Katherine gets nothing because Violet had to survive Eric. d. Lisa and Katina each have a ½ 3. Tanya’s will gave property “to Eric for life, then to those of Eric’s children who survive him, but if none of Eric’s children survive him then to Violet if she survive Eric. Different choice of words- different legal consequences Stating title Author’s (based on English doctrine) correctly say that this sets up alternative contingent remainders - these are adjectival – even though there is a but if. B/c even though “but if’ are used… Because the clause is adjectival clause –“ who survive him” When the initial clause is adjectival then you have alternative contingent remainders… Then to E children if all of them survive Eric then if clause would be adverbial. –l. this would wet up the vested subject to divestment. a. Sub part seems like an exam a. At Tanya’s death, J & Catina who own what; Eric has a life estate i. J and Catina own undivided ½ share in a contingent remainder - subject to open 97 ii. Violet owns alt. cont. remaind. iii. Also have a reversion in the grantor – without destructibility hard to see how this would come in. b. Jay died leaving all of his property to Lisa, a. Lisa gets nothing b/c Jay owns nothing b. Jay predeceases Eric and gets nothing c. Only to those who survive him The difference b/t the two conveyances is so slight, no layperson would know -=-> but look at words b/c different Compare In first problem Lisa get Jay interest But in second one Lisa gets nothing Life estate, remainder and gift over…. Before doing this .. know what you are doing… What happens when person predeceases testator…. Then set up so that testator intention are set up clearly and things happen when cont occur. c. Get nothing b/c one contingency is that she survive Eric and she didn’t so Catherine gets nothing; reversion in grantor – alternate contingencies are not mutually exclusive. d. Eric dies Catina owns the whole thing in fee simple…. Assuming the questions are cumulative a. Catherine and Liza both get nothing. Problem 4 4. “Dale left property to colleen for life, then if Rita reaches 21 to Rita, if not to Audrey. This is Edwards & Hammond (on all fours) if reach 21 but if die before 21 Colleen for Life, a vested remainder in Rita subj. to divestment and an executory interest in Audrey. In Rita – vested subject to future enjoyment postponed because hasn’t reached the age of 21. 1. if clause – adverbial 2. but if – sets up the divesting condition Here you have a life tenant so Colleen uses the property What would Audrey’s interests be? It is executory shifting (from Rita to Audrey) … spring from the grantor no examples in book Not that important anymore… most we will see will be shifting 98 6. Point is cutting someone off if they remarry is not a good idea. The more sensible thing to do is to cut the interest down and give him less rather than cut it out completely. Start with Swanson case – up to 462 List of 6-7 phrases or clause you should never use 1. to a and his children – wild’s case 2. Survival – we looked at w/ lapse statute – but more detailed review of survivorship New Georgia case – (not in old edition Illustrates or indicates gap in disposition where atty’ drafting did not think of all possibility. P. 415 bottom Widow’s hubby benny had remainder interest in trust 2 or more dispositions in trust Court held that b/c Benny’s remainder interest vested before his death and condition subsequent did not occur before life tenant died, not defeased and therefore passed according to terms of his will bottom paragraph – p. 416 LE in widow gertude (item 4) and remainder in Georges 9 children 3rd line form bottom there fore each childe had vested remainder .. originally two condition . .. which could bring about total defances… 1. … 2. leaving children who survive. Neither … conditions cured Benny died but left no children Remainder interest passes to the widow 417 item 5 of trust “paragraph 3” “ divided into 9 equal shares.. then surving issue… as w/ item 4 there was identifieable people (including Benny) there was one condition subsequent add that coul dhave caused… defease…” although benny died prior to gertuded he had no children substitutional gift did not work benny had vested remainder and it passes to his widow this is standard approach could say atty left gap but really this o widow then children but child pre o substitute gift to Geroge o but often don’t stop to consider if one child .. before Gertrude 99 o forgot to account for this contingency so tor esove sandards doctreine o Test trust while subj open there no more o Condition was w/ kids…. Didn’t happen… What was intent of testator did or would he want interest to go to g’s widow? We don’t know. So apply standard rules. Also notice that this set will have the property passing through 2 estate 1. george’s estate 2. benny’s estate if subject to martial deduction what about benny’s wife estate Agree w/ majoriyy intended to lose only if pre-decease and no issue George probably had no intent on this b/c no one asked him What would he have done thought about? we aren’t getting into this Instead we will simply …Follow the rules …. READ** Sometime survivorship language leaves open the question … suppose to elise for life but if F dies before E then to f surviving children? Have to survive Herman, Floren ce or Elisa? We don’t know!!!!! If benny does not survive mother and leaves no children this is the issue that atty should have asked in the case…. But by doing this set up survivorship requirements Problem is that it says if so and so survives - MUST PUT IN SURVIVE WHOM ? DO YOU MEAN TESTATOR? LIFE TENANT? PERSON W/ gift subject to divestment? Be sure to complete clause!! There is case law supporting all three outcomes – For example see the Pa case holding surviving testator (creating vested interest). 