Decedents Estates Outline

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DE Outline Spring 2002 L. Foster Decedents Estates Outline - Testator/testatrix (AR uses the feminine form) – a person who has written a will - Testate – a person who dies with a duly executed will. - Devisees – those persons who the testator‟s will disposes property to. - Intestate – a person who dies without a will Heirs – intestate decedent‟s property passes to those who are designated by the Jx statutes or intestate succession. - Devise, Legacy, and Bequest – a clause directing the disposition of property. Distinction between these doesn‟t matter anymore. - Devises – giving property by will - Legacy – money - Bequest – personal property (not money). The gift of personal property under the terms of a will. Bequests are not always outright, but may be “conditional” upon the happening or non-happening of an event. o Bequeath – to give personal property under provisions of a will. The act of giving any asset by the terms of a will. - Executor/Executrix – person who carries out the instructions in the will - Gift over – a conditional gift „To A if x but if not then to B‟ to B is the gift over. - Administrator – if you don‟t have a will – person who deals with the estate. Section 1: whose money is it? Court will draw the line at society. There is no constitutional right to leave someone money in a will. Only statutory law. the statute of wills permits a decedent to write a will disposing of his property at death. Shapira indicates that courts typically give effect to the testators stated preferences, even when those preferences might be offensive to others. a. Reasons Why Devising is Encouraged. Testators natural right to Bequeath. Creates incentive to accumulate property. Freedom supports a market for the provision of social services. To take away would create inefficiency, and create reasons for people to get around. 5. What people want to do, strong preference. b. enforceability – a. no constitutional right to inherit – gives lots of leeway to testator to decide where the property will go. b. Conditions making things such as divorce, religious conversion are unenforceable, conditions that restrict conditions of inheritance are not. i. 1. 2. 3. 4. Shapira v. Union National Bank: Father placed restriction on both sons that only receive devise if married to a Jewish girl with Jewish parents within 7 years, if not goes to State of Israel. P argued violation of 14th Amendment (right to marry). Court said there is NO CONSTITUTIONAL RIGHT to INHERIT. 2nd Argued Public Policy argument (restraint on marriage). Court said it is not a complete restraint as in Maddox so restriction was upheld. ii. Maddox v. Maddox – court overturned this restraint because the limitations on it were to broad. Quaker case where restriction was said to be unreasonable b/c only 6 eligible bachelorsminority and also there was no GIFT-OVER (it was silent if daughter did not marry a Quaker while in Shapira estate went to Israel if son did not marry a Jew. 1 DE Outline Spring 2002 L. Foster c. Conditions that abolish both descent and devise may be unenforceable (Hodel v. Irving property passing by intestate succession that was too small escheated to the tribe.) c. SLAYER CASES must be intentional and felonious. Policy is that someone shouldn‟t profit from him own wrongdoing. Doesn‟t apply when the killer was not criminally responsible at the time of the homicide. 1. INTENT factors. 2. Question of PROOFDifferent burden of proof b/n criminal and civil trials. a. Condition must be meet by intention and felonious. Voluntary v. involuntary. If it was unintentional it is without the ambit of the slayer‟s rule even though it was felonious. b. 43 states have this statute, but most have not decided on the insanity exception, the ones who have – have ruled in favor of the insane person. c. 28-11-104 – (murder of a spouse) – if convicted then they shall not be endowed in the real or personal estate of the decedent spouse so killed or slain. Can‟t get dower. Could still get insurance but SC has stepped into the breach and has filled that gap. d. UPC – 2-803 – any individual who feloniously and intentionally kills the decedent forfeits all benefits with respect to the decedent‟s estate. If no conviction the court must determine if through a preponderance of the evidence the individual would have been found guilty. i. Riggs v. Palmer – left estate to grandson who then poisoned him. Court looked at morality – can‟t profit from own wrongdoing. ii. Ford v. Ford - Daughter stabbed and killed her mother and tried to claim she was owed her inheritance. Court had common law SLAYER‟S RULE. Ct. said had to prove INTENT and that b/c daughter was insane then there was no INTENT. Problem with holding is that Deterrence is one reason for SLAYER‟S RULE and there is no INTENT with insanity. i. Zinger v. Terrell – 336 Ark. 423 (1999) – daughter was the beneficiary – today the majority rule is that a judgment may preclude the retrying of a later civil trial. (AR law today regarding this). If a person is not found to be guilty – you can raise the issue again and only needs to be proved by preponderance of the evid. INS cases don‟t go through probate. Clear that it applies to wills ii. Middleton v. Lockhart 344 Ark. 572 – received homestead rights arising from his marriage (protect the home from creditors – applies to spouses and minor children) – if you murder your wife you lose homestead rights. i. Luecke v. Mercantile Bank of J’boro – 289 Ark. 477 – killed his wife then himself. Daughter received the W estate, and asked for the tenancy of entirety property – but wife died first, court said when she died it turned into a tenancy in common and was split in half. Court let the half that was his go to his heirs. No gain to him from the wrong. Section 2 – Attorney/Client Relationship - BOTH RULES IN EFFECT IN AR. Rule 1.6 (pg 32) attorney has a duty not to disclose confidential material, unless client consents. Rule 1.7 a. Attorney has to believe that representation will not adversely affect other party. B. Has to get clients consent after consultation. 2 DE Outline Spring 2002 L. Foster Fiduciary Relationship=Special Confidence, Special dutieshigher Std. of Care. e. Hotz v. Minyard - Auto dealer, 2 wills (attorney told not to disclose 2nd to daughter), daughter had a fiduciary relationship with father‟s attorney, she sued for malpractice and misrepresentation as breach of fid relationship. Ct. said matter of factno Summary Judgment. Because attorney was in conflict of interestbut did not explain position to either party. i. Notes and Questions p.31 1. Mr. Minyard was entitled to keep the contents of his will a secret, he was entitled to write his daughter out of the will after J consulted another law firm, he was entitled to restore her to the will after she dropped the lawsuit. But J was entitled to assume that Dobson was acting in her interest. she didn‟t have a reason to know there was a conflict until too late. 2. a.) Dobson should have explained consequences to father. b.) Dobson should have told Judy to talk to dad. c.) Dodson should have told her to get attorney or stay w/ her other attorneys. f. Pg. 32 Hypo- Elderly couple sign will, wife adds codicil to will leaving to lover. Has attorney duty to tell the husband? Yes. Could advise to seek other counsel, but still has to tell husband of advice. If possible conflict of interestAttorney gets husband and wife to sign Letters of Engagement. Good Planning. g. PRIVITY i. Barcelo(P, grandchildren) v. Elliot(D, attorney), Inter Vivos (trust during lifetime) Trust Case, P sued for malpractice, negligence as trustee never signed, trust wasn‟t funded, estate residue supposed to flow into trust at time of death but also arranged so trust would terminate at death. Common Law Rule = attorney only owes DUTY to CLIENT and NOT to 3rd party beneficiariesNo Duty to P‟s b/c no Privity. MAJORITY of States has relaxed and broadened the privity. Problem is it opens attorney to endless litigation. 1 st Dissent-would allow independent beneficiaries (broad). 2nd Dissent-only to specifically identified in will (limited). h. ACA 16-22-310 - Liability for civil damages. Lawyer Privity Statute. No attorney shall be liable to persons not in privity of K for civil damages except for: i. Fraud ii. Other acts if attorney was aware that client intended to benefit 3rd person. A) Has to identify to the client, and B) Send a copy to the 3rd person. This statute is worthless b/c am attorney never sends a letter to 3rd person so attorney will never be liable. i. most states extend the duty to (1) named beneficiaries, (2) intended beneficiaries, extension of privity can cause problems, disgruntled heirs may sue because the didn‟t like what they got. iii. McDonald (Step kids) v. Pettus (Attorney), 1st claim=Malpractice claim. TC dismissed by Summ Jud as no privity under 16-22-310. 2nd claim=Personal representatives of attorney (kids stand in shoes of testator) and since privity b/t testator and attorney, Ct allows injuries b/c in a K claim, there can be injuries after death. i. 16-23 –310 – liability for civil damages – causes problems for estate planning. Bars the door for suit by those who think they should have been beneficiaries. 3 DE Outline Spring 2002 L. Foster Section 3 Probate and Non-Probate transfers – PROBATEmeans after a decedent dies, it is the supervised process of distributing Decedent‟s property. exists to protect validity of title, to protect creditors, to distribute property in an orderly fashion. Can access bank accounts, titles to property, creditors get a chance to get their part of the share. Does Not have to be with a Will, can have Probate when someone dies Intestate. Intestate (no will) = ct. assigns Administrator. With a will = Executor. NON-PROBATE – some types of property passes outside of probate. The will and heir have no power of these things. Life insurance, Joint-Bank accounts with Joint Tenancy or Tenancy by the Entirety. This applies to any property held under these types. Inter Vivos trusts, Gifts (Inter vivos gifts) and (causa mortis gifts). Retirement Accounts – most pass outside of probate. AR 28-4-101-process if amount is less than $50,000. Probate is expensive (hire a lawyer), slow, and long, so people have ways of avoiding Probate. TWO THINGS TO REMEMBER Probate estate and non probate property – not divided this way for taxes. This all falls under the probate estate for the surviving spouse – in a UPA estate. In other state (augmented state) can cut out of the will but they will still get a cut. In a UPC state the spouse can‟t get those non-probate things Methods to avoid Probate: 1. Trusts - Inter Vivos. 2. Gifts - Inter Vivos and Causa Mortis. 3. Bank Accounts - Payable on Death and Joint Tenancy w/ right of Survivorship. 4. Life Insurance Policies - immediately payable at death. 5. Land and Real Property - Joint Tenancy and Tenancy in the Entirety. 6. Securities, Bonds etc. - Transferable at death. 1. Gifts a. Inter vivos gifts. a. Donative intent b. Delivery c. acceptance b. Gruen v. Gruen – F gave son painting but retained a LE in it and later dies. Question was over if there was delivery. Because there was intent, delivery of a letter, and acceptance court said okay. So can give a LE and hold a remainder in chattel. a. Gifts are irrevocable – but a will passes through probate and you can change it or sell it until you die. To keep away from litigation – actual delivery, or state in the will. c. Gift Causa Mortis – can revoke if you live. Has to be immediate apprehension of death. If you don‟t die it is automatically revoked by operation of law. a. AR – donor must die without recovering from the disease or the peril. i. Franklin v. Anna National Bank – elderly man who changed the joint survivorship b. account twice. The account was used to help him – to be able to take care of him if he could no longer do it himself. Estate should keep the joint account because he didn‟t 4 DE Outline Spring 2002 L. Foster intend to give it forever. No intent to create a survivorship account – only for convenience. b. In AR if you fill out a card that says that you are joint tenants then you are joint tenants no matter the result. (28-47-204) d. Notes and Questions p. 54 a. Did Mr. Whitehead intend to give Mrs. Goddard rights beyond that of an “agent” or financial secretary who would act on his behalf b/c of the difficulties he faced in doing his own banking? No, Ct. said Mrs. Goddard was acting as an agent (at his orders). b. What actions would you recommend to reduce the likelihood of subsequent litigation over his accounts? Three reasons for JTs: Rewrite the signature cards; Letter of intent to the bank; and Include the intended use of the bank account in the will. c. ACA 23-47-204 – Multiple-Party Deposits i. Sets out the practice for banks. “Totten Trust”-trust account that is held for somebody else. ii. UPC - POD Accounts-Allowed in AR. TOD Accounts-also passed and allowed in AR. iii. ACA 28-14-104, 105, 108 &110. INTESTATE SUCCESSION – statutes should aim to give effect to the probable intent of the decedent. Importance: Most people don‟t have wills. Can Be Invalid or partially Invalid. Determine who has standing to contest the will. Sometimes not all the property is disposed of by the will. Ambiguity-“will to my heirs” and court must determine who the heirs are. Fundamentals – 1. The share of the surviving spouse – most state treat the surviving spouse more generously than at common law 2. Descendants take to the exclusion of collaterals. Direct lineal descendents take to the exclusion of collateral relatives. (collateral relatives are brothers, sisters, nieces, nephews, cousins. Fundamentals of Intestate Succession: 1. The Share of the Surviving Spouse – the spouse always gets something in every state. If no will, then spouse automatically gets Dower. Spouse is not an heir. 2. Descendants Take to the Exclusion of Collaterals – Descendents (sometimes called issue) are Kids, Grandkids, Blood relatives and take to the exclusion of Collaterals (Nieces, Nephews, Aunts etc.). Ascendants are Fathers, Grandparents, etc., any previous in the family tree. 3. if someone dies with descendants and no spouse, the descendants take all. 4. only spouse and blood relatives take, (no relatives by marriage) a. Definitions – 28-9-202 – descendants are lineal descendants, includes adopted. b. Intestate succession generally – 28-9-203 c. Per capita distribution – 28-9-204 – heirs take per capita when all related to the intestate in equal degree d. Per Stirpes Distribution – 28-9-205 – Heirs take per stirpes if intestate is predeceased by one or more persons who would have been entitled to inherit had they survived. 