Trusts & Estates
Notes from March 14, 16 and 18, 2005
Cook v. Equitable Life Assurance Society (Ind. Ct. App. 1981):
If complying with the terms of an insurance policy, which names a certain beneficiary, is contrary to a testator’s
intent as expressed in his will, the court is to abide by the terms of the insurance policy contract.
The general rule followed in Indiana is that an attempt to change the beneficiary of a life insurance contract by will
and in disregard of the methods prescribed under the contract will be unsuccessful. Three exceptions to this
If society (insurance company) has waived a strict compliance with its own rules
If the insured is unable to comply literally with the rules
If the insured has done everything he can to change the beneficiary but dies before the change occurs
It is in the interest of all parties to comply with the insurance contract. Insurance company wants to pay to the
contract beneficiary rather than trying to comply with other documents (e.g., wills) that they may not even know
about. Beneficiaries want prompt payment from the insurance companies & don’t want the company to delay
payment for fear of paying the wrong person. Society’s interest is in the conservation of judicial energy and
“Public policy requires that all parties should be able to rely on the certainty that policy provisions pertaining to the
naming and changing of beneficiaries will control except in extreme situations.” (p. 343)
NOTES AND QUESTIONS
1. UPC § 6-101 allows the contract owner to change the beneficiary by will only if the contract permits it. If the
contract is silent as to whether this power is retained, §6-101 is likewise silent on whether or not the beneficiary
may be changed by will.
2. In most states, a divorce revokes a will in favor of a spouse, but does not revoke any designation of the spouse
as life insurance beneficiary.
3. UPC §2-804 allows a divorce to revoke the designation of the divorced spouse as beneficiary of an insurance
policy or pension plan or other contract. However, a 1991 8th Circuit case held a similar state statute
unconstitutional, as retroactive application disrupted the insured’s expectations and impaired his contract rights.
4. Federal government permits a death beneficiary to be put on a U.S. savings bond, retirement plans, pension and
profit-sharing plans, 401(k) plans, and IRAs.
5. The UPC allowed POD designations beginning in 1969.
6. The Uniform Transfer-On-Death Registration Act (1989) permits securities to be registered in a transfer-on-
death (TOD) form, and the Act has been adopted in a substantial number of states.
7. Superwill. Instrument that would annull the beneficiaries named in various nonprobate instruments (other than
a joint tenancy) and name a new beneficiary.
SECTION B. MULTIPLE-PARTY BANK ACCOUNTS
1. True Joint Tenancy Account: Either A or B has power to draw on the account and the survivor owns the
balance of the account
2. P.O.D. Account Disguised as Joint Account: B does not have power to draw upon the account during A’s life,
but is entitled to the balance upon A’s death
3. Agency Account Disguised as Joint Account: B has power to draw upon the account during A’s life but is not
entitled to the balance at A’s death
Franklin v. Anna National Bank of Anna (Ill. App. 1986):
Frank Whitehead = Deceased
Enola Stevens Franklin = executor of Frank Whitehead’s estate, asserts money in bank goes to Whitehead’s estate
Cora Goddard = interpleaded by Bank, asserting right to money as surviving joint owner
Whitehead died 12/22/80, wife Muriel died previously in 1974. Goddard was Muriel’s sister.
Goddard moved in with Whitehead in 1978 after he had eye surgery, to help take care of him. Bank account was put
in both their names so she could access his money. Muriel’s signature was whited out from the bankcard and
Goddard’s was added.
Later in 1978, Franklin cared for Whitehead. In January 1979, Whitehead attempted to put Franklin’s name on the
The Court reasons that while an instrument creating a joint tenancy account presumably speaks the whole truth, if
sufficient evidence of a lack of donative intent relating back to the time the instrument was created is presented,
then that presumption may be rebutted.
Note that a later decision of the donor, after the account is created, to keep the money as his own will not, by itself,
defeat the joint tenancy account.
HELD: Whitehead viewed the account and its funds as his own; he allowed Goddard and Franklin as signatories to
the account for his own convenience, but without the intent to give the money to either of them. Thus, the funds
should be placed in his estate, not with Goddard as a surviving tenant.