3. consider the following a. income to all for life, Note 4. (not in my book) Interpreted to mean testator not life tenant Consistent w/ common law preference for vesting… Rules Implied requirements of survivorship These are Rules to help interpret when draft 100 Before getting to these Prof favorite reading. Reading from Leach - one thing Leach would say if you are working in this area not your job to be a stenographer!! - Father & daughter 3 - Trust for 1/3 to life and rest to issue … NO what if one gets sick…. 2 rich and 1 sick… need provisions to cover this. 5 categories ( in book) plus prof will add #6 1. multi-generational classes court will imply conditions of survivorship when donors give to multi–gen classes like “issue’ heirs and descendants. Courts generally define the terms as having a built in survivorship requirement and alternative gift to those who survive. a. To for life, then to As’ children i. A has X,y, z ii. Not requiremtn of survivtion sip iii. This is not a multigen. Class but rather a gift to children b. A for Life, A issue i. Includes children, grandchildren ii. Might hold issue iii. Any issue who are qualified to take must survive A c. Case citation: In Ilinois case i. To a for life and remainder to A’s children ii. A predeceases iii. Y & Z get everything iv. Blackstone v. 116 NE 154 1. minority view on this 2. mention Illinois case b/c it relates back to earlier english material 3. qualification about multi gen class is correct in MOST state – NOT all 4. POINT – if you see this (and not in illoinois) could you use this a. Yes! b. If want alt. argument to say Y & Z get everything and Y’s widow get nothing use this case c. In Illinois, excellent volume treaties called Kale’s Alternative gift – use of word OR might suggest alt. gift Clobberies case (p. 348) Interest subj to suvivorship 3 rules in Clobberies case: Know these – memorize – or know for exam? 101 i. Life estate, X contingent reaching particular age – Contingent ii. Life estate, X payable at 21 – vested iii. Life estate, X at 21 w/ interest – vest these are derived from civil law If an interest or remainder is contingent some courts will say that there is an implied requirement of survivorship. Divide and pay over (Leach is opposed to this) historically contingent derived form English cases Trust to income to A for life but then upon A’s death May create an implied requirement of survivorship Might make the remainder contingent. 1797 original 1990 case: In matter of caren 58 NE 47 NY court of Appeals UPC position – preference to contingent interest Common law preference to vested … (b/c didn’t want to destroy) Leach/UPC say that once prefer vested property passing quickly through many estates BAD for tax purposes… Problem: Ironic Leach argues for contingent remainder but doesn’t like divide and pay over but this is contingent - shouldn’t leach like? The answer is no Whether an interest is vested or contingent should not be based on the random use of magic word like divide and pay over Do it consciously one way or another If want survivorship – do it If not – don’t but either way make it explicit!! You are free to argue that court adopted Upc approach and favor contingent remainders The rule of Smell & Dee Deals w/ facts when there is a gift of money In original English case “100 pounds each to the 2 children of JS after 10 years of my demise.” Similar to “10 years from the date of my death” Issue is whether contingent 2 sulk 215 (1757) He told us about this… B/c why? He as a poem... 102 Rule reach the age on the 1 chancerllary 163 In re Shurey leach wrote an article 1961 47 ABA journal 41 a person might violate RAP b/c one day too late no case has so held but interesting to note none the less. Problems - 419 1. Tim and Kathy had no children – two problems a. “my nieces and nephew” does this include children of Kathy’s siblings’ i. we don’t know b. survive whom? Kathy? Or Tim? 2. Cheney’s will creates a trust … a. NO – case held no survivorship language b. First state title c. LE in Andrea d. Vested remainder in Gary e. Tracy – (first born child) B/c gary died before… so divesting clause occurs But no survivorship on first born child Not multi-gen class Not even a class. Passes through Trac’ See cite: Coleman’s will 33 NW 2nd 237 (Wis 1938) 3. Beth’s will left property…. “to be paid to her at 21” vested w/ enjoyment postponed see clobberies rule passes under maries estate b/c vested under clobberies case person who received property might have to wait until when mia would have originally reached 21 4. Hugh… a. Common law melanie’s heirs b. Word “Or” sets up subsitutional llangguea (see chapter 6) 5. Nathan… a. this is the mutli generational class b. remainder tour desecnetnats 103 c. b/c multi generational class there is a requiremtn of implied survivorshiop d. today distributin would be per captiat by representation… e. recall how to do this? i. In real life… if millions … could argo. Question in class Can there be an executory interest in unascertained person? Yes Life estate to John, remainder to Michelle, but if I don’t survive John, then John’s grandchildren. UPC Attempts to change the preference for the vested to contingent Not adopted by large extend, but even if in jurisdiction that does adopt Still need to think.. be careful about survivorship language. Notes & Problems p. 427) Equates whether an interest is vested or contingent with the requirement of survivorship. Future interests in real estate you can still do it, but shy away from it. **MAKE SURE YOU STAY AWAY FROM CREATING LEGAL FUTURE INTERESTS IN FUTURE PROPERTY: the rules on this are very obscure; different states have different rules; if you want to create a future interest in personal property, create a trust. Easy to slip into (Seabrook v. Grimes an unincorporated newspaper business where wife