5 DE Outline Spring 2002 L. Foster e. Interests transmissible by Inheritance – 28-9-206 – applies to interests not terminated by intestate‟s death and not disposed of by will. f. Computing degrees of Consanguinity 28-9-212 – g. Tables of Descendants – 28-9-214 – (children, surviving spouse, parents, brother and sister, grandparents aunts and uncles, greatgrandparents great-aunts great uncles. Rights Of Heirs: 1st Dower of Surviving Spouse is first. nd 2 Homestead rights of Surviving Spouse and Children. 3rd Statutory rights and allowances of Surviving Spouse. th 4 Rights to Income Tax Refunds. th 5 Administration Costs. Hierarchy as to where heirs fall. Subject to the list above 3. Distribution Among Collaterals – this differs among states. 4. Only Blood Relatives (and Surviving Spouse) – Virtually all statutes exclude relatives by marriage before blood relatives except the Surviving Spouse. 1. Spousal Share – i. Dower– more important than any other. i. (28-11-301) Real property if the person leaves children the surviving spouse gets 1/3 in life estate. ii. 28-11-305 – if there are kids 1/3 outright. iii. 28-11-307 – no kids ½, 1/3 of personal property. ii. Cutesy iii. Homestead – exemption from creditors – can‟t get to it. used to be only for widows with children but now for all. Minimum values are set out in the statute which was enacted to cure equal protection i. 16-66-210 – in town ¼ of an acre and out of town 80 acres. Can waive these on a mortgage. iv. Statutory allowances – i. 28-39-101 – gives the spouse and kids household things. Allowance during probate, a place to live in – exceptions are minor. Section II: THE SHARE OF THE SURVIVING SPOUSE People who take under a will are devisees or beneficiaries. And other reason we have wills is that some of the people who care contest the will are those people who are heirs. Fundamentals of intestate succession – specifics are all over the place – but general characteristics in common SECTION III: THE SHARE OF THE LINEAL DESCENDANTS 6 DE Outline Spring 2002 L. Foster AR has “PER CAPITA” Distribution ACA 28-9-204 and Modern “PER STIRPES” Distribution ACA 289-205 Go to first generation which contains at least one living member. Count the number of Living members and the number of Deceased members w/ Living Descendents. The sum of these two numbers = the number of Equal Shares into which the estate will be divided. Each living member of the first generation receives one Share. Surviving descendents of each deceased member of the first generation will split that share among themselves, by going through the previous steps – called REPRESENTATION (the descendants are stepping into the shoes of their ascendant) Another way to remember is Per Capita if all above are dead-Per Stirpes if not. X A | -FB | H | P C | -JD | L | -U E | M G | N- I- -K Q- -O Use Table to Answer following: Situation 1. A,B,C,D,G and L have died before X. Answer. E,F,H,I,J,K get 1/8 each. N,O,Q,U get 1/16 each. Situation 2. A,E,F and G have died before X. Answer. B,C,D get ¼ each. M,N,O get 1/12 each. Situation 3. A,B,C,G and H have died before X. Answer. D and P get ¼. I,J,K,E,F get 1/12 each. N,O get 1/24 each. Situation 4. A,B,C,D,F,H and P have died before X. Answer. E,G,L,I,J,K get 1/6 each. Lineal Decedents table 1. Strict stirpes – distributions would divide X‟s estate at the generation of children, whether or not any children were actually living at X‟s death. then the descendents of X‟s children would take their parents share per stirpes X, C1, C2, C3 are dead. 600,000 7 DE Outline Spring 2002 L. Foster Gca1 gets his parents share – 1/3, GCb2, GCb3 get 1/6, and GCc4, GCc5, GCc6 get 1/9. a. If Gca1 was never around then how is it divided – because Ca1 had no living decedents then it is divided in half and the B‟s get 1/6 and C‟s get something 1/9 maybe. 2. Modern stirpes – divide decedent‟s property at the closet generation to the decedent in which there is at least one descendant living. If one person from the generation is not living then you divide that one share among their descendants. AR – X, C1, C2, and C3 are dead – what do they get? They each get a 1/6 of the money. Because everyone in the preceding generation are dead and all are related to X in the same degree. a. If Ca1 is alive then GC1 gets nothing. Start stirpes from C generation – G generation the B‟s get a 1/6 and the C‟s get 1/9 3. Representation – UPC – Ca1 is alive – and Ca1 gets a 1/3 and GCa1 gets nothing. Is split in thirds at the C level – 5 people that are going to share 2/3 of the entire estate. 1/5 of 2/3 – 2/15‟s of the estate. Re-shuffle at each generation. Explanation on 81. Section IV: THE SHARE OF ANCESTORS AND COLLATERAL HEIRS We only reach these if there are NO Descendents and NO Spouse (or a spouse for fewer than 3 years). 1. Estate of Goick - Wife filed to be Personal Representative of intestate property division. Mother, brother and sister of decedent filed to stop her as claimed that the divorce was final. Was the divorce final? Ct. found that the divorce was not final because there was no Divorce Decree. Mother only person with standing because she was a creditor to the decedent. Ct. drew line at Decree as formal line for divorce, cannot be oral. 2. 3. The easiest way to do these is to follow each subsection of ACA 28-9-214. Problem 84: how would this be distributed? Siblings nieces and nephews – of X who had no kids. Who would it go to if C, and E are also dead – 28-9-214(5) tells us that if there are no children or parents – goes to siblings and children of siblings if they had pre-deceased him. D gets 1/3 and F, G gets 1/6 and I, J, K get 1/9 1st First to Parents, if one or more survive. 2nd If no parents, then to Brothers and Sisters and Their Descendents, per capita or per stirpes as above. 3rd If none of the above then to Grandparents, Uncles and Aunts, all related in equal degree, with no distinction between paternal and maternal sides-and the Descendents of Uncles and Aunts, per capita or per stirpes as above. 4th If none of the above then to Great Grandparents and Great Uncles and Great Aunts, or the Descendents of Great Uncles and Great Aunts, per capita or per stirpes as above. 8 DE Outline Spring 2002 L. Foster A-R B | M N| -O C | K | L F-Q P D----------------------------------E | X-H | I--J PROBLEMS: page 89 using table above. Underlined shows that they predeceased X. Assume X is decedent. 1. X died unmarried and childless. Ans. J gets All. 2. Same facts as #1 only J predeceased X. Ans. P and L get 1/3 each. N and O get 1/6 each. 3. Same as #1 only J and P also die before X. Ans. N and O get ¼ each. L gets ½. 4. Same facts as #3 only K survived X. Ans. K gets ½. N and O get ¼ each. 5. Suppose L died intestate, survived only by X. Would X be entitled to take L‟s estate? Why or why not? Ans. Yes, X is a descendent of the great aunt (D), in AR Sub 7 (4th descendent). In many other states, no, as would be considered a “laughing heir.” 6. Assume that everyone is dead except A, L, Q and P. Ans. A,Q,P and L get ¼ each. If no heirs or descendents then escheats to state ACA 28-13-102 & 103, unless nursing care in which case the care is taken out and is paid for. 28-9-204 – per capita distribution 28-9-205 – per stirpes distribution 28-9-212 – consanguinity 28-9-214 – descents. Start with inheritable estate. This does not include creditors, dower, curtesy, homestead, and allowance which is already taken out. If there are children or decedents than that‟s it – it is already taken out. 9 DE Outline Spring 2002 L. Foster - if there are no children – the spouse will then take it if married for more than 3 years. If less than the surviving spouse will take half of the inheritable estate in addition to dower. Spouse is not considered an heir. Section V: HALFBLOODS, ADOPTEES, AND NON-MARITAL CHILDREN – both have the same standing as natural children. 1. HalfBloods – Siblings who share 1 parent but not the other. ACA 28-9-213 - Follows the UPC and halfbloods have the same standing as the natural child. 2. ADOPTIONS b. What Kind are we Talking About? c. Traditional=child taken at a very early age from the natural parent. d. Remarriage=one natural parent and stepparent adopts, statute UPC accounts for new type, AR doesn‟t. e. Virtual (Equitable)=implied – raised as if child, no legal adoption. No inheritance rights in AR  Ties with natural parents are severed after adoption.  Estate of Donnelly – Gma‟s will left everything to grandpa in ‟64. Gpa dies in ‟70 and his will leaves everything to Gma. A child adopted outside of the family claims that she is the heir. Lawfully adopted child shall not be considered an heir of her natural parents. Intent is to severe the ties between child and biological parents. AR – would follow this case. 3. Posthumous Heirs – ACA 28-9-210 – only afterborn children conceived before intestate‟s death may inherit. 4. 9-9-213 – AR adoption decree – court can grant visitation to gparents – this would be the gkids only chance. i. Estate of Britten, Adult Adoption case. William‟s mother marries Britten when he was 3. Britten raised William as his own. Britten had natural child w/ William‟s mother. He adopted William when William was 46. Mother dies. William dies leaving 5 kids. Britten dies. Creative arguments: 1. Child=young person not adult adoption, ct. said child applied to the relationship with parent, not age of person. 2. Children born before the father‟s adoptiondisqualified, Ct. did not buy this either. Ct. says William was adopted so this created relationship of natural born son so William‟s children can inherit. NON-MARITAL CHILDREN – against EPC for illegitimate children not to be able to adopt. Establish paternity within 180 days of D death. 6 ways to establish paternity: 1) court has established paternity; 2) father acknowledged child in writing; 3) father’s name on birth cert. W/ his written consent; 4) father and mother marry b/f birth; 5) father and mother attempt to marry; 6) and father is obligated to support child under written voluntary promise or court order. 1. Trimble v. Gordon, IL statute said child could only inherit from father if both parents legitimated child by marriage and father acknowledged child. State argued that statute encouraged legitimate family relationships and facilitated orderly transmission of decedent‟s property. US S/C held statute unconstitutional b/c it divided children into two different categories (natural and illegitimate Bastards) and this was denial of Equal Protection. 10 DE Outline 2. Lalli v. Lalli, US S/C upheld NY statute that said child must prove paternity b/f death of father b/c this is Spring 2002 L. Foster substantial state interest assuring the orderly settlement of estates. Importance of case: States can justify Excluding Non-Marital Children from inheriting only by applying procedural rules designed to assure adequate Proof of Paternity. 