NOTES AND PROBLEMS
1. A payable-on-death account is invalid in some states, and even in states where they are permitted, banks
strongly encourage clients to use joint bank accounts instead.
2. Several courts have recently held that a joint bank account conclusively establishes a right of survivorship, and
evidence to the contrary is not admissible.
3. Savings account Trust (Totten trust): Functions as a P.O.D. account, where O makes deposits into the
account in the name of “O as trustee for A.” O retains the right to revoke the trust, and A is entitled to the
amount on deposit at O’s death. This type of account has been accepted in a large majority of jurisdictions.
The beneficiary of a Totten trust may be revoked by will and a new beneficiary named.
4. UPC §§6-201 & 6-227 authorize joint tenancy account with right of survivorship, agency account, and P.O.D.
account. Totten trusts are abolished and treated instead as a P.O.D. account.
5. UPC §6-211 holds that joint account belong to the parties during their joint lifetimes in proportion to each
person’s contributions to the account, unless clear and convincing evidence of some other intent is given.
6. UPC places a requirement of survivorship on beneficiaries of P.O.D. accounts and securities in T.O.D.
registration, but NOT on beneficiaries of P.O.D. contracts.
7. UPC does not allow a P.O.D. beneficiary to be changed by will.
8. UPC’s Anti-Lapse Provision: Under the common law, the P.O.D. lapses if the beneficiary doesn’t survive,
and the property that was supposed to be paid to the deceased beneficiary would go to the decedent’s estate.
But that’s exactly what the decedent wanted to avoid by making it P.O.D. So to prevent gifts from lapsing and
going to the decedent’s estate, the UPC has an anti-lapse statute that tells us where the property is to go in case
the designated beneficiary dies before the owner of the P.O.D. account. UPC §2-507 tells us that if the
beneficiary is a close relative (at least as close as a grandparent or descendant of the grandparent) then the
property gets distributed to that beneficiary’s descendants by right of representation. If the beneficiary is not
that close, then the property just goes to the decedent’s estate.
SECTION C: JOINT TENANCIES
1. A joint tenancy or tenancy by the entirety in land is a common and popular method of avoiding probate.
2. Common law views the decedent’s interest as simply vanishing at death, leaving nothing to be put through
3. Three features of a joint tenancy:
a. Creation of a joint tenancy in land gives the joint tenants equal interests upon creation, and once property is
transferred into a joint tenancy, one tenant cannot revoke the other tenant’s interest in it. Thus, joint
tenancies are not revocable or changeable as are other beneficiary designations (on a life insurance policy,
b. Joint tenant cannot devise his share by will. He would have to sever the joint tenancy during life and then
will his interest to someone else.
c. Creditor of a joint tenant must seize the joint tenant’s interest during life; once that tenant dies, his interest
vanishes, leaving nothing for his creditors to seize.
Must beneficiary survive? Change by Will? Creditors’ Rights after Death
P.O.D. Bank Acct. Yes, under UPC §6-212 No, per UPC
P.O.D. (Other ?? UPC is silent No, per UPC
Joint tenant acct. No No, not without severing None after death; creditors can
joint tenancy during life reach up to 50% of joint
tenancy property during life
SECTION D: REVOCABLE TRUSTS
(a) A revocable inter vivos trust is the most flexible will substitute because the donor can draft the dispositive
provisions and the administrative provisions exactly to his liking.
(b) Deed of Trust. Document by which the trust settlor (donor) transfers legal title to property to another
person as trustee. The trustee must be someone other than the settlor (if they’re the same person, see
“Declaration of trust,” below)
(c) Declaration of trust. The written instrument in which the terms of the trust are specified and whereby the
settlor also being the trustee.
(d) Donor typically retains the power to revoke, alter or amend the trust, as well as the right to trust income
during his lifetime.
(e) All jurisdictions recognize the validity of a revocable trust.