and kids fought; left W for life, remainder to kids; created a legal future interest in every piece of tangible property that the business owns. In some states you cannot have a future interest in property period; in other states, you cannot have a legal future interest in consumable personable property. . [B] Class Gifts Rule of Convenience the class closes at first distribution (14 on wkst) Authors point out that the strict theory is that if I leave property to Richard, Robert, and Ralph, that is a gift to named individuals, not a class (even though they are brothers). There is significant case law on both sides of this individual (A gift to my children to individuals or class); as an advocate, you need to convince them to do what you want them to do. Physiological Closing Tested on Multi-State The Rule of Convenience: A class will close when any class member has a right to demand possession (Parker v. Leech 31 A. 19, 66 NH 416; Thomas v. Thomas, 51 SW 111, 149 Mo 426). The rule of convenience is accepted everywhere in this country. RATIONALE: it arises out of future interests in real estate; Suppose you have a life estate in A and future interest in B’s kids, B1 and B1; the notion is that when the life estate dies, the remainderman are entitled to the property. You don’t want to delay paying out the principal or funds to determine who the principal are; 104 Four Exceptions to the Rule of Convenience (Pg. 430): 1. If no class member is alive when the time for distribution arises, the class will stay open for all members whenever born. Weld v. Bradberry, 2 Vernon 705 (1715); principal exception to the rule of convenience. 2. When a testator has made a gift of a specific sum to each member of a class, the class will generally close at the testator’s death ($ to each grandchildren). This follows even if there are no grandchildren at the time of distribution. Rogers v. Mutch, 10 Chancery Division 25 (1878) (even though not part of common law, it has been adopted too). 3. You are construed to have been born on your date of conception if it helps you (posthumous children). 4. The Rule of Convenience normally does not apply to income interests. To A for life then income to the children of B for their lives rule of convenience doesn’t apply because as each child is born, you change the amount that goes to each child (In Re Wenmoth’s Estate, 37 Chancery Division 266 (1877). Problems: 1. Michelle’s will gave “$30,000 to Ashley’s children to be paid at age 21”. Ashley and her only child, Lisa (16) survived Michelle. A year later, Ashley died in a car accident. When does the class close? Lisa’s interest is a vested remainder (Clobberie’s Case) w/ enjoyment postponed. Since Lisa dies at 16, Lisa’s estate gets the money when she would have reached 21 had she lived (the date of distribution is the day before Lisa’s 21st birthday). So if Ashley has other children, for them to take, they have to be conceived by the day before Lisa’s 21st birthday. 2. Steven’s will placed the property in trust, with directions to terminate the trust and distribute the principal among Edna’s children “when Edna’s youngest child reaches 21.” Edna and her sons, James (22) and John (2), survive Steven. When does the trust terminate? You have to wait until Edna’s dead and can no longer have children (physically impossible). Traditional approach is that the class stays open until all possible contingencies are solved. Distribution postponed until we know whether or not Edna is going to have any more kids. Other approach that is more sensible gives it to John when he reaches 21. In this situation, Gray would give Edna a power of appointment (assuming she has a life estate and you trust Edna). 288 A2d 3. “To Molly for life, remainder to Joelle’s children who reach age 21.” a. At Molly’s death: Mary is entitled to 1/3 because she’s reached 21. (At Molly’s death, there’s Mary, Phil, and Addy). b. At Phil’s death: Mary gets 1/6th more; net amount of 1/2; when Addy reaches 21, she will get the other half and Jay gets nothing because the class closed 105 c. When Addy reachs 21: 4. 6205(b) PA disclaimers  Wild’s Case Two resolutions: to Dave and his children. Review it quickly Wednesday. Start keeping a list of conveyance or devises that under no circumstances you should use: (1) where youngest reaches some age (2) To someone and his children (Wild’s Case). (3) To die without issue (4) Do not use the term “divide and pay over.” Identifying heirs; Shelley’s case and Worthier Title We will get to Powers of appointment on Wednesday  Wild’s Case “ My son Chris and his children.” - Derives from medieval case law - AVOID THIS CONSTRUCTION - When you have a gift “To my son Delison and his children. At common law: TWO RESOLUTIONS: (1) If D had children, then D and his children became cotenants (presumed joint tenancy), but no magic words, cotenants for life not permitted, so D and his children would be tenants in common for life. (Today, if D has children, then you start of as cotenants in fee simple) (2) If D had no children, D would have a fee tail. (Majority of states, but not all of them, convert this to a fee simple today). Wills v. Foltz, 56 SE 473, 61 WV 262 (1907): case mechanically followed rule in Wild’s Case. Illustrates that you can still run into Wild’s Case today. Sloppy way of saying that D gets the property and his children get it afterwards; Today’s interpretation is exactly what you don’t want (if D has minor children, big problems).  Gifts to Descendants First National Bank of Chicago v. King (1995): King died in 1937 with an intervivos trust created in 1936; this ends up being an issue involving King’s grandchildren; son had adopted wife’s daughter, Martha (an adopted great-granddaughter); Language used was “lawful descendants”; at the time these instruments were drafted, adopted children were not heirs and “lawful descendants” reinforced that; the issue is whether or not the statute that changed the result was retroactive; Court decided that it was and Martha gets her share. 