3. ACA 28-9-209: Legitimacy of Child 4. AR cases: a. Boatman v. Dawkins. AR S/C upheld constitutionality of 180 days. b. Cobb v. Estate of Keown. A trial court declared child to be legitimate. Later, in probate court, sister of deceased presented lacking (and just plain stupid) evidence that kid was not her brother‟s. Court dismissed sister‟s action. c. Roseberry v. Ivory. Was no formal recognition of paternity of illegitimate son. Son filed paternity 2 years after father‟s death. Court said it must be w/i 180 days. No Common Law Marriages in AR. But, AR will recognize Common Law Marriages from other states. d. Allen v. Wallace – F – child found out that F had three other kids after his death. TC level found that there wasn‟t. AC found a common law marriage. Burden of proof was preponderance – therefore they were able to inherit. e. Sims v. 1st Nat’l Bank of Hot Springs – lived in HS – M married to Sims which was the official of the ∆. Had 4 kids then got divorced. M died – and her estate is at issue. All of the witnesses agree that a 16-year-old boy lived with them after the divorce for many years. M got preggers and the boy was the father. She later got a child – john (from the highway). John submitted two fraudulent wills – found him to be the natural child – should get interest. these cases boil down to what is your evidence. IMPACT OF MODERN REPRODUCTIVE TECHNOLOGY 1. Kane v. Superior Court - Kane had two children from previous marriage. He lived w/ girlfriend, Hecht. Kane committed suicide. Will left portions of estate to Hecht and his two children. Beneficiaries agreed on division of estate but disagreed on what to do w/ Kane‟s 15 vials of sperm. Hecht wanted them and children wanted them destroyed. Ct. said that since they all agreed that Hecht would get 20% of estate, then she gets 20% of the sperm vials. 2. What if girlfriend used sperm and later had a child, would there be another heir? No, under ACA 28-9-210 Posthumous Heirs, an heir must be born before death of decedent. Section VI: SIMULTANEOUS DEATH – treat the person‟s estate that is being distributed as if he survived the other (so that his estate does not pass through the other person‟s estate.) 1. Estate of Villwock, - Married couple in wreck. Roy, husband, had cardio-pul failure; later, June, wife, had cardio-pul failure. Wife died, then husband died. Doctor claims husband was dead when he had cardiopul so he died first. Roy left entire estate to June. June‟s left her estate to her family. Since Roy died first, his estate went to June. When she died, her estate and Roy‟s estate went to June‟s family. Roy has a daughter from a previous marriage. She gets nothing since Roy died first. She brought suit saying June died first. If June died first, then her estate goes to her family. Then when Roy died, his will would be invalid since it left everything to June who pre-deceased him so Roy would die intestate and daughter would get share. Ct. said based on evidence (doctor‟s testimony), Roy died first and daughter gets nothing. a. Ct. also discussed the state‟s Simultaneous Death statute, which says: if there is Simultaneous Death, the property is disposed of as if the other person predeceased the decedent. So, if this statute is applied, then Roy survives June and, since Roy left his property by will to June and she is said to have predeceased him, then he dies intestate and daughter takes share. But, Ct. says statute does not apply b/c Roy died first. 11 DE Outline Spring 2002 L. Foster 2. ACA 28-10-101 No Sufficient Evidence of Survivorship - This is AR‟s Simultaneous Death statute. This codifies the common law rule: if two people die simultaneously, the decedent is said to have survived the other (same as above case). - Must be sufficient evidence that they died simultaneously. 3. UPC gives a grace period of 120 hours (5 days), and if don‟t survive beyond that time then treated as simultaneous death. 4. AR cases: a. Smith v. Smith. Couple in accident. Husband dies. Wife dies 17 days later. Each left wills leaving estate to the other and there was no provision for Simultaneous Death. Ct. said Simultaneous Death statute does not apply b/c husband dies first. When husband died, his estate went to wife by his will. When she died, she died intestate b/c her will left everything to husband and he was already dead. b. Belt v. Baser. Husband had life insurance policy w/ wife as beneficiary. Husband killed wife and committed suicide. Ins. policy stated that if beneficiary predeceases insured, then proceeds become part of estate. Wife has 3 kids from previous marriage and her brother adopted them. Mother of husband said it was Simultaneous Death so proceeds should go to husband. Ct. said that brother of wife had Burden in proving if beneficiary survived insured. - Slayer Statute does not apply b/c husband did not Benefit from his actions. c. Jackson v. Jackson. Couple made joint will, survivor taking the estate. Will included clause that said if there is Simultaneous Death or both die w/i 30 days of each other, then kids get the estate. Husband dies and wife dies 19 months later. No provisions for this so will is invalid and they are intestate. - AR allows clauses in wills that expands the period of Simultaneous Death. In above case, extending period to 30 days is w/i a reasonable time so it would be upheld. Section VII: DISCLAIMER (RENUNCIATION) 1. Why DISCLAIM? You can avoid taxes and creditors and avoid disqualification from Medicaid. CANNOT disclaim before a person‟s death – no anticipatory disclaimer – because your interest is only an expectancy – exception is when there is a K. one situation where the court upheld a disclaimer – nephew who was aunts atty – borrowed 10K from aunt, then disclaimed 10K from assets of her estate. a. There can be more of a Benefit than Burden (like paying inheritance taxes on a worthless piece of land in a far-off state). b. Some believe it is Wrong to Benefit from the death of another. c. Avoidance of Creditors. d. Avoidance of Estate Tax. a. Estate of Baird, - Husband beat wife severally. He was convicted of 1st degree assault. She sued and got judgment against him. Husband filed Disclaimer from his mother‟s estate and then filed for bankruptcy. Mother then died. Husband‟s children from previous marriage petitioned probate ct to declare petition invalid so they can get his share and not wife from her judgment. Ct. said no Disclaimer b/c: 1.) cannot Disclaim before Death of Decedent (cannot Disclaim an interest that you do not have yet); 2.) cannot use Disclaimer to beat collateral rights of 3 rd persons; and 3.) husband was not a Beneficiary when he executed Disclaimer b/c he had no interest b/c mother was not dead then. Ct. also said it would be Unjust if she did not get the money. 5. ACA 28-2-101: DISCLAIMER STATUTE - CAN DISCLAIM PART OR ALL OF AN ESTATE. CANNOT BE ORAL, MUST BE IN WRITING 6. ACA 28-2-107: Disclaimer Procedure - Disclaimer must be within 9 months after the death of the decedent. Must be written and filed in probate ct. 12 DE Outline Spring 2002 L. Foster 7. ACA 28-2-108: Effect of Disclaimer. It devolves as if disclaimant predeceased decedent and “relates back” to death of decedent. 8. In AR, you can Disclaim to avoid Creditors but this is very hard b/c of state and federal law. This is a US SC case that started in AR: a. Drye v. United States. - Irma Drye died intestate. Her son was insolvent and owed $325,000 to IRS. He tried to Disclaim when momma died and probate court declared Disclaimer valid and estate went to his daughter. Daughter then set up a trust w/ the inheritance and her father could draw from the trust. IRS levied against the trust and trust filed in fed ct. US S/C said Disclaimer did not Defeat Federal tax liens. The AR Disclaimer statute is still good against creditors Except when the creditor is the government Hunt v. United States. Decedent died intestate leaving spouse, kids, and grandkids. One son is predeceased w/ kids. At time of decedent‟s death, there would be a tax break on the estate if all the money went to spouse. Since intestate, estate would split up among wife, kids, and grandkids and subject to Estate tax. Someone had bright idea that everyone but spouse Disclaim so spouse would get all and no Estate tax. But only kids Disclaimed and not grandkids. IRS sued when probate court upheld Disclaimers. Court said since grandkids did not Disclaim, rest of estate went to them and it was subject to Estate Tax. b. Section VIII: ADVANCEMENTS: are a special type of Inter-Vivos gifts. Advancements will be added to the total amount of the estate when the Decedent dies. Must be declared in writing by the decedent or acknowledged by the recipient in order to be counted against the inheritance, if the recipient of an advancement predeceases the intestate, that advancement is disregarded (and descendants of the predeceased heir still take. 1. ACA 28-9-216: Advancements - Must be total intestacy. Advancement must be in Writing by decedent or acknowledged in writing by the heir for it to be an Advancement. - Advancements are never in writing so in AR Advancements are rarely used. 2. UPC – the writing must be contemporaneous. Also, property advanced is valuable at the time of the Advancement. 3. problems: a. Decedent is survived by 3 children: A, B, and C. Decedent made an Advancement of $30,000 to A during lifetime and this was in writing. Decedent dies 3 years later and estate is $90,000. Take the total estate ($90,000) and add all the Advancements made by the decedent (only 1 Advancement of $30,000 to A). The total is $120,000 (called a Hotchpot). Divide this estate by the number of heirs so each will get $40,000 (or 1/3). Since A received $30,000 Advancement, his share will be subtracted by Advancement so A will get $10,000 and B and C get $40,000 each. b. Same as Example 8 except that Advancement to A was $50,000. Total estate of $90,000 plus Advancement of $50,000 is a Hotchpot of $140,000. Each gets 1/3rd share or $46,667. Since A’s share is in excess of this amount, A gets nothing and B and C split remaining $90,000 grand in half or $45,000 each. c. Mother advanced $50,000 to A and $10,000 to B, both in writing. Mother died intestate survived by husband, and three kids A, B, and C, all from previous marriage. Estate is $190,000. Dower comes out before Advancements are added to the Estate. So, husband gets 1/3rd in Dower ($63,333). $126,667 is left over. Add Advancements of $60,000 to this and get $186,667 Hotchpot. 3 heirs so divide by 13 DE Outline Spring 2002 L. Foster and get $62,223. A ($50,000 Advancement) gets $12,223, B ($10,000 Advancement) gets $52,223, and C gets $62,223. Chapter 3: PROTECTION OF FAMILY Section I: INTRO TO THE ELECTIVE SHARE - Spousal Elective Share – statutory right of spouse to take a share of the decedent‟s estate. In AR, the Spousal Elective Share is the same as Dower. There must be a will to take Elective Share against. Size of Share depends on how long they were married, if children, and number of children. Section II: THE COMMUNITY PROPERTY SYSTEM No Spousal Elective Share in Community Property states (there are 9 including TX and LA) b/c it is not needed. In Community Property states, the spouse automatically owns half property received during marriage (unless by inheritance). Since spouse automatically owns half, then spouse gets this half at death and Elective Share is not needed to protect spouse from not getting his/her share. 1. H and W – each owns ½ interest and pool interests together. If one spouse passes away then that spouse can only will away ½ of their property. 2. Transmutation – write up an agreement that says you are transmuting the property into community property if you move from a common law property state to a community property state. a. 28-12-103 – if you acquire property in TX it is community property, and in AR it is not community property, but these are rebuttable presumptions. B. If Bob has $900,000 in separate account and Anne has $300,000 in separate account, this all Community Property. If Bob dies, amount is combined and Anne will get $600,000 and Inheritable Estate is other $600,000. c. In AR, a Non-Community Property state, each owns their own account if spouse dies, there is either Dower or Elective Share of the other‟s account. d. If a couple moves from a Community Property state to a Non-Community Property state, then property stays Community Property unless couple agrees to change it. The Elective Share is same as Dower. If couple moves to AR from Community Property state, all property obtained in that state is presumed to be Community Property and not part of Dower. (a) Surviving spouse will ALWAYS get something. a. Surviving spouse will get one of 4 amounts b. 2-102 (Intestate Estate): i. The entire estate if 1. No descendant or parent of the decedent survives the decedent or 2. All of the decedent‟s surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent, a. The first 200,000, plus ¾ of any balance of what is left over if: i. no surviving decedent, but a surviving parent. 