(f) Revocable Declaration of Trust. The settlor declares himself trustee for his own benefit during his life,
with the remainder passing to others at his death. The validity of these trusts is sometimes questioned
because there is little change in the owner’s relation to the property during his lifetime.
a. Settlor (a.k.a. grantor or trustor): The person establishing the trust and transferring property to it
b. Trustee: Holds legal title to the trust corpus (trust property) and manages it for the benefit of the
i. Duty of loyalty to the beneficiaries
ii. Duty of prudence in the investments made with the trust property
c. Beneficiaries: Hold equitable title to the trust corpus (they’ll get the economic benefit of the trust
d. Income beneficiaries: Get the income from the property in the trust
e. Remainder beneficiaries: Get what’s left over when the trust terminates
Farkas v. Williams (Ill. 1955):
Decedent = Albert B. Farkas, died intestate
Δ = Richard J. Williams, employed by Farkas in his veterinary practice for many years
Four times, Farkas bought stock and through a writing to the company instructed that they be issued to “Albert B.
Farkas, as trustee for Richard J. Williams.” Farkas also signed four separate, identical declarations of trust
declaring the trust fully revocable by Farkas.
ISSUE: Were the trust instruments executed by Farkas valid inter vivos trusts such that Williams receives title to
the stock at Farkas’ death?
SUB-ISSUE 1: Did Williams have any interest in the subject of the trusts upon execution of the trust instruments?
HELD: Yes. Farkas intended for Williams to obtain some interest in the stocks, even though the trust
document conditioned Williams’ benefits on survivorship.
If Williams had no interest in the stocks prior to Farkas’ death, then it was an attempted testamentary
disposition and is invalid because it did not comply with will formalities.
SUB-ISSUE 2: Did Farkas retain such control over the stocks so as to make the trusts actually attempted
HELD: No. A trust is not invalid simply because the settlor retains a lot of power over the trust property.
If the trust beneficiary would have a valid claim against the settlor’s estate for damage to the trust property,
then it’s probably a valid trust and not a testamentary disposition, as a legatee/devisee would not have a
claim against a testator’s estate (because they had no interest in any of the property prior to testator’s
NOTES AND PROBLEM
1. A trust is a management relation whereby the trustee manages property for the benefit of one or more
beneficiaries. Trustee holds legal title to the property and typically has discretion over its disposition (such
as the decision whether to sell the property and replace it with more desirable property). Trustee’s actions
are restricted by the fiduciary duties he owes to the beneficiaries.
2. Beneficiaries’ interest in a trust is “equitable title.” This equitable interest is enforceable against the
3. The trustee may be a trust beneficiary. However, no trust exists where the trustee is the only trust
beneficiary because the trustee would owe no duties to anyone but himself.
4. Merger of Equitable and Legal Titles. Thus, if a settlor is also the trustee, the key determination for
whether a valid revocable declaration of trust exists is whether fiduciary duties are owed by the trustee to
anyone but himself. If not, then no equitable interest exists in anyone but the settlor, who then remains the
absolute owner of the property. If the trustee is the settlor and the only beneficiary, then his equitable title
and legal title merge and there is no trust.
5. A trust may be validly formed even where the property for the trust is not yet owned by the settlor, so long
as the settlor intends to acquire, and actually does acquire, that property. This is true even where the settlor
is also the trustee and beneficiary.
6. Norman F. Dacey: author of controversial and popular book, How to Avoid Probate, in which he
recommends that a person declare himself trustee of his own property using a revocable declaration of trust,
with the trust property passing to chosen beneficiaries upon the person’s death.
In re Estate and Trust of Pilafas (Ariz. Ct. App. 1992):
Appellants = Remainder beneficiaries under an inter vivos trust, including 8 non profit organizations
Decedent = Steve J. Pilafas
Trust executed by Pilafas on 08/30/82, with himself and others as beneficiaries, and himself as trustee. Trust
was funded by Pilafas’ residence and his interest in a note and deed of trust on a mobile home park to
himself as trustee under that trust agreement. Other property acquired on 06/02/88 was added to the Trust.
Trust initially included non-profit organizations, his wife, brother, sons and granddaughter, and specifically
omitted three of his children. It contained a revocation provision allowing revocation or amendment by
Pilafas amended the trust twice, including once after his divorce, when he simultaneously executed a will and a
trust amendment that excluded his ex-wife and increased the shares going to the organizations.