106 With respect to retroactivity, there has been a move to impose a statute of limitations on the possibility of reverter (clouds on a real estate title); 30s and 40s, various state legislatures imposed SOLs on them; do these statutes apply retroactively? Raises a constitutional issue (taking property without due process); Case law split on this. US Supreme Court has never resolved this. Court in the case above side stepped the constitutional issues of giving Martha her share. Problems: 1. Wilberta created a testamentary trust “to Faye for life, remainde to Stanley’s children who reach age 21.” Faye, Stanley, and Stanley’s 23 year old son, Llyod survivd Wilberta. Then Faye died. A year later, Stanley adopted Jake, age 3. Jake will not take a share in the trust because of the rule of convenience.  Gifts to Heirs *** Do not use a remainder to heirs as an end limitation; if you reach the point that you have no one else to give it to, give the property to a charity. - If you have a remainder gift to heirs, when and how do you make the determination as to who X’s heirs are? In the middle of page 441, text addreses this. - If you have “To A for life, then to the heirs of B.” (assume no destructibility (gift in a trust, or abolished); When do you determine whose B’s heirs are? When B or A dies. Where you might run into this is where B dies, 15 years later, then A dies. Which one? The typical American rule is that you determine B’s heirs on B’s death; PA follows the British rule and determines B’s heirs at the death of the life tenant (2514(4) & (5) As long as you have a life tenant, remaindermen don’t get anything in PA, which makes sense. Problem (pg. 441) Yes, under the American rule, heirs are determined as of the death of the ancestor, they can release the remainder. In PA, we don’t know who Ralph’s heirs are at his death, so it wouldn’t work. RELEASE when remainderman want to turn their interest over. [b] The Rule in Shelley’s Case - Abolished in most states including Pa (6117) - To A for life, remainder the the heirs of A. The rule in Shelley’s case turned the remainder into one of Shelley. Doctrine of Merger gave A a FSA. This rule was designed to prevent tax avoidance. You can’t do this today under the tax code (2036) because A still has to pay the tax. - Famous case of Parrin v. Blake, 1 CJ 283 (1791) Rule involved Rule in Shelley’s case, whether or not it was a rule of law or construction; At King’s bench, the judge held that the Rule 107 in Shelley’s case was a rule of law (otherwise, it would be easy to avoid taxes). Judge ruled in favor of the party he represented (conflict of interest). Problems 1. No, under Shelley’s case you have a life estate in Gertrude, and a remainder to Gertrude and her heirs separated by a vested life estate in Lois (not destructible). Even applying Shelley’s case here, there is no merger. (Clevelant Trust v. McClade (Ohio 1947)). [c] Doctrine of Worthier Title - invalidates a grantor’s gift of a remainde to the grantor’s own heirs. - O to A for life, remainder to O’s heirs. (O to A for life O has a reversion) - Abolished in PA (6117) in 1994 through the efforts of the late Dean Schullo - Section 2038 of the code covers this so even if you did this now, you wouldn’t avoid federal estate taxes. - Doctor v. Hughes: Judge Cardozo expanded the Doctrine of Worthier title instead of abolishing it. [d] Drafting Gifts to Heirs Harris Trust and Savings Bank v. Beach: 1921 prenuptial agreement still being fooled around with in 1987, remainder “TO BE DIVIDED ~ to divide and pay over language. When do you determine whose Frank’s heirs are? Ill. Court adopted English/PA approach; whether the Doctrine of Worthier title is applicable (no because court decided to determine heirs at Alice’s death not Frank’s death (at life tenant’s death), so there was no justification for applying Worthier Title; and distribution was to be per stirpes (per capita at each generation); the language share and share alike does not rebut the presumption of per capita by representation. Case shows how the court manipulates the rules. Why should we determine heirs at life tenant’s death; references to divide and pay over rule, which makes interests contingent and will keep them contingent until the death of the life tenant. AUTHORITY IN PA THAT PA follows divide and pay over: Kountz’s Estate, 62 A. 1103, 213 PA 390 (1903) DIVIDE AND PAY OVER RULE: that language was construed to mean that the remainder was contingent; largely discredited. (largely means condition of survival) CLOBBERIES CASE: payable at 21 vested PROBLEM (1 Page 448) IMPORTANT ON EXAM!!: [C] Die without ISSUE PA 2514(6): meaning of die without issue statute rejects the indefinite failure of issue construction from common law; the term now means definite failure of issue. 