14 1/3rd DE Outline b. First 150,000 plus ½ if: i. surviving spouse has one or more kids from a previous marriage. c. First 100,000 plus ½ if: i. one or more of the decedents are not decedents of the surviving spouse. c. Kids will get something – Spring 2002 L. Foster (b) Dower Important Because: 1. Beginning Intestate Share of Estate (starting point – spouse gets first share) 2. If Cut out of will then spouse can elect to take share that is same as dower 3. Dower = right to real property; if both spouses sign a deed for real property, each has a 7-year right to that deed. ACA 28-11-203: there is a 7 year Statute of Limitationbarred after that point (C) POINTS TO REMEMBER It‟s Dower It comes out of the estate before heirs‟ share If Spouse AND child(ren): Spouse gets 1/3 Life Estate in all Land - ACA 28-11-301 Spouse gets 1/3 Personal Property – ACA 28-11-305 If NO child(ren) Spouse gets ½ real AND personal property, 1/3 as against creditors ACA 28-11-307 *Won‟t Ask About Creditors on a Test. After Dower is taken Out: If descendents, they get rest If no descendents, rest to spouse UNLESS married less than 3 years, In which case rest goes to parents, sibs, their descendents in that order, after that to collaterals and ascendants. If no heirs at all, then spouse takes all. 28-9-206 sets out the order of distribution – what is left over is given to the heirs. 1. Heirs may inherit every right, title, and interest, not terminated by the intestate‟s death and not disposed of by will. 2. The rights of heirs will be subject to: a. The rights of heir will be subject to:  The homestead rights of the surviving spouse and children of the intestate, including the quarantine rights of the surviving spouse.  All statutory rights and allowances to the surviving spouse and minor children,  Any rights of a surviving spouse in respect to income tax refunds made pursuant to joint federal income tax return.  An administration of the estate, if any. 15 DE Outline Spring 2002 L. Foster 3. An intestate may transmit his title to real or personal property by inheritance even though he is not in actual or constructive possession thereof, and even though he is not in actual or constructive possession thereof, and even though there may be adverse possession thereof. 4. AR law you are divorced when the decree is stamped and filled. Not at anytime before. Section III: MODERN ELECTIVE SHARE STATUTES 1. ACA 28-11-101 et seq. and ACA 28-29-301 Elective Share. Must be married more than one year. There has to be a Will and Elective Share is same as Dower. To Spouse, if married more than one year, can Elect: - If Kids then 1/3rd of property, Life Estate in land. - If No Kids then ½ of property, 1/3rd as against creditors. - Property – includes all land spouse seized of during marriage unless sold w/ consent. - Ancestral estate – if decedent had one, spouse takes only ½ Life Estate as against Collateral Heirs. 2. Sullivan v. Burkin – inter vivos trust – at his death it would terminate and they would get the principal and any left over. Intentionally left W out of the trust. Are the assets of the inter vivos trust considered to be a part of the estate? Court says that she couldn‟t get anything, but in the future then it would different and the surviving spouse would receive a portion of the estate. Policy – a divorced spouse would receive more of the estate and that‟s unfair. Irrevocable trust is part of the estate. a. Courts are split over this decision. b. AR has nothing on point. AR cases: c. Shaw v. Shaw. Couple married and remarried 4 times. On fourth time husband died before being married for one year. No Elective Share b/c only current marriage counts and it was under one year. d. Gregory v. Estate of Gregory. Couple is married, 6 children, have reciprocal wills but have contract to revoke these. Wife died and property went into trust for husband. He remarried and then died. New wife Elected to take Share b/c she was not in will. Two interests: Intent of testator and Interests of family. Court said kids get estate and new wife gets nothing. e. Hamilton v. Hamilton. Couple filed for divorce. No decree. 2 daughters from previous marriage. Husband died, will said wife gets Dower and kids get rest. But, the greedy whore of a wife who was only married to husband for short time also Elected to take her Share and Homestead and Statutory Allowances. Daughters sued saying no Homestead or Statutory Allowances. Ct. said greedy Bitch gets it b/c these are Statutory and there is no divorce decree. 3. Waiver of the elective share – UPC code allows us to waive the elective share. 1. AR 28-39-401 – our statute doesn‟t say anything about waiver. 2. Geddings v. Geddings – must have fair disclosure – what the share would be for the surviving spouse. There was evidence that the W had no real or actual knowledge of H‟s assets. Court rules this way because there were assets found because there were things that she didn‟t know. Looked at the facts very closely – why – because the court doesn‟t like the waivers. Some evidence that she didn‟t know. Court uses fair disclosure. 3. AR – surviving spouse may election to take against the will. 4. if you have a pre-nup you must disclose everything 16 DE Outline Spring 2002 L. Foster Section IV: OTHER PROTECTIONS FOR THE SURVIVING SPOUSE 1. HOMESTEAD ALLOWANCE, EXEMPT PROPERTY, AND FAMILY ALLOWANCE a. ACA 16-66-210 and ACA 28-39-201 Homestead Allowance. To Spouse (and/or minor kids), if married more than one year, can Elect: - Homestead – 80 acres in rural areas and 1/4th acre in towns. - Spouse and no kids who has no other Homestead gets Life Estate. - Spouse w/ minor kids shares Life Estate w/ kids until they reach 21 then it ceases in kids. - Minor kids and no spouse then they get Homestead. - Exempt from some creditors but not from all. b. Homestead was originally made to protect surviving spouse from creditors and not put spouse on welfare. Homestead rights do not apply to Mortgages b/c it is usually waived in Mortgage Agreement. c. Does not apply to minor grandchildren – McCoy v. Walker. d. ACA 28-39-101: Statutory Family Allowances: To Spouse (and/or minor kids) can get in Allowances: - $2000 of personal property as against Distributees and - $1000 of personal property as against Creditors - AND IN ADDITION – furniture, appliances, equipment, etc. that is necessary to occupancy - AND IN ADDITION – $500 - No one-year marriage requirement, just cohabitation. - As against all. e. ACA 28-39-102, 103: Occupancy - Called sustenance by statute - Spouse can live in chief residence of deceased for 2 months after death or till Dower is assigned - Spouse shall have reasonable sustenance out of estate during this time. - What you need for two months to get by on. - Live in the house and on the land for free of all rent. f. UPC has Augmented Estate where spouse gets bigger share the longer they are married. g. Quarantine ACA 28-39-102 – surviving spouse may live in the decedent‟s chief residence for 2 months without being liable for rents. 2. Pre-Marital Will a. Some states say that if person gets married and had a will before marriage, marriage will change the will. In AR, Spouse gets Dower and Statutory Allowances even if not included in a will that was made before they were married. b. Legislature assumes that you know what is in your will, and you don‟t want to change it and it will stand. Spouse will only have elective share to fall back on. AR follows this approach 17 DE Outline Spring 2002 L. Foster 3. Electing to take against the will – applies only when there is a will – protects the spouse from getting disinherited. A spouse may waive the right to take against the will in a prenup – so long as the spouse discloses everything about his assets. Section VI: PROTECTION OF CHILDREN: PRETERMITTED CHILD STATUTES 1. Pretermitted child is a child who is left out of the will. 2. ACA 28-39-407:Rights of Child or Issue (a) Subsequently Born or Adopted Children – if either of these are left out of the will, the testator shall be deemed to have died intestate w/ respect to the child and child can recover his respective share. (b) Pretermitted Children – if any living child is left out of the will, the testator shall be deemed to have died intestate w/ respect to the child and child can recover his respective share. 3. If someone wants to leave a child out of a will, the testator needs to include this in the will and tell Why. This shows Intent of testator to Leave the child out. 4. Estate of Glomset – you can disinherit your child in all state but one (LA). H and W left wills in which they left everything to the other and then to son if they both died. Left out H‟s daughter. Since there was no proof of intentional pretermitting then the court gave her, her ½ share. If testator omits to provide in his will because of mistake, because he forgets then they can take. But if it was intentional then the other child could take. (a) Dissent - injustice because court isn‟t looking at extrinsic evidence. When there is a total exclusion have to look at extrinsic evidence to prove that the person was left out intentionally. (b) Solve this problem by leaving the person a dollar. 5. In a JX that admits extrinsic evidence: (a) Letter from testator to his daughter explaining that testator trusted his wife to provide for the daughter (b) Testimony by lawyer who drafted will indicating that testator had told the lawyer he wanted to make no provision for his daughter? Probably, the closer that you get to the will then the more the court wants to go by the will. (c) Testimony by the testator‟s son that testator and daughter never got along. Might all – but subject to cross. 6. 28-39-407 – child born or adopted after writing the will – if testator dies without mentioning this child either specifically or as a class, then the testator will be deemed to have died intestate in accordance with this child. And he child would receive his share as if there had been no will. 7. Pretermitted children – at the execution of the will there is either a living child of child of the specially or as a class, the testator that is omitted either specifically or as a class the testate shall be considered to have died interstate. 8. Proportionate recovery from the designees (a) So, what if in Foster‟s will, there are 3 kids: A, B, C. A – 100K B 100K and anything left over to be split evenly between my children. Is C pretermitted? No, mentioned as a class. Know this for final (b) Actual case, if my wife doesn‟t survive me. ½ to my heirs at the date of my death, and the other ½ to W‟s heirs at the date of her death. testator dies and has a 18 DE Outline Spring 2002 L. Foster daughter. She says she‟s pretermitted. Is she? No, she is mentioned as a member of class, decedent‟s heirs, heirs usually means a class. (c) Grandma‟s will doesn‟t will doesn‟t mention her daughter or her Gkids. Will leaves everything to a friend. They are pretermitted – friend will get nothing and D and kids will get everything. 19 DE Outline Spring 2002 L. Foster Chapter 4: WILLS Section I: EXECUTION OF WILLS a. Execution of a Will in AR: statutory requirements basically are that wills need to be voluntarily executed, competent, must appear in written form, and that written form fulfills certain conditions. Can take effect only after the testator’s death. Must have some depository paragraphs in it. Wills are ambulatory – they walk along with testator and can be changed or revoked at anytime. 1. First you must Execute the Will or put it into effect A. The Execution Ceremony is a formal ceremony and there are certain Requirements that must be met. B. Testator must be 18 and of sound mind (ACA 28-25-101). C. Testator must put the natural objects of the writing, the beneficiaries, in writing. 2. Second, as the attorney, you review will w/ Testator in private. 3. Then, you get two witnesses (ACA 28-25-102). a. Witnesses must be at least 18 (Norton v. Hinsin – must be 18) and competent. B. Best to have Uninterested Witnesses to avoid any conflicts. C. The attorney himself can be a witness under Sullivant v. Sullivant. d. A will is not invalidated just b/c witness is Interested. But, an Interested Witness, unless there are also two Uninterested Witnesses, shall forfeit any amount in the will that exceeds what he would have received had testator died Intestate. 4. Next, Testator and the two Witnesses sign the Will (ACA 28-25-103(a) – Burns v. Alabama – there must be strict compliance for (a)). Burns also says that Witnesses do not have to sign in each other‟s presence but they must sign in Testator‟s presence and see him see it. a. It is best to have Testator initial each page and use page numbers like 1 of 3, 2 of 3, etc. to show conclusively the number of pages. 5. Testator must Declare (or Attest) in front of the two Witnesses that this is his Will (ACA 2825-103(b) – Faith v. Singleton – there can be substantial compliance for (b)). In AR, Will is still valid if Testator does not openly declare but everything in Will has to be correct – better to Declare. 6. The two Witnesses must either see Testator sign the Will or have Testator declare that the signature on the Will is his signature (ACA 28-25-103(b)(1-4)). 7. The signature must be at the end of the Will and must be done in the presence of the Witnesses (ACA 28-25-103(b)(5) – Clark v. National Bank – signature need not be at absolute end of document; it only needs to be substantial compliance). 