Decedent’s relationship with his three omitted children thereafter improved, and his attorney prepared a revised
estate plan to include those children.
Pilafas died 09/28/88, and his son James (one of the originally excluded children) searched his house and
property for the original will and trust documents, which he was unable to locate. James and Nicholas
(another originally excluded son) testified that their father “fastidiously saved” important papers, was
unlikely to have just lost them, but had been known to tear up and discard papers that “offended him.”
ISSUE 1: Did Decedent revoke his will?
HELD: Yes. Court relied on the common law presumption of revocation when the will is last seen in testator’s
possession but cannot be found after his death. Appellants offered no evidence to rebut that presumption.
ISSUE 2: Did Decedent revoke his inter vivos trust?
HELD: No. The difference between a will and a trust is that the creation of a trust involves the present transfer
of property interests in the trust property to its beneficiaries, but a will creates no property interest in the
devisees/legatees until it “speaks” at the testator’s death.
Thus, the interests created in the beneficiaries by the trust document cannot be revoked unless the power of
revocation is specifically reserved in the document.
If a trust settlor reserves the power of revocation by a certain manner, then the trust cannot be revoked by any
other manner or circumstances besides that specified.
THEREFORE… the common law presumption used for wills does not hold for trusts; Pilafas did not revoke the
trust in writing, as specified in the trust document.
1. Suppose Pilafas had executed a will expressly revoking the trust, and that will was found among his papers
after his death. Does it revoke the trust? Has it been delivered to the settlor-trustee? If he has prepared the
will and it revokes the trust, that would serve in most states as a writing that he would have delivered to
himself, because after all, who would hold the will but Steven Pilafas, who is the trustee here? So this
would satisfy the requirement and would treat it as though he revoked the trust with the signed writing
(will). What if a bank were the trustee?
2. Uniform Trust Act § 602(c)(2) provides that a revocable trust may be revoked by will or any other method
manifesting clear and convincing evidence of that intent, unless its terms make any specified method of
3. Undue influence is not relevant to trusts. A settlor of a revocable trust has an absolute right to revoke the
trust so long as he is competent, regardless of the presence of some undue influence.
State Street Bank & Trust Co. v. Reiser (Mass. App. Ct. 1979):
RULE: “[W]here a person places property in trust and reserves the right to amend and revoke, or to direct
disposition of principal and income, the settlor’s creditors may, following the death of the settlor, reach in
satisfaction of the settlor’s debts to them, to the extent not satisfied by the settlor’s estate, those assets owned by
the trust over which the settlor had such control at the time of his death as would have enabled the settlor to use
the trust assets for his own benefit.” (See bottom of p. 370)
First, we take a moment to revel in the fact that this case takes place in the Year of the Birth of One Ms. Rissa
Bracke. Now, let us proceed to the enthralling facts of this fine case.
Decedent = Wilfred A. Dunnebier, created inter vivos trust 09/30/1971 consisting of the capital stock of five
closely-held corporations. Dunnebier also executed a will with his residuary estate going to the trust.
In about October of 1972, Dunnebier applied to State Street Bank for a $75,000 working capital loan, and he told the
bank he had controlling interests in the corporations which owned most of the assets appearing on the financial
statement he filled out. On 11/1/72, Dunnebier signed a personal demand note to the bank.
Around March of 1973, Dunnebier died in an accident and his estate had insufficient assets to pay back the entire
loan. The bank petitioned the court to allow it to reach the corpus of Dunnebier’s trust to get the money owed
to it under that loan.
ISSUE: Is the bank, as a creditor, able to reach the corpus of Dunnebier’s trust?
HELD: Yes. If Dunnebier were still alive, the bank would have access to the trust assets. Thus, when a person
creates for his own benefit a trust for support or a discretionary trust, his creditors can reach the maximum
amount which the trustee, under the terms of the trust, could pay to him or apply for his benefit.
In this case, because all of the principal and income of the trust were at Dunnebier’s disposal during his life, the
bank is able to reach that amount as well.