108 TO A and the heirs of his body created a fee tail and could only be inherited by direct descendants; object was to set it up so the property had to stay in the family; 1400s got around this with statute define and common recovery; lawyers used executory interests to tie property up; then RAP; fee tail was a medieval property interest that kept land in the family; the alternative way of creating the fee tail O to A and his heirs, but if A dies without issue, then to B and his heirs (English courts adopted a peculiar construction of die without issue (meaning when A’s line of direct descendants runs out); dies without issue = indefinite failure of issue, and that’s awfully close to a fee tail, so they used CY PRES to say that A has a fee tail; afte 1536, you can have executory interest, but now die without issue means indefinite failure of issue, still apply cy pres, and say that A has a fee tail. It’s only been in the 20th century that states like PA said this was silly and doesn’t apply here. DEFINITE FAILURE OF ISSUE sets up executory interest. Then there is a question as to whether the term is substitutional or successive (might even mean died without ever having issue). The net result is that you should not use this term. Now, A has a fSSEI on definite failure of issue in B. Problem 3 (bottom of 350) GAP IN the disposition; didn’t die in a common disaster so nieces can’t take; under strict theory, the property either passes through residuary or by intestacy; court implied a gift here to nieces by intent of testator. POWERS OF APPOINTMENT - Go with trusts; over the last century or so, the use of powers of appointment has been recognized as the most efficient dispositive device used by lawyers; very common today - This discussion does not get into the powers held by a trustee; don’t lose sight of the fact that a whole variety of powers can be given to a trustee. - With respect to choosing objects of the power, the discretion you can give a trustee in this country is very limited in contrast to the discretion you can give a beneficiary. Aside from that, you can give trustees very broad discretion by giving them various powers. - Authors focus on powers that you give a beneficiary. [A] The Basics All of this stuff has extensive tax consequences.  Players Settlor of the trust who creates the power is the DONOR Person who holds the power is the DONEE Persons between or amongst whom the donee can give the property to are the objects of the power If the property is actually given to one or another of the objects, we say that they are APPOINTEES You should have takers in default of appointment 109 Income to W for life, remainder to such persons as W shall appoint; and in default of appointment, the property goes to X. THE Existance of a power does not make a vested remainder contingent or a contingent remainder vested.  Classification of Powers General yourself, your creditors, your estate, creditors of your estate Special only able to appoint to a limited group of people HYBRID you can appoint to anyone in the world except yourself Tax code distinguishes between general (yourself, your heirs, your creditors, your estate) and non-general (the rest, both hybrid and special) (Bottom of 461) A special power, we distinguish between exclusive and nonexclusive Ex of special power: income to W for life remainder to children in such shares as W shall appoint. If exclusive, W could appoint everything to one child; if it’s non-exclusive, W has to give at least something to each kid. Back to Page 453 Inter vivos during lifetime of donee Testamentary can only be exercised in donee’s will  Who Owns the Property? The classic theory is that the property is the donor’s not the donee’s; if the donee has a general power of appointment, the courts nowadays are going to eat into that. Notes and Problems 1. Tax issues 2. Players: Libby is the donor, George is the donee, objects are Libby’s descedents; Lori is the taker in default of appointment; George has a testamentary special power (assume exclusive unless it says otherwise). [B] Creation and Exercise of a Power Beals v. State St. Bank and Trust Co.: Testamentary trust created in 1904; one of the daughter’s had a general power and she partially released it and it turned into a special power; since it was not exercised as expressly set out in her father’s will, so shame on attorneys who wrote Isabella’s will. So it was an exercise by the residuary clause. Felt obligated to apply law where donor was domiciled. That law was not as favorable as interpreting this as the law of NY would be; presume she exercised the power on the facts of 110 this case (stretch); she “captured” the property in a sense because she turned the general power into a special power. SO, we’ll presume that she intended to exercise the power in the residuary clause. Note 5 page 460: Very important that you examine the document that created the power your client has so you know what your client has to do to exercise the power. Examine federal and state tax laws 6. Capture Doctrine An unexercised general power leaves the property in the hands of the donor unless donor left takers in default; an ineffective exercise, raises the question of whether the donee intended to assume control over the property for more than the limited purpose of exercising the power. If so, the donee, may have “captured” the property for his own estate (Talbott v. Riggs, 191 NE 360 (Mass). The most common indicator of an intent to capture is a general blending clause, one which mixes the donee’s own property and the property subject to the power. 7. Implied gifts Authors mention that you can give someone the power to create a power; you can run into this and it is also something you might want to consider. Give someone the power to appoint the property as well as the power to appoint other powers. Limited scope on powers of appointment. Rule Against Perpetuities HANDOUT Common law rule: applied on Multi-State and starting point for later approaches (PA – Wait and See jurisdiction) Classic statement of common law rule of RAP: FOR a contingent future interest to be valid under the rule, it must be certain to vest, if it vests at all, within a life in being at the creation of the interest, plus 21 years, plus period of gestation. TWO COROLLARIES: 1. The rule only applies to contingent future interests owned by 3rd persons; it does not apply at all to interests owned by the grantor. (contingent remainder, executory interests, vested subject to open) 2. There is nothing in the rule that says that the contingent future interest must be certain to vest. This is not a rule that requires certainty of vesting. All the rule