20 DE Outline Spring 2002 L. Foster 8. The Witnesses then must sign the Will at the request and in the presence of the Testator (ACA 28-25103(c)). 9. There are different ways a Will can be signed: sign it himself; acknowledge his signature already made; sign by mark, his name being written near it and witnessed by a person who writes his own name as witness to the signature; or at his discretion and in his presence have someone else sign his name for him. (ACA 28-25-103(b)(1-4)). Also, Testator can acknowledge his signature by acts or gestures. 10. Next, have Attestation Clause at the end of the Will. This is signed by both Witnesses and it basically says that they Attested to Testator declaring Will to be his and signing his Will. - What if Testator accidentally signs Attestation Clause instead of the end of the Will? Court said this is OK in Scritchfield v. Loyd as long as everything else in Will is good. - Finally, have Proof of Will. This is a separate document than Will. It will be filed separately in probate court. - This is basically an Affidavit from the two Witnesses stating that they were present at the Execution of the Will and that they were the Witnesses, etc. This Proof of Will can be used as evidence in court. This is very important since the Witnesses can die before the Testator, the Witnesses may not be found, or the Witnesses forgot since much time could have passed. The Proof of Will can be used in court in substitute for their testimony. - Sign will in blue ink. i. Morris v. West – Witnesses were not in presence of Testator when they signed the Attestation Clause. They were down the hall in a different room. Ct. declared Will invalid. Same result in AR. In the case, the Testator grandfather gave his daughter‟s share to her ex-husband and left his grandson out of the will. Daughter and grandson sued. Since Will was invalid and estate became Intestate, daughter and grandson would get shares as heirs. Foster says that this probably influenced the Ct. b/c it seemed a just result. Courts will look at what will happen if a will is declared invalid and see who gets shares and take this into account in their rulings. b. Salvage Doctrines: Substantial Compliance 1. In Re Alleged Will of Ranney - Witnesses did not actually sign the Will (the Attestation Clause). The Witnesses only signed the Proof of Will (the Self-Proving Clause). Court upheld the Will. Same result in AR as long as everything else in the Will is good. c. Holographic Wills 1. ACA 28-25-104 Holographic Wills generally 2. Holographic Wills are hand-written wills. - Entire will and signature must be handwriting on Testator. - Need 3 credible Disinterested Witnesses that testify that handwriting and signature is that of Testator. These Witnesses do not have to be present when Holographic Will was written, only that handwriting belonged to Testator. 21 DE Outline Spring 2002 L. Foster - What if Holographic Will is on paper but not signed at bottom and paper is folded up and signed on the outside and put in an envelope? Smith v. MacDonald says Holographic Wills do not have to be signed at the bottom but must be signed somewhere. 3. Why allow Holographic Wills? There are times when there are no lawyers or witnesses around so courts will Effectuate Intent. 4. Zhao v. Wong, Holographic Will case. Basically, the alleged “Holographic Will” was a piece of paper w/ little writing on it. It was found in decedent‟s office by his whore girlfriend (who was on a date the night he died) and friends. Cause of death was unknown. Ct. knew girlfriend was shady. Ct. said this was not a Holographic Will. Do not need particular words to create will but it needs the Necessary Testamentary Intent. 5. Problems Must have Present Intent to be a Holographic Will. The words “I will be giving . . .” show future intent. 6. AR case: a. In Re Estate of Sharpe. Two witnesses sign Will. There is no Proof of Will Affidavit. Later, the witnesses are called to testify about the Will. One witness remembers being there and signing the Will. The other witness does not remember the Will or being anywhere near there. There is a third person called to testify and he says both were there and both signed the Will. Of course, this third person will inherit the estate if the Will is valid. Court said Will is Invalid b/c it was not Proved in court b/c one witness cannot attest to it. 22 DE Outline Spring 2002 L. Foster Section II: WHAT CONSTITUTES A WILL? 1. Doctrine of Integration – two kinds: 1.) External Integration – you can have a Will, a later Codicil, a later Will and these are all Valid if they can be put together in one Will. 2.) Internal Integration – when you look at one Will and the pages are different or not numbered and Ct. determines that these pages are Integrated into one Will. 2. Doctrine of Incorporation by Reference – if you write a Will and refer in the Will to: 1.) another paper already in existence; 2.) you have Intent to include these; and 3.) this paper was sufficiently described in Will. 3. ACA 28-25-107 Incorporation of Writing by Reference - Subsection (a): Writing must be in existence at the time of Will; Intent must be manifested in Will; and it must be described sufficiently in Will. - Subsection (b)(1) contains an Exception to the writing must be in existence at time of Will: Writing can be prepared after Will when you want to make a list of tangible, personal property (like a list of books) not specifically disposed of in Will. (b)(2) says this must be in handwriting of Testator or signed by him and must describe the items and devisees w/ reasonable certainty. i. Clark v. Greenhalge, 1991. There was 1977 Will, a 1972 Memo that was amended in 1976, 2 Codicils written in 1980, and a Notebook that was continuously updated. A painting was at issue here. It was only mentioned in the Notebook. Testator‟s nurse had written in notebook at the direction of Testator that painting would go to her friend. Witnesses testify that Testator repeatedly stated that friend would get painting. Cousin was executor of Will. Cousin distributed estate according to Testator‟s wishes except for the painting. He kept the painting. Ct. said Notebook was Integrated into Will b/c there was a lot of evidence showing this was Intent of Testator. ii. AR Gifford v. Estate of Gifford, Mother died daughter provided 4 written instruments. 2 page handwritten note 1980, 1 page handwritten note 1981, holographic will 1986, and codicil 1986. 1. Ct. allowed as notes were attached to will, total of pages=4, had pages numbered consecutively, will referred to notes and both notes written and signed by mother. 4. AR Incorporation by Reference= 1. Has to be in existence, 2. Have to have intent, and 3. Have to sufficiently describe the articles. a. AR Jones v. Ellison, Died testate w/ estate $2 million. Provision in will that reserved right to make disposition of tangible property by lists. Note found in jewelry box, handwritten disposing of jewelry and dog, signed and dated. Ct said O.K. as incorporation by reference. 5. Tangible items of property are the exception as don‟t have to be written prior to the will. Incorporation by Reference-can have invalid will, that can be validated by the execution of a valid codicil. 23 DE Outline 6. Estate of Norton, Son attempts to have invalid will (no witnesses or signatures) validated by a valid codicil. Ct. said have to show intent (murky), also have to specify and refer back to the will in the codicil. Codicil did not specify therefore not valid. Spring 2002 L. Foster 7. Notes and Questions p.232 1. Original will was not signed and dated so 7 years later the testator added a signatory page and stapled it to the original document, is it valid? 2. Should be admitted to probate on a theory of integration (stapled together), witnesses signed and at that point the whole document was in view of the witnesses. A. FACTS OF INDEPENDENT SIGNIFICANCE AND POUR-OVER TRUSTS. Must have significance outside of the devise of the testators estate. 1. Testator‟s will provides “I leave my 100 shares of IBM stock to those people listed on the envelope in which the stocks will be found at my death.” At death, stocks found in an unsigned envelope, dated after the will, in the testator‟s draw. Do the names on the envelope get the stock? 2. Generally No, because it is too easy to change without testamentary formality. 3. If a name is specified, or “oldest sister at death,” then usually o.k. Because independent significance e.g. if a sister dies does not change. Could only change with testamentary formality. a. Problems p. 241. 1. “All of the cash and securities in my brokerage account at Merrill Lynch to my daughter Barbara.” Ans. Upheld by the Court. 2. “All of the cash and securities found in my kitchen drawer to my son Charles.” Ans. Not upheld by the court=too easy to change. 3. “All of the stocks and bonds found in my safe deposit box to the persons designated on the envelope in which those stocks and bonds are found.” Ans. Not upheld. 4. “$1,000 to each of the persons who shall be employed by my company, Testator, Inc., at the time of my death.” Ans. Upheld. 4. if a testator establishes an irrevocable trust and the will leaves money that that trust during his life? It is valid. a. Clymer v. Mayo – professor married to H. Executed reciprocal wills. Terms of her will had irrevocable and amendable trusts. Gave property to H on the day that the trust was established – changed her life insurance trust – unfunded life insurance trust. Month later changed her retirement to her trustees. Changed beneficiaries or life INS to friend, but not the retirement. Nothing in the trust right now. Got a divorce. H waived interest in securities. H remarried and rewrote the will and took out the ex-wife. She dies not having changed her will. trust is found to be invalid because it is revoked by operation of law because he waived all rights. B. POUR-OVER TRUSTS – is established during testator‟s lifetime but isn‟t funded and doesn‟t come into existence until the testator‟s death. 1. A provision in the will that leaves money to an inter vivos trust (set up while alive vs. testamentary trust). 2. Virtually all States allow Statutes to cover trust exceptions. 24 DE Outline Spring 2002 L. Foster 3. Today, under the Uniform Testamentary Additions to Trust Act, all of T‟s devises could be carried out. In the last instance, if T had written up the trust documents for the Charity Trust it would come into existence at his death, when it was funded by the will. 4. ACA 28-27-101 Testamentary Additions to Trusts. A will can devise property by trust already established or in the future, allows both 1) during lifetime, or 2) after death. 5. Trust can be revocable or changeable. 6. Example-Using the current law. a. T‟s spouse creates a valid inter vivos trust for their kids. T devises entire estate to the trust and dies. No problem. b. After the husband‟s death, the spouse amends the trust substituting her new boyfriend as the beneficiary. Still o.k. with the current law. c. Could write contracts agreeing not to change the beneficiaries without the consent of the kids. Section III: CONSTRUCTION PROBLEMS CREATED BY THE TIME GAP BETWEEN WILL EXECUTION AND DEATH 5 TYPES: - Abatement. - Ademption. - Exoneration. - Apportionment. - Lapse. A. Different Categories of Devises: 1. Specific – is a gift by will of property, which is particularly designed, and which is satisfied only by the receipt of the particular property. 150 shares of IBM stock when you only own 150 shares. Property named e.g. Honda CRV (specific), Car (specific w/ a general nature) 2. General – one, which may be satisfied out of the general assets of the testator‟s estate instead of from any specific fund, thing or things. 150 shares of IBM stock when you own 1000. 3. Demonstrative – classed upon the failure or insufficiency of funds or property out of which property out of which payment should be made to extent of the insufficiency. 10K coming from the sale of the Honda. What if it only brought 5K – you would get the other 5K out of the estate. If it brings in 20K – person would only receive 10K and the estate would take the rest of it. 4. Residual – Everything else in my estate goes to my niece B. ABATEMENT – occurs when the value of the estate decreases. The order of priority of distribution when insufficient funds for what the testator intended. 1. ACA 28-53-107 Abatement. Claims (creditors), legacies, family allowances, pretermitted heirs (children in AR), surviving spouse must a. Be paid 1st in the following order: 25 DE Outline Spring 2002 L. Foster 1. 2. 3. 4. 5. Property not disposed of by the will. Intestate. Property devised to the residuary devisee. Residuary. Property disposed of by the will, but not specifically devised to the residuary devisee. General. Property specifically devised. Specific. Demonstrative Devises on any specific property shall be specific and any residuary shall be deemed general. 