Court says it violates public policy to allow someone to live on the trust assets but then make those assets
untouchable to creditors after his death.
NOTES AND PROBLEMS
1. Tort creditors may also reach the assets of a revocable trust after settlor’s death. In re Estate of Nagel,
2. Child support may also be drawn from a revocable trust’s assets after the settlor’s death. In re Marriage of
Perry, Cal. App. 1997.
3. Medicaid benefits may also be recovered from the assets of a revocable trust after settlor’s death. Belshe v.
Hope, Cal. App. 1995.
4. Some nonprobate assets are not available to creditors: life insurance proceeds, retirement benefits, and U.S.
savings bond with payable-on-death beneficiaries are usually exempt.
5. UPC § 6-215 allows creditors to reach P.O.D. bank accounts and joint bank accounts, where the estate is
2. Pour-over Wills
1. A pour-over will is a means by which probate assets can be “poured” into an inter vivos trust established
during the testator’s life, which would allow the testator to merge after his death his testamentary estate,
insurance proceeds, and other assets into a single receptacle subject to unified trust administration.
2. For example: O creates a revocable inter vivos trust with X as the trustee and funds the trust with O’s
stocks and bonds. O then executes a will devising the residue of his estate to X, as trustee, to be held under
the terms of the trust.
3. Two theories contributed to the development of pour-over wills:
a. Incorporation by reference, where a will incorporates the trust instrument in existence at the
time of the will execution and makes it part of the will document. However, if the trust is
incorporated into the will, then the trust is testamentary, and having an inter vivos trust and a
testamentary trust can be complicated and add extra fees—having just one unified trust is better.
b. Independent significance, where the trust instrument doesn’t have to exist when the will is
executed, but the trust must have some property in it before the testator dies.
c. The main difference between the two theories is that the former requires the trust instrument exist
at the time the will is executed, whereas the latter requires the inter vivos trust have assets in it
before the settlor dies.
4. Because of the complications and difficulties of the two theories, a new theory—pour-over wills—was
developed to allow a will to “pour over” probate assets into an inter vivos trust as amended on the date of
5. All jurisdictions recognize this, either through state statutes or through the Uniform Testamentary
Additions to Trusts Act.
Uniform Testamentary Additions to Trusts Act
UPC § 2-511. Testamentary Additions to Trusts
(a) A will may validly devise property to the trustee of a trust established or to be established (i)
during the testator’s lifetime by the testator, by the testator and some other person, or by some other person,
including a funded or unfunded life insurance trust, although the settlor has reserved any or all rights of ownership
of the insurance contracts, or (ii) at the testator’s death by the testator’s devise to the trustee, if the trust is identified
in the testator’s will and its terms are set forth in a written instrument other than a will, executed before,
concurrently with, or after the execution of the testator’s will or in another individual’s will if that other individual
has predeceased the testator, regardless of the existence, size or character of the corpus of the trust. The devise is
not invalid because the trust is amendable or revocable, or because the trust was amended after the execution of the
will or the testator’s death.
(b) Unless the testator’s will provides otherwise, property devised to a trust described in subsection
(a) is not held under a testamentary trust of the testator, but it becomes a part of the trust to which it is devised, and
must be administered and disposed of in accordance with the provisions of the governing instrument setting forth the
terms of the trust, including any amendments thereto made before or after the testator’s death.
(c) Unless the testator’s will provides otherwise, a revocation or termination of the trust before the
testator’s death causes the devise to lapse.
Note that there is a “magical transformation” that takes place per the Uniform Testamentary Additions to Trusts Act:
the trust established at death by the pour-over is treated as an inter vivos trust that came into existence before
the testator’s death.
The will may also devise a pour-over to a trust that does not exist at the time of the will execution, so long as the
testator does later create that trust.
QUESTIONS, PROBLEM, AND NOTE
While the general rule is that trusts cannot dispose of property acquired after the trust is executed which is not
transferred to the trust, the pour-over will allows the testator to circumvent this general rule and pour-over even
after-acquired assets to the trust.