says is that if the contingent future interest vests, it must be certain to vest within the period if at all. Archtypical Examples: HANDOUT 111 26. A has a Fee simple subject to an executory interest in B. RAP applies to executory interests, but here the executory interest is perfectly valid; Why? The executory interest may never vest, meaning A may never become a lawyer; but if it does vest at all, it is certain to vest during A’s lifetime because A cannot become a lawyer after he’s dead. VALID 27. A has a fee simple subject to an executory interest in B; the executory interest in B violates the rule and is void under RAP; Why? A or A’s heirs might put up a McDonald’s and violate the condition, but that may not happen until a thousand years from now; on the other hand, the condition may never be violated, but since it is possible that it might violate the rule, the gift over to B is void ab initio. Contrast 26 and 27. 28. Example of FSD in A and Pos of Rev in O; by definition, the rule does not apply to future interests owned by grantor. BY DEFINITION, THE RULE DOES NOT APPLY TO REVERSIONS IN THE GRANTOR. FRIDAY: Go over historical cases and we will finish up conveyances on sheet Common Law RAP: enunciated in the Duke of Norfolk Case, 3 Chancery cases 1 (1600s) EA ------- (200 year lease) To H and the heirs male of his body, but if T dies without issue in H’s lifetime, or H becomes the Earl, to C. When you talk about a 200 year lease, you are talking about income producing property. So, this is a conveyance of income producing property. Earl conveyed this property, and he had four sons, Thomas, Henry, Charles, and Edward. Under primogeniture, this was a provision to give money to the 2nd son, Henry. Peculiarities that come into play: Leasehold had some attributes of personal property (called chattel real); remember never make a future interest in personal property. At this time you couldn’t have a life estate and remainder in a leasehold, nor could you have a fee tail. The issue is whether the executory interest in Charles is valid. Of course, it was crystal clear to the people involved that at some point or another, Henry would become the Earl and wouldn’t need this money anymore (because Thomas was non compes mentis, so they assumed he would have no children and would die young). The argument was that the gift over to Charles was invalid because it constituted a perpetuity. RULE: A gift that is certain to vest, if at all, within a life in being, is not a perpetuity (not capable of vesting too remotely). Some say Lord Nottingham made the rule up out of whole cloth; it was later English cases that added 21 years plus period of gestation to the rujle. 112 HISTORY LESSON: This conveyance awas actually made in 1647, two years before the execution of Charles I (during civil wars); these were tumultuous times, and this was an attempt by the nobility to make family arrangements that would hold; with the restoration of Charles II in 1660, nobility was put back in its place. Earl of Arrondale principal Catholic noble at this time; fooling around with this type of thing and Bridgeman was taking a chance with what he might end up with). Lord Nottingham became Earl of Nottingham under Charles II (Hennis Finch); brillant lawyer (wrote this case and drafted the Statute of Fraud, Clobberies Case; commonwealth man (in with those who executed king; when Charles was restored, Finch worked his way in and as appointed Lord Chancellor. Why did Lord Nottingham decide this case as he did? 3 different theories 1. Bart Leach regarded Lord Nottingham as a very great leader and innovatior in not in terms of creating doctrines thatwould lead to social reform, but those that would lead legal theory itself (quintessential activist judges) 2. Marxist Theories (economics) 3. Not innovator at all had some notion of a perpetuity prior to this period. Sortened out the mess by putting the emphasis on vesting. Famous Quotation: “But what time, and where are the bounds of that contingency…” Decide these things as they happen (common law rule). TWO AMAZING BOOKS about the 1600s: Britain and the Revolution (Wholewrich – not sure of spelling) An Intro to Legal History (BAKER) Jee v. Audlley, 1 Cox 324 (1887): Edward Audley, by his will, gives 1000lbs. (personal property, gift of money, a lot then) unto my niece Mary Hall & her issue, and in default of such issue (but if Mary Hall dies without issue), to the daughters then living of John and Elizabeth Jee. Notice: Since this is a gift of money, personal property, you couldn’t have a remainder interest or a fee tail and a remainder, so die without issue doesn’t set up a fee tail. SO, technically, it was a gift to Mary Hall subject to an executory issue when Mary Hall’s issue runs out. IT IS FOLLY TO SET UP FUTURE INTERESTS IN PERSONAL PROPERTY! Only do it in a trust. Litigation was brought by the daughters here (4, Amy, Beth, Megan, Joe – Gray made them up from Little Women); brought this in equity to make Mary post the bond (security, to prevent her from spending it all). The daughters could prevail in their suit if the future interest was valid. ISSUE: Whether the gift over to the daughters was valid? NO (Lord Kenyon violated RAP) 113 WHY? The essence of the analysis was that you could not find a life in beinig or a measuring life such that the gift to the daughters was certain to vest within the life plus 21 years. Great case for examinating measuring life. Principal is that you have to find one measuring life that works or the gift is bad. Possibilities: Mary Hall? No, gift does not have to vest at the end of her life; die without issue at common law means indefinite failure of issue. At the time, Mary Hall was a spinster, 40, not married. Nevertheless, RAP says woman of any age and physical condition can bear children. What about the