28-53-107(b)(1) C. ACA 28-53-113 EXONERATION. Exoneration follows the common law rule. Mortgage would be paid from the rest of the estate, to exonerate and pay it off, leaving the beneficiary mortgage free. In CL – if someone was to devise a house and the house was mortgaged then the CL would say that there was exoneration and if there was left over funds then they would be paid 1. In Re Estate of Potter - Decedent left residence to the daughter (specific devise), and the equivalent in money to be paid to the brother from a trust (ct. held general devise). Problem=not enough money in the trust to cover the devise. Trial Ct. said sell the property and split the total. Appeals Ct. reversed and said the specific devise comes first and residue to brother b/c it was a general. a. In AR if it was determined that the brother‟s devise was specific then would sell the residence and split. 2. AR case: McDermott v. McAdam - Daughter sued the executor because the will did not account for the substantial admin costs. Abatement Statute appliedtook costs out in following order: SpecificGeneralResidual. Daughter took hers as specific. 3. Problems a. Mrs. Potter executed her will, her assets included the house on Sunset Lane, valued at $100,000, together with cash and securities valued at $1,000,000. Suppose her will provided: 1. I leave the house at 14 Sunset Lane to my daughter Helen. SPECIFIC 2. I leave to my son Edwin, in cash, an amount equivalent to the value of my house at 14 Sunset Lane. GENERAL 3. I leave the remainder to my estate to my beloved daughter Gertrude.” RESIDUAL b. Suppose further that Mother had never created an inter vivos trust. If, at the time of death, the house was worth $300k, but the cash and securities were worth only $200k, how would the estate be distributed? Daughter=the house, b/c specific. Son=$200k, b/c general and that is the residual. Distribution would FRUSTRATE the mother‟s intention, and not effectuate. c. How would you classify the following devises: a. b. “All real estate owned by me or in which I have an interest.” Either Way Specific or General. “The money now due and owing to me from Y.” Specific (b/c named the source). 26 DE Outline Spring 2002 L. Foster c. D. “Ten shares of General Motors Stock.” General. “My 10 shares of GM Stock.” Specific (b/c “MY”) d. Suppose you had been Mrs. Potter‟s lawyer. How would you have drafted the will to reflect her apparent intent to treat her 2 children equally? 1. Sell Everything and divide it equally (misses leaving the residence to daughter). 2. If the value is sufficient then want daughter to have the house and son the equivalent in money, and if not sufficient then sell the house and split the proceeds equally. 3. If the estate value is greater the sufficient amount then the value of the estate should be split and the value of the residence taken out of her share. E. DEMONSTRATIVE GIFTS. 1. I DEVISE $10K TO ___, FROM THE SALE OF ___. 2. Problems p.252 1.) Testator‟s Will provides: “1. I devise my speedboat, Molasses, to my brother Bob. SPECIFIC “2. I devise $30k each to my children, Cindy, Daniel, and Edith. GENERAL (no source) “3. I devise $30k to my daughter, Fran, and I direct that my 1998 Ford Explorer be sold to satisfy this bequest. DEMONSTRATIVE “4. I devise the residue of my estate to my alma mater, UALR.” RESIDUAL At T‟s death, her estate consists of Molasses ($10k), the 1998 Explorer ($10k) and $55k in cash. How should the estate be distributed? 3. Will Sets Out: a. Molasses= $10k. b. General= $90k. (3*kids $30k.) c. Demonstrative= $30k (Reality Explorer=$10k) 4. SPECIFIC FROM WILL: Molasses $10,000 Ford Explorer $10,000 devise, rest to general) Total (Specific) 5. GENERAL FROM WILL: Kids equal share $20,000 $90,000 ($30k*3) 27 (Specific part only of the demonstrative DE Outline Spring 2002 L. Foster Residual from Explorer Total (General) $20,000 $110,000 6. REALITY FROM REMAINING ESTATE: Total $55,000 (1/2 of the general total) 1/2 each heirs amount left in the will. a. b. c. BOB Gets Molasses. SPECIFIC Each Kid gets $15k (1/2 of the willed amount) GENERAL Fran gets $10k (residual after the general is accounted for) DEMONSTRATIVE 2.) T leaves $500k to 8 persons (varying amounts b/n $25k and $100k). Directs that devises to be paid out of the stock fund in his investment account, the remainder to his charitable foundation. At death the investment account was valued at $700k, but the stock portion only worth $50k. a. How should the estate be distributed? Ans. The 8 named persons will get everything in the will, b/c enough in the investment account to cover, and the charity will get the residual amount=$200k. b. If the devise was “the stock fund in my investment account” to the eight individuals, what outcome? Ans. 8 would split the $50k and the remainder to the charity $650k. G. APPORTIONMENT OF TAXES-Not tested on the math part. Unless the will says otherwise, distributes and beneficiaries of a descendant‟s estate bear a proportional share of state and federal estate, death, and inheritance taxes, doesn‟t apply to share of surviving spouse. Modern law-Apportion taxes equally out of the residue. 9. ACA 26-59-115 10. AR takes share of the federal tax but does not have its own state inheritance tax. G. ADEMPTION – AR doesn‟t have this statute. A. By extinction – item is given to someone else or is no longer part of the estate. Look at the intent of the testator, or the identity test – (a) is it a specific devise? If so, (b) is it found in the estate? Look to see if the gift has changed in form, or in substance. If it has changed in substance then the devise has ademed. B. By satisfaction: item/devise is given to devisee inter vivos; when item of personal property, point is moot, when it is a general devise then the law of advancement applies. 1. What happens to a specific devise that is not in T‟s estate at the time of death? 2. McGee v. McGee, T‟s will leaves $20k to friend (ct. said general devise). Left shares of Texaco stock and any money to be split equally b/n 3 kids (ct. said specific devise). Son bought bonds, $30k from the sale of bonds. Friend argues that not in the bank account, in bondsgone and not included. Friend got $20k even though intent was different. a) Court adopted the identity theory. 28 DE Outline Spring 2002 L. Foster 3. ADEMPTION THEORIES: 1) Intent Theory. 2) Identity Theory (MAJ) Thurlow Test a. Is it specific? b. Is it in the estate at the time of death? 3) Form and Substance Test: If there is a change in form is it: a. Nominal Formal or b. Substantive Change. e.g. If move bank accounts (nominal formal change), or move money from a bank account to bonds (substantive) 4. AR S Ct. supposed to follow Intent and Form and Substance test, but outcome was using Identity test. 5. Things to Focus On: a) Form b) Identity (whether kept from other areas, where funds come from etc.) 6. Problems 1) T‟s will devises “12-14 Newton St, Waltham, Mass.” To Wasserman. Six months b/f death, she sold property for $575,000. Is Wasserman entitled to the money? a) AR property has been adeemed. Would have to state it in the will that leave house to Wasserman but if it is sold then the proceeds to him, otherwise would get nothing. 2) T devises “my 1995 Buick LeSabre” to her brother, Tom. T traded Buick for Lexus (and 40k). T crashed the Lexis and was killed. Insurance co. to pay $55,000, is Tom entitled? 3) Tom would get nothing b/c it was a specific devise. VERY CAREFUL w/ specific devises, better to leave “my Car”. a) Increases in Property = Accession. 7. Problems 1) T‟s will devises “100 shares of Hi-Flier Corp. stock” to her sister, Ann. To what is Ann entitled to 2 years b/f T‟s death? 2) Hi-Flier Corp. declared a stock dividend, entitling shareholders to 1 share for each share they previously held. 3) Stock Dividend-general rule Ann would get it also. 4) Tip-Top Corp. acquired Hi-Flier, issuing 1 share for each 2 shares of Hi-Flier. Acquisition-Ann gets all comes out w/ TT stock. 5) Hi-F declares a $5 dividend per share or 1/10 share instead, T took the 1/10 p. share. Choice was stockAnn would get the additional stock. 6) Choice was cash dividend instead. Ann would not be entitled to the cash dividend would go into the estate. ACCESSION/ACCRETION: Real Property-If improvements made on the propertygo to the devisee. If income made on the propertygo to the estate. 29 DE Outline Spring 2002 L. Foster H. ADEMPTION BY SATISFACTION – item is given to devisee inter vivos, when item of personal property, point is moot. When it is a general devise, law of advancement applies. 1. Failure of a testamentary gift (already transferred to beneficiary sometime b/n execution and T‟s death). Is Analogous to advancement. 2. Specific Devise=easy to tell, either there or already transferred. 3. General Devisemore difficult e.g. pg 265, “to each of my 3 children, 1/3 of my estate.” One year b/f T gives $30k to one kid, should it be taken out. Not usually because to be ademption by satisfaction has to be expressly written in the will or contemporaneous writing with the gift. LAPSE – occurs when beneficiaries predecease the testator. General or specific devise, passes to residue, and residual devise passes to surviving devisee, if no survivor devises intestate. Antilapse statutes generally operate to prevent the failure of a devise when that devise is to a descendant. Only time that a devise to a descendant lapse in AR is if there are no issue, OR if the testator used words of survivorship „To Karyn, if she survives me.‟ 1. The ineffectiveness of a gift whose beneficiary predeceases the testator. 2. ACA 28-26-104 Failure of a Testamentary Provision. AR has the anti-lapse statute. Look for several characteristics. To whom does it apply? ARonly to children, grandchildren, issue. Not to collaterals. e.g. 3 kids, 1 predeceases. In the will the kids weren‟t named just share and share alike. (named as a member of a class (3 kids). a. Would pass to the issue in AR, if specifically named would also pass to the issue. 3. Common Law Rule. Residue. a. If leave it to 2 people and 1 person predeceases Tthat persons share would pass intestate. Devisees heirs or descendents take nothing, it lapses. 4. ACA 28-26-104 (2) AR if 2 people are not issue to T and 1 predeceases Tthe others share would pass to the remaining beneficiary. If more than two beneficiaries then residue is distributed equally. 5. ACA 28-26-104 (1) If leave devise other than a residuary devise fails for any reason then it becomes part of the residue. 6. ACA 28-10-101 and 102. If devisee and Testator die at the same time. Treat as if they had survived. a. Example 1 pg 267: T devises %50k to her daughter D, and the residue of her estate to her husband, H. D dies b/f T, leaving a surviving son, S, and a will leaving all of her property to her lover, L. How should T‟s estate be distributed? In ARWould pass over the will and devise to the son and not the lover. 7. Example 2 pg 268: T devises the residue of her estate “to be shared by my sister, Patricia, and my good friend Quentin, share and share alike.” Q dies b/f T. T is survived by Patricia, and by a son, Richard (to whom T devised $50k). How should T‟s estate be distributed? AR Patricia would take estate. Common Law would pass intestate. 7) Estate of Rehwinkel, Will specified devise to those living at the time of death. Niece died a month 30 b/f decedent and son tried to claim her share. Ct. said no b/c the language stated to those living DE Outline Spring 2002 L. Foster 8) at time of T‟s death. AR result would have been different b/c son was issue to the niece and would not have lapsed. Estate of Ulrikson, Brother and sister predeceased testator. Not enough survivorship language and ct. decided the nieces and nephews of predeceased brother and sister should get. Section IV: CONSTRUCTION PROBLEMS MORE GENERALLY 1. RULES a. Will is construed as a whole even if ambiguities in certain sections. (Matter of Marine) Words are construed by their everyday, ordinary meaning. (Estate of Carroll) b. Technical words used to imply technical meaning are viewed strictly (e.g. lawyer held to technical meaning of legal words) c. Try to look at T‟s intent at time of the construction of the will. d. When construing the willwhether to admit extrinsic evidence and if so, what type of extrinsic evidence. Estate of Carroll wanted to admit that he thought of wife‟s nieces and nephews as his own, ct. said not ambiguous said “my”. e. If there is no ambiguitythen no extrinsic evidence is allowed in, it is the ct.‟s discretion as to what is allowed in. 2. Types of AMBIGUITY. 1. 2. Patent Ambiguityif it appears on the face of the document (what a proofreader would notice) e.g. Leave my house to John, later in the same document say leave it to Jane. Latent Ambiguitye.g I leave my property to my daughter and later ct. finds there are 2 daughters. 3. Often difficult to distinguish from a mistake. 4. Ct.