Clymer v. Mayo (Mass. 1985):
Decedent = Clara A. Mayo, died 11/21/1981. Married to James P. Mayo Jr. & divorced in 1978, never had children.
Her heirs at law are her parents, Joseph & Maria Weiss.
1963—Clara executes will with James as principal beneficiary.
1964—Clara names James beneficiary of group annuity life insurance contract
1965—Clara makes James beneficiary of her Boston Univ. retirement annuity contracts
1971—Clara’s parents gift $300,000 to James & Clara
02/02/1973—Clara & James execute new wills & indentures of trust with each making the other person their
principal beneficiary. James was to receive Clara’s personal property and the residue of her estate would
“pour over” into the inter vivos trust created that same day.
Clara’s trust named her & John Hill as trustees, and she retained the right to amend or revoke the trust
through a written instrument delivered to the trustees. If James survived Clara, the trust was to be
divided into Trust A and Trust B.
Trust A was the “marital deduction trust” to be funded with an amount equal to 50% of Clara’s adjusted gross
estate, and James was the income beneficiary of Trust A and was allowed to reach the principal at his
request or at the trustee’s discretion.
Trust B was to be funded by the balance of Clara’s estate, or (if James did not survive her) her entire estate.
Five specific gifts of $45,000 each were to be taken out of Trust B and any remaining trust assets were to
be held for James’ benefit for life. Upon James’ death Trust B’s assets were to be held for Clara’s
nephews and nieces living at the time of her death, and the trustee had discretion to spend the income &
principal for their comfort, education and support. When the nieces & nephews turned 30, Trust B would
expire and its remaining assets would go equally to Clark Univ. & Boston Univ.
02/02/1973—Clara changed the beneficiary of her Boston Univ. retirement annuity contract from James to
03/1973—Clara changed the beneficiary of her retirement annuity contracts from James to the trustees.
1975—James leaves the marital home
06/1977—Clara changed the beneficiary of her Boston Univ. life insurance policy from the trustees to
Marianne LaFrance, who lived with Clara since 1972.
09/09/1977—James files for divorce
01/03/1978—Divorce decreed and the property settlement agreement stated that James waived all rights to
Clara’s securities, savings accounts, savings certificates, retirement fund, furniture, furnishings & art.
08/28/1978—James remarried & executed new will in favor of his new wife.
ISSUE: What was the effect of the divorce on the dispositions of Clara’s will and trust?
Validity of Pour-Over Trust: Per state statute, a trust is valid regardless of the “existence, size or character of the
corpus of the trust.” Thus, as the court points out, “The act does not require that the trust res be more than
nominal or even exist.” Therefore, Clara’s pour-over trust was valid even though it was completely unfunded
throughout her entire life and became funded only upon her death.
Termination of Trust A: The purpose of Trust A was to qualify for an estate tax marital deduction. Because
Probate Courts are allowed to terminate a trust where its purposes have become impossible to achieve, and
because Clara certainly did not contemplate Trust A’s continuation where she & James were not married, the
court terminated Trust A.
James’ Interest in Trust B: First judge upheld James’ interest in Trust B. The appellate court disagreed. Where a
revocable pour-over trust funded entirely at the time of the decedent’s death exists, state statute revokes the
divorced spouse’s interest in that trust. Court emphasized that while a trust document has independent
significance, Clara’s trusts had no practical significance until her death. Clara’s estate plan must be considered
as a whole, with the will and the trusts being considered together. The trust was unfunded until her death, and
because it and the will were “integrally related components of a single testamentary scheme,” the trust, like the
will, “spoke” only at the time of Clara’s death. Court holds that the legislative intent under state statute (G.L. c.
191, § 9) was that a divorced spouse should not take under a trust executed in these circumstances, absent some
express contrary intent.