daughters? No, problem is that the four daughters that we know of might not be the persons that survive to the death of Mary Hall without issue. John and Elizabeth Jee could have a fifth daughter who is not a life in being on the date of this gift (death of testator). Absudity in that John and Elizabeth were in their 80s. With Respect to RAP, Persons of any age or physical condition are conclusively able to have childeren. (Fertile Octogenarian Principle) Why? Because of what was written in the Old Testament. Nobody else, so gift over to 4 daughters is void at common law. Lord Kenyon in the opinion said that if the daughters would have been specifically named, it would have been okay, but Leach says no because you would have to put in their the named daughters now living and those who survive Mary Hall. Otherwise, if you make the gift inheritable, you can’t use the daughters’ lives as measuring lives. If you make this gift to the four daughters, you have to make sure it’s not inheritable (if you take dies without issue) “the named daughters and as to the such of them that survive Mary Hall dying without issue.” PROBLEM HYPOTHETICAL FIFTH DAUGHTER, and it’s possible that she would be the only one to survive, and that screws up the whole gift. 1. Look at what’s possible the might have been aspect of RAP as of the date of the conveyance. 2. Case also enunciates the all or nothing aspect of the rule with respect to class gifts. Under this, if the gift is void as to one potential member of the class, then the gift to the whole class is bad. 3. Fertile Octogenarian Principle If you can do Jee v. Audley, you can do any conveyance. Those are the two classic cases HANDOUT: 29, 30, and 31 deal with the phenonmenon of measuring lives; the basic principle is that the measuring life that you are going to use has to be mentioned in the instrument or reasonably inferrable therefrom. All three of these involve gifts to grandchildren, and even though the children are not mentioned in the conveyance, you can use them as a measuring life because they are reasonably inferrable therefrom. 114 Perpetuities Savings Clauses Whether you can figure this stuff out or not, put in one of these (even in a liberal state like PA (wait & see) “All interests created hereunder must vest or be destroyed within the perpetuities period.” (check form book and protect your butt); One form is called a Royal Lives Clause used in this country and England “All interests created hereunder must vest or be destroyed within 21 years of the death of the last living descendent of Queen Victoria alive on the date of this instrument. Here, you are bringing in an artificial set of measuring lives.” IN this country it would be more typical to refer to the living descendants of the president. WHAT you cannot do YOU CANNOT INCORPORATE everyone alive in the world today in your savings clause; or of all persons listed in Pittsburgh phonebook; artificial set measuring life of over 100,000 is void (BAR). A narrower analysis of measuring lives: 29. T devises Blackacre to my granchildren who attain the age of 21. Devises: when gift in will, that’s the date of T’s death; creation of instrument is T’s death. VALID against RAP Correct answer: Grandchildren have executory interests. Who does the executory interest cut off? T’s executor Analysis: you have to use T’s children as your measuring live(s); all of T’s children will be born or conceived at T’s death; so all T’s children will be lives in being a the creation of the devise. TEST: 2nd generation of children as measuring lives Isn’t it true that every grandchild of T must reach 21 within 21 years of the death of his or her parent, who was the child of T? Yes 30. T devises Blackacre to my grandchildren who attain the age of 35. VOID RAP on its face; Is it true that every grandchild of T must reach 35 within the death + 21 years of the parents (children of T)? No. Gift to whole class is void then (All or nothing view with respect to class gifts). TWO POSSIBLE FACTS THAT YOU COULD BE GIVEN THAT WOULD SAVE THE GIFT: 1. If, a T’s death, all of T’s children are dead, then all of T’s children would be born at T’s death, and the grandchildren would be their own measuring lives. 2. If, at T’s death, there is at least one children over 35: that would close the class because the gift is at the first point of distribution. 31. T conveys Blackacre to my grandchildren who attain age 21. VOID Against RAP; Problem is that since T conveys, he is still alive, meaning he could have more children after the date of the conveyance. 115 What fact could save gift? One of the grandchildren was already 21 on the day of the conveyance. Case of the UNBORN WIDOW (in book) Case of the magic gravel pit 32. O to A and his heirs, but if A’s line of direct descendants ever runs out, then to X for life. TRICK Question: this is an executory interest, or a gift over to X for life; X can only get something if he survives until A’s line of direct descendents run out; X is the measuring life (donee of the gift). VALID because X himself is the measuring life. Page 465: 9-6: “To Virginia for life, remainder to her first child to get married.” The only measuring life you could use is Virginia, and the hypothetical next child might get married after Virginia’s life. Therefore, the remainder is void under the common law RAP. Law in PA: Wait and See Approach: 6106-6107 Instead of what might have been, we wait and see if and who Virginia’s first child to get married is. Under common law rule, look at what might happen at the date of Virginia’s death. BAR POSSIBILITY!! A FEW STATES HAVE ABOLISHED RAP altogether; good!! Developed in 1682 to deal with aristrocratic families. 