‟s reluctant to allow extrinsic evidence to patent ambiguity. b. Estate of Gibbs - T left money (1%) to Robert J. Krause at a stated address (attorney had tried to add specificity but used the phone book). Robert J. Krause was a taxi-driver with very little connection to T. Robert Krause employee claimed intent was to devise 1% to him. No ambiguity but ct. allowed extrinsic evidence to show intent. c. Britt v. Upchurch, 2 lots in question. Ct. said will was ambiguous but didn‟t allow all extrinsic evidence. Ct. wouldn‟t allow affidavit from attorney stating T‟s intent. Ct. reluctant to allow b/c attorney should have included it in the will. 3. Lost wills: can prove if provisions can be distinctly shown with correct copy and witnesses, AND will is proved to have been in existence at testators death, or the will is shown to be fraudulently destroyed while testator was alive. 4. MISTAKE: Whether to allow Extrinsic Evidence. a. 3 Types: i. By Inducement – - Change the will if you include what you would have done otherwise if the mistake wasn‟t made (Gifford) 31 DE Outline Spring 2002 L. Foster - Exception to the rule in Witt v. Rosen, because the testator would be the one that would know – something within their knowledge. So we won‟t change the will. ii. As to the type of Document, or mistake in the factum, - Somebody signs a will thinking that it is something else, the court would let it evidence of this mistake. iii. By Omission - Evidence surrounding circumstances is admissible to enable the court to understand the meanings of the words that the testator has used in his will, is not admissible to add to the will provisions, which cannot fairly be inferred from the language, which is used therein, or to take from the will provisions that are clearly expressed therein. 4. By INDUCEMENT-unless mistake appears on the face of the document. b. Gifford v. Dyer, Mother thought son was dead and didn‟t include for him in her will. Very important face of the will. c. Mistake as to the type of document. d. T thinks signing a document but instead is signing his will. Ct.‟s will generally allow extrinsic evidence, b/c it looks at testamentary intent. 6. MISTAKE BY OMISSION d. Knupp v. District of Columbia, Will made reference in 6th paragraph to residuary devise and to include intention in the face of the will (I don‟t leave anything to my son b/c he is dead), this was not included in this case. Ct. won‟t read T‟s intention into the will unless it appears on the beneficiary named in 8th paragraph. *th paragraph had no residuary devise. Ct. wouldn‟t allow extrinsic evidence. e. In cases of mistake ct.‟s are much more willing to take something out (eraser) than to add something (lead). f. AR Witt v. Rosen, T left will leaving $20k to Margolis and $15k to Witt. T executed a codicil revoking the devises, as mistakenly thought already given inter vivos gifts (actually hadn‟t). Ct. wouldn‟t allow Margolis and Witt to inherit. g. Gifford v. Dyer - Son was mistakenly taken as being dead b/c had not been seen for 10 years. Different to the Witt case b/c in Witt case T knew and was in control of his will and the devises, but both cases T mistakenly believed information as to the devise. This case mother did not know her son was living. Ct. reluctant to grant son a devise b/c was no language that appeared on the face of the document. Section V: REVOCATION OF WILLS – three ways: by written instrument – revokes the will either expressly or by inconsistency, by physical act (strength of the presumption depends on the degree of control that he and others exercised over the will), or by operation of law – divorce. 1. ACA 28-25-109: Revocation a. 3 ways to revoke part or all of the will. 1. Subsequent Will-needs to contain language revoking first. 2. Destruction by T or \another in the presence and direction of T. 32 DE Outline Spring 2002 L. Foster Operation of Law-AR=divorce, revokes the provisions that are in favor of the divorced spouse. b. No will or part will by revoked by change of circumstances, although subject to 2839-401. (c) If partial revocation, then don‟t have to re-attest the remainder of the will. 2. Revocation by Physical Act a. Hypo: Destruction of a will in front of thousands of people. Yes, revocation would be valid. PRESUMPTION everywhere that if the will is in possession of T or T has access, and after T‟s death the will can‟t be found then the presumption is that T revoked the will. 3. Presumption can be rebutted. a. First Interstate Bank of Oregon v. Henson-Hammer, T had will, daughter gets trust then to her children when she dies. BUT, if he died intestateshe gets everything without restriction. He put will in safety deposit box, allowed daughter to have access. Couldn‟t find original after death, but attorney kept a copy. TC admitted a copy of original to probate, Affirmed decision. Daughter had access and stood to gain from destroying the will. b. AR Thomas v. Thomas, H & W drafted wills. W‟s will passed estate to H unless he predeceased her and it would then pass to son. Took originals home. H never found her will again. After death couldn‟t find the will. Evidence was slimhe was believed to be honest, and that he didn‟t believe she would revoke the will. Ct. allowed a copy of the will, unsigned and undated. Burden is on the husband by a preponderance of the evidence. 3. 4. ACA 28-40-302 Lost or Destroyed Wills. Requires 2 witnesses, but if it is a copy then just 1 witness and it has to be in existence at the time of death or that it is fraudulently destroyed. REVOCATION BY PHYSICAL ACT 1. Hypo: Attorney is keeper of will, T calls attorney to destroy the will. No b/c T is not in the presence of attorney. Telephone doesn‟t count, what about teleconferencing? 2. Sophisticated lawyersmake 1 original and then only copies. When probate time only 1 original out there. Attorney probably responsibility to find a good place for safekeeping of will. Partial Revocation 1. ACA 28-25-109 allows Partial Revocation. Can revoke part of the will by physical act. e.g. i. $20k to A, ii. $10k to B, and iii. $5k to C. Can T revoke ii.? Ans: Yes, effective in AR by physical act, b/c no other party is effected. a. $20k to A, ii. $10k to B, and iii. $5 to C, Rest and remainder to D, Can T revoke ii.? Ans: No, not effective in AR, D gets a larger share b/c of cutting out, is increased w/o testamentary formality. b. 1/3 to A, ii. 1/3 to B, iii. 1/3 to C. Can T revoke ii.? Ans: Yes, is o.k. in AR, but if say divide equally b/n A,B and C & cut out B then A & C would increasenot valid b/c w/o testamentary formality. c. Doesn‟t matter if someone‟s share increases intestate. 2. Problem a. T‟s will makes 3 provisions: 1. I devise $20k to my son Moe. 33 DE Outline Spring 2002 L. Foster 2. I devise $10k to my friend Larry. 3. I devise the remainder of my estate to my son Curly. Suppose that T crossed-out 2. What would be the impact? 1. AR would not allow b/c Curly‟s share would increase w/o testamentary formality. REVOCATION BY SUBSEQUENT WRITTEN INSTRUMENT a. Wolfe’s Will, 2 wills, 2ndall my effects to my brother‟s and sister‟s. Aug 1911. 1st willtract of land to Mrs. Luffman. July 1911. Does 2nd will revoke the first. 2nd will didn‟t expressly state that it revokes the 1st. Decision depends on how the ct. determined what effects means (personal or personal and real property). New trial was awarded to decide what was meant by effects. Author‟s theory that there was a child b/n Luffman and T so intent was to leave the land. 1. Hypo: T writes a will and then writes a subsequent inter vivos trust that is inconsistent w/ the will. What outcome? The inter vivos trust does not revoke the will. Trust dies and will goes to probate. 2. A valid holographic will can revoke a prior existing will. REVOCATION BY OPERATION OF LAW 1) Mainly Divorce in AR. McGuire v. McGuire $500k to husband, $500k to stepchildren. They divorce. In AR husband would get nothing. Official answer stepchildren would get the money b/c not in favor of T‟s spouse. REVIVAL & DEPENDENT RELATIVE REVOCATION – the only way to revive a will or portion of a will that has been revoked or became invalid is to re-execute it OR incorporate it by reference in another validly executed will or codicil. AR doesn’t recognize dependent relative revocation. 1. ACA 28-25-110 Revival. Revoked instrument becomes valid again. 2. By re-execution of a later will incorporating it by reference. AR is strict. 3. Problems a. T, estranged from her children, writes a 1990 will leaving all of her property to the United Way. In 1996, T writes a new will, leaving all of her property to the Salvation Army. In 1998, T, fed up with the news stories of mismanagement of charities and reconciled with her children, burns the 1996 will. Ans. In AR, revoked the first will by the 2nd will and burned the 2nd willdies intestate. b. T, in 1990, writes a will leaving ½ of her property to the United Way, and dividing the other ½ equally b/n the 2 daughters. In 1996, T, estranged from one of her daughters, writes a new will, dividing the property equally b/n the United Way and the other daughter. In 1998, T, reconciled with her formerly estranged daughter, burns the 1996 will in front of the entire family, announcing that “Now I have my will back the way I want it.” Ans. 1st will revoked by subsequent will, burns the second will. In AR dies intestate b/c didn‟t re-execute. 34 DE Outline Spring 2002 L. Foster c. Other jx‟s not so strictDEPENDENT RELATIVE REVOCATION has evolved. This applies when an older will is probated because the new will failed for some reason. 4. AR case: Laritt v. Laritt. Will destroyed by tearing and burning, died before new will was executed. Ct. saw it as Dependent Relative Revocation. AR S Ct. said not a case for DRR, and even if was AR does not follow. Section VI: LIMITS ON THE POWER TO REVOKE: JOINT WILLS AND WILL CONTRACTS – bad idea! 1. Estate of Wiggins, Joint Will - same will different people. Mr. Died and Mrs. Executed 2 codicils, codicils increased amount to all beneficiaries. Wife died 20+ years after her husband, estate had increased in value substantially. Will included that the testamentary intent was not to be changed by either party. Ct. held that the codicils were invalid because the will had a provision included. 2. Problems with Joint Wills: 1. 2 parties have to agree and continue to agree (parties change minds). 2. Time before death may be substantial, 1 party outlasts the other by a large period. 3. The value of the estate may increase substantially. A. MUTUAL OR RECIPROCAL WILLS - 2 or more T‟s but substantially similar content. 1. Shimp v. Huff, Wife died-H filed for a declaratory judgment, but didn‟t execute a new will. H married 2 nd wife, H died and PR‟s wouldn‟t give 2nd wife her elective share. Ct. allowed wife to get her elective share because of the public policy reasons. 2 policies in conflict: 1. Policy of testamentary intent, right of will. 2. Policy of spouse‟s elective share. 2. AR case: Gregory v. Estate of Gregory, Reciprocal wills, K also. Wills says residue left in trust for surviving spouse. Trust to continue till the youngest child is 25 years old, even if both T‟s die. Wife predeceases. H marries Genevieve, and executes codicil saying wife gets Life Estatebut still goes to the kids. Ct. held surviving spouse had no authority to change without consent of the beneficiaries (kids). AR he was bound by agreement, he received benefit from a trust and was bound not to revoke. 3. ACA 28-24-101 Reciprocal Wills (c)(2) Reciprocal or mutual will does not create a presumption of a K, and not to revoke will. 35 DE Outline Spring 2002 L. Foster Chapter 5: CONTESTING THE WILL Section 1: TESTAMENTARY CAPACITY Have to have testamentary Capacity. Not a high standard for capacity. Meeting the standard for capacity: 1. Must know the nature of the act. 2. Must know the beneficiaries of value. 3. Must know the nature and extent of property. 4. Must know without being prompted. a. AR. S ct. When determining the capacity at the time of execution, the ct. has held that it is o.k. if o.k. for short period while the will is being executed. (Lucid Intervals). b. Insane Delusionparticular typebelief in facts that do not exist and that no rational person would believe, when there is no evidence that a rational person would believe. Unusual religious beliefs are usually not insane delusions. The insane delusion must have been the cause of the testamentary disposition e.g. son is seeing martens from space so I disinherit him. It is so difficult to get Mistake so lawyers will often go for Insane Delusion. c. Shifting the Burden of Proof. 