Clara’s Nephews & Nieces: When trust was executed, the only nephews & nieces Clara had were James’ nephews
and niece; Clara had no siblings. Thus, Clara clearly intended to provide for these nephews and niece, and she
never revoked this intention during life. The state statute discussed above does not provide a basis for
terminating the interest of a divorced spouse’s relatives where those relatives are given gifts by a decedent, and
there is no evidence of legislative intent to that effect. Thus, the nephews and niece may retain their interest in
NOTES AND PROBLEM
1. An unfunded life insurance trust exists where a settlor names the trustee of her inter vivos trust the
beneficiary of her life insurance policy and does not add any other funds or assets to the trust.
a. The trust res is the trustee’s contingent right to receive the proceeds of the insurance policy
b. Has independent significance because it disposes of nonprobate assets (the insurance proceeds)
2. A funded inter vivos trust exists where the settlor names the trustee of her inter vivos trust the beneficiary
of her life insurance policy and does add other assets or funds to the trust.
a. Has independent significance because the trust disposes of the assets transferred to the trust during
3. Revocation by divorce: some state statutes provide that divorce revokes any provision in a revocable trust
for the spouse, who is deemed to have predeceased the settlor.
a. UPC § 2-804 revokes all provisions for a divorced spouse and revokes any provisions for relatives
of the divorced spouse.
4. No contest clauses may be valid in a trust as they would be in a will.
5. Means of creating a unified trust of life insurance proceeds and probate assets:
a. Unfunded revocable life insurance trust coupled with a will pouring over probate assets into that
b. Create a trust in the will and designate as the beneficiary of insurance proceeds “the trustee named
in my will.” This creates a testamentary trust rather than an inter vivos trust, and the insurance
proceeds would be paid to the trustee as named in the will rather than to the executor of the estate.
3. Use of Revocable Trusts in Estate Planning
(To be covered “briefly” in class)
b. Consequences During Life of Settlor
1. Property management by fiduciary. Relieves settlor of the burdens of financial management, but may
make it more difficult to conduct some transactions where the title to the property is vested in a trustee as
opposed to a private individual.
2. Keeping title clear. Keeps separate that property husband & wife want to prevent from getting
commingled with their other assets, such as the property each spouse owned prior to the marriage.
3. Income and gift taxes. Assets in a revocable trust are treated as being owned by the settlor, so there are no
federal tax advantages to creating a revocable trust.
4. Dealing with incompetency. Settlor may be a co-trustee with the trust designating that either trustee may
act alone on behalf of the trust, such that when settlor becomes incompetent, the other trustee can take over.
c. Consequences at Death of Settlor: Avoidance of Probate
1. Costs. Trustee’s fees may be payable if a third-party trustee is named, but those fees will be much smaller
than the costs associated with probate. However, lawyers charge more to draft a revocable trust than to
draft a will, especially when pour-over documents are involved.
2. Delays. While the typical probate takes 18 to 24 months to settle, a revocable trust may allow
disbursement of income and principal quickly.
3. Creditors. The statute of limitations period for creditors to a revocable trust is the normal one applicable
to the claim; there is no short-term statute of limitations as there is for a probated estate.
4. Publicity. An inter vivos trust is not recorded in a public place, whereas a will is a public record.
5. Ancillary probate. Land in other states outside the settlor’s domicile can be transferred to the trust,
allowing title to be vested in the trustee during the owner’s life. This avoids having to probate that land in
a state separate from the decedent’s domicile.
6. Avoiding restrictions protecting family members. A spouse’s elective share may be defeated where the
other spouse creates a funded revocable trust in another state that does not recognize the spouse’s right to
reach the trust. A funded revocable trust may also be used to put assets beyond the reach of an illegitimate
child who would otherwise collect under pretermission statutes.
7. Avoiding restrictions on testamentary trusts.
8. Choosing the law of another jurisdiction to govern. In general, the settlor of an inter vivos trust may
choose the state law that governs that trust.
9. Lack of certainty in the law. Problems arising with revocable trusts may be less certain that where
problems arise with wills, since wills have been around that much longer.
10. Avoiding will contests. It is more difficult to get a trust than a will set aside for lack of mental capacity or
11. Estate taxation. No federal tax advantages to revocable trusts.
12. Controlling surviving spouse’s disposition.
13. Custodial trusts. Provides a statutory trust for the support of the beneficiary; designed for elderly persons
of modest means who consult attorneys not specializing in estate planning and who want an inter vivos
trust for asset management in the event of incompetence or incapacity.