9-7 Approach: Same facts as aboe except to Virginia’s first child if he or she gets married. Joe then will be his own measuring life and the gift is perfectly valid. USE MEASURING not validating life. 9-8 = 32 on sheet To the city so as as used as a park, then to Joyce if she is then living. Joyce is her own measuring life. VALID. Questions (Pg. 467): 1. Judith’s will incudes a gift “to my youngest child who shall be living 45 years after the death of my friend Chriss.” Judith’s two children, Anthony (age 3) and Beth (age 15), and Chris survived Judith. Kids are the measuring lives, presumably the younger one, Anthony. Anthony will only get something if he survives 35 years beyond Chris, which will happen in his lifetime or not. So, the gift is perfectly valid and Anthony is his own measuring life. 116 2. “To city hospital for general purposes, but if the hospital ever ceases to operate, to Mark if he is then alive. VALID ( identical to conveyance 32 on list; donee is the measuring life). 3. Thomas left property “to Michele for life, remainder to Michele’s children, but if Michele dies without issues, remainder to Erich. At Thomas death, Michele survived, unmarried and childless. Author’s say that we have alternate contingent remainders. Why? Why doesn’t Edwards v. Hammon control this? There are no members of the class yet, so the remainder is contingent, nd you could say it is a contingent remainder subject to an executory interest. Die without issue means definite failure of issue(sets up a divesting condition) REMAINDER TO Erich: word remainder used twice, okay, alternate contingent remainders If she had chidren at this time, it could be vested remainder subject to partial divestment (open) Perpetuities ISSUE: gift to Erich is valid because definite failure of issue will be resolved when Michele dies (Assume conveyance in modern times and die without issue means definite failure of issue. 4. Jason left property (in his will) in trust to Amanda for life, remainder to Amanda’s first child who reaches 30. Jason is survived by Amanda and her two children. a. Ben (5) and Jeff (7) –Violates RAP (9-6) b. Ben is 25 and Jeff is 27 – Violates RAP they could both die and Amanda could have another child. c. Ben, age 29, and Jeff, age 31 – VALID because as of the date of the testator’s death, you have a child who has reached the age. Rule applied to gifts of income/interest The rule as it applies to gifts of income, for example, say you have a testamentary trust to pay the income to Amanda for live, then to Amanda’s children for their lives (valid), but their income gift to Amanda’s children for their lives may last too long. In other words, let’s say Amanda has a child X, not born on the date of the testator’s death; if that income interest lasts more than 21 years, it’s possible that income payments will be made beyond the perpetuities periods. So the question is what do you with gifts of income that may last to long so to speak? LE in A, my trustee shall support them from You cannot suspend the power of alienation beyond the RAP period You cannot accumulate income in a trust beyond the RAP period. You can get into messes like that, see Seaver v. Fitzgerald, Mass (1886), 6 NE 73. Then you get into the problems of possibly closing down a trust LOOK THIS UP. 117 Unborn Widow Case: Perkins v. Iglehart OLD EXAM QUESTION CLE CLASS “if anything happens to me” important language (1) Main Issue: Is this a testamentary disposition The issue is whether or not the cashier’s check from father to son was a valid testamentary disposition. The language “if anything happens to me” is just a euphemism for “when I die,” so this is not an inter vivos gift because it is a gift to take effect at death (a testamentary disposition). The general rule is that to make a gift effective at your death, you have to write a will. Therefore, the gift is invalid and fails. It cannot be construed as an express trust because there is no trust language here. In PA, is this check sufficient to constitute a will? The difficulty here is with the Statute of Wills and testamentary intent. If this check constitutes a will, it does not actually say anything like “at my death” in the memo portion, so the testamentary intent was oral and cannot be brought in as parol evidence. John Smith latent ambiguity (two people fit description); you can take extrinsic evidence to prove that the John Smith was the son. No witnesses needed in PA. In other states, maybe could qualify as a holographic will in some jurisdictions (problem with part of check being typed). Cashier’s check not signed by the testator, so there may be a signature issue (2) Property Analysis as an Inter vivos gift 1) Donative Intent (testamentary) 2) Delivery (3rd party bartender) 3) Acceptance problem because son turned it down; once turning it down, can he change his mind. (3) No Valid Disclaimer Even if you assume this is a valid testamentary disposition (will), then you probate the check as a will. The son can’t just say he’s not going to take the check, he would have to file a disclaimer under the statute. (4) Nature of the Account from which it was taken Money taken from a joint bank account. The question then becomes whose money was this. If it was H’s money, did he make a gift of half of the money to W, or was it all H’s and she just had access of the account (convenience account), was it all W’s money, or was W meant to get the leftovers, or did W give half of it to H, etc. The facts do not indicate. 118 If it was W’s and H stole it from her, the court would impose the equitable remedy of constructive trust. You also have an estoppel issue here. We do not know from the facts given, but if W waited too long, she may be estopped from making her claim. Allegheny trial court resolved this by saying it wasn’t H’s money to take from account and made a constructive trust. (4) Other possible issues - assumption that W is the guardian of H’s property 119
"Estates and Trusts-Gray"