1. AR S Ct. Proponents Burden: Offer Will to be probated, have to appear to show clear on the face of the will and that the testamentary formality is sufficient. Once Proponent meets a party can challenge. Shifts the burden to the challenging party to prove by a preponderance of the evidence that lacked mental capacity. b. Barnes v. Marshall, T Cut out daughters giving them $5 per year, and left estate to organizations (religious). T had strange religious beliefs, and wore a nightgown in public, exposed himself (NUTS). Case went to a jury (AR would be a probate judge making decision) to evaluate testamentary capacity. Jury found lacked testamentary capacity and treated as if he had died intestate. i. Why should his peculiarities deprive him of the right to dispose of his estate as he wished? ii. Policy reasons as his intent cut out his descendents and gave the estate to charity. c. Lucid Intervals-AR Case T in hospital-3 kids. Son mutually agreed to be disinherited. T in bed running fever, not enough oxygen, confused and in a straight jacket. Ct. reviewed the evidence of doctors and witnesses. Witnesses were completely disinterested parties at the time of execution said seemed competent. Ct. said at the time of execution he was having a good day and allowedLucid Interval. Ct. paid a lot of attention to the disinterested witnesses. d. In Re Hargrove’s Will, Jury found was an insane delusion, on appeal ct. overturned jury verdict. T did not believe he was the father to his ex-wife‟s kids left everything to a business associate. e. AR Dumas v. Dumas. AR said does recognize the principle legal document and will be set aside if it f. is an insane delusion. Had hallucinations, paranoid etc. Wife and child had been cut out. Gonsalves v. Superior Court, Duty of an attorney to a 3rd party beneficiary. Picardo (niece) was disinherited. Attorney claims Summ Judgment b/c there was no reason to doubt the testamentary capacity, and no duty to the niece. Made a video showing the testamentary capacity. Ct. said primary duty of an attorney is to the client and that duty is fulfilled if the attorney is convinced that the client has the testamentary capacity. 36 DE Outline Spring 2002 L. Foster Section II: UNDUE INFLUENCE: influence is exerted on the T; effect of influence was to Overpower Free Will of the T; and Product of Influence – will that does not reflect the True Intent of the T. BUT FOR this influence, the will would never have been written or written this way. 2. Cts mostly look at Testamentary Intent, but, sometimes Cts will also look at Testamentary Capacity. 3. Shifting Burden of Proof: Once Proponent of will shows that: will is Rational on its face will execution accords w/ testamentary formalities. Burden is on Contestant to prove Incapacity or Undue Influence – by Preponderance of the Evidence. a) BUT – there is a Presumption of Undue Influence if: confidential relationship (i.e. fiduciary, parent/child, etc.) or Procurement of the will. b) Presumption can be Rebutted by Clear and Convincing Evidence. c) Procurement – when beneficiary (B) participates w/ preparation of the will. Examples – if B is person who came up w/ attorney who drafts the will; if B instructs attorney what the will should contain; B‟s knowledge of contents of will before it is executed; B rounds up the witnesses before execution of the will; B drives T to attorney‟s office to execute will; B is present at execution of the will; and B safeguarded will after execution. d) Patterns of Undue Influence – where family or beneficiary bullies the T into doing what they want T to do or gains T‟s confidence to get what they want (deception). 5. Haynes v. First National State Bank of NJ,- Dutrow, the mother, has two daughters. Dutrow lived w/ one daughter, Haynes, and her two sons. When daughter died, Dutrow moved in w/ other daughter, Cotsworth, her husband, and their four kids. Dutrow had her attorney, Stevens, draft will which gave equal shares to all. After Durtow moved in w/ Cotsworth, the will started to change in favor of Cotsworth. Soon the Cotsworth‟s attorney became involved w/ the redrafting the will and soon he took over and the will left very little to the Haynes‟ kids. i. Ct. found Confidential Relationship (mother/daughter) and found Suspicious Circumstances (beneficiary and beneficiary‟s attorney involved). T/C said Ds need Preponderance of Evidence to overcome Presumption of Undue Influence. A/C set a higher standard: Clear and Convincing. ii. Cotsworth‟s attorney, Buttermore, should have not have gotten involved in the will b/c he is one of the beneficiary‟s attorney. Buttermore became Dutrow‟s attorney in the end and he cannot be Testator‟s and beneficiary‟s attorney – violation of Model Rules 1.7(b) p.393 and is a conflict of interest. 6. 7. Questions a) Rule 1.8 – you can prepare a will for a family member if you are a beneficiary, but, this is not a good idea b/c it does not look good and may be more conducive to a contest. Will of Moses, Fannie Moses was old, ugly, an alcoholic, disfigured by surgery, had cancer, and hopelessly addicted to the amorous attention of an attorney, Holland, 15 years her junior. They had a sexual relationship and she had pathetic hope he would marry her. He was her attorney. Moses went to another attorney, w/o Holland, and had a will drafted making Holland the sole beneficiary. When she died, her sister challenged the will. Ct found a Confidential Relationship (lovers and he was her attorney) and Suspicious Circumstances (their whole relationship). Even though Holland had nothing to do w/ the will, Ct. still invalidated it. 8. Notes and Questions 37 DE Outline Spring 2002 L. Foster 1. 2. 3. If Fannie Moses had married Holland, would the result in this case have been the same? No. Suppose the genders of Moses and Holland been reversed. Result the same? No. Suppose Holland had not been a lawyer. Result the same? No. B. Other Confidential Relationships: attorney/client, spiritual advisors, nursing home operators. 8. Problem – How would you have drafted Fannie Moses‟ will differently so Holland would be able to inherit? Put explanations in will. Create a Revocable Trust that is outside of the will. This way, Fannie retains control and the trust is not subject to probate. Section III: FRAUD Elements of Fraud: 1. 2. 3. 4. must be willful deception of T T must believe the deception but for the deception, the will would not have been written that way T is defrauded into signing a document that he thought was something else. But for the deception, the will would not have been signed. a. In Re Roblin’s Estate, Father and son did not get along. Mother and son get along well and when she dies, b. she leaves most to son. Daughter goes to father and says mother only left her a diamond ring. Father asks for a lawyer and daughter gets one. Father drafts will leaving son $1 and giving all to daughter. Son challenges will saying statement that daughter made to father was false causing father to be deceived. 1. Ct said daughter believed her statement and that it was almost true. Also, father did not get along w/ son and probably would have left son out of will anyways. Bullshit case (in my opinion) b/c mother gave more inter-vivos gifts to daughter than son, so in totality, she got her share so statement to father was deception. Dumas v. Dumas – testator deeded all real property to brother – former W and daughter sued to set aside. Over the years he had believed that people were persecuting him – Court set the will aside. c. Notes and Questions – There is willful deception. Passes the But For test. GAY AND LESBIAN TESTATORS – 1. Will of Kaufmann – Kaufmann and his gay partner lived together for more than 10 years. He wrote several wills over the course of their partnership – each time giving more to his partner and less to his family. Unacceptable relationship in the eyes of society – easier to overturn (similar to the Will of Moses case). 2. Times when the will – will definitely be protested 1. Unequal division of property – one kid gets it all 2. Where we have all the testators money going to a friend or a partner or to a charity. 3. To get around this result – 1. Set up inter vivos trust 2. Life insurance 3. Joint accounts 4. Joint tenancy 5. No-contest clauses – (enforced in AR) 38 DE Outline Spring 2002 L. Foster 4. Tortuous interference with Expectancy of inheritance – AR legislature had rejected it twice. Other states allow it though – not the majority rule. It‟s a tort that occurs with fraud, duress, or other means, which prevents a person from receiving an inheritance that they would have otherwise received it not for the tort. 1. Existence of an expectancy of inheritance (intestate statutes or means of the will) 2. Has to have intentionally interfered with the expectancy 3. The interference with the expectancy must constitute tortuous conduct. Section IV: PREPARING FOR THE CONTEST: THE LAWYER’S ROLE 1. Ways to prepare for Contest: a. Produce evidence-like affidavits from partners, friends, and others that can testify to capacity and intent of T at time of execution; b. Videotapes of T at time of execution; c. Having witnesses in addition to the two needed for execution – have all the witnesses fill out detailed affidavits giving impression of T and saying there was no Undue Influence; d. Psychiatric exams to show T‟s capacity; and e. Put No-Contest Clause in will. 2. No-Contest Clause – if beneficiary contests the will, such person will be deprived of all beneficial interest from the will. Sometimes, if a person gets only a small devise, he may challenge the will b/c if he loses, he only loses his small devise (though he will have to pay attorneys fees). But, if he wins, the will is invalidated and he will get his intestate share. a. Spouse can elect to take dower even when there is a No-Contest Clause. 3. ACA 28-40-113 Contest of Will a. An Interested Person has standing to contest a will. An Interest Person (ACA 281-102) is an heir, devisee, spouse, creditor, or anyone else who has a property right in, an interest in, or claim against the estate. 4. Ante-Mortem Probate – no cases in AR but there is an AR statute. 39 DE Outline Spring 2002 L. Foster Chapter 7: TRUSTS: must have 1) intent (I desire, I direct), 2) settlor must have capacity to create a trust, 3) has to be in writing, 4) has to a legal purpose, 5) there must be property there for the trust to come into existence, 6) must have a trustee, 7) must have a beneficiary, 8) cannot violate RAP. Two general categories – Inter vivos, and testamentary. They can be used to reduce estate taxes, protect beneficiaries from creditors, Section I: CREATION OF TRUSTS – We are talking about Private Trusts. To avoid probate and devises control after you are dead. a. Elements of a Trust: 1.) Beneficiary – aka cestue que trust. The beneficiary (B) gets Equitable Title to the trust property. If no B, then trust fails. B has standing to sue the Trustee. 2.) Trustee – has Legal Title to the trust property. Has a Fiduciary duty to manage trust w/ reasonable care for the benefit of B. Must avoid self-dealing. Must avoid conflict of interest b/t himself as Trustee and B. Trustee can be personally liable if breach of fiduciary duty. i. Merger – if sole Trustee and sole B are the same person, then legal and equitable title merge and trust terminates. Can have more than one trustee w/ one being the B or more than one Bs w/ one being the trustee. ii. Trustee must have duties. If no duties, trust becomes Passive and terminates. iii. Settlor – aka Trustor, Grantor. This is the person that creates the trust. Must have legal capacity. Settlor can reserve power to revoke the trust. 3.) Property – aka Principal, Res, Corpus. Can be real, personal, tangible, or intangible property. Must have a Transfer. Declaration – when Settlor transfers property to himself as Trustee, he declares himself Trustee and property is transferred into trust w/ him as trustee. b. Inter-Vivos Trust – transfer during lifetime. Must have Intent and Delivery. c. Testamentary Trust – transfer takes place by will. Must comply w/ statutes governing testamentary trusts. a. Transfer can take place by: 1.) Power of Appointment – giving someone else the power to create the trust. 2.) Contract – must be valid contract w/ offer, acceptance, consideration. Neither a will or a trust are contracts b/c there is no consideration. b. Trust does not have to be in express words. Will does not need to say the word “trust.” Look at intent. Trusts can also be oral though certain kinds must be in writing. 1. requirements of a trust a. intent – 1. testator should use words „I direct‟ rather than such precatory words as „I wish‟ or „I desire‟ when creating a trust, otherwise, court will hold it to be gift. 40 DE Outline Spring 2002 L. Foster 2. If settlor uses prectory language, court may still find that a trust has been created if instruction/duties are specific, if res amount is specific, or if trust recipient is not a natural object of the testator‟s bounty b. Settlor has to have capacity to create trust (same level as a will) c. Trust instrument has to be a writing (to conform with statute of frauds) 1. even if trust is unwritten, courts can impose a constructive trust if it is clear that recipient has been unjustly enriched. d. Can‟t set up trust for purposes that are illegal or against public policy e. Property has to be there for trust to come into existence 1. a mere expectancy cannot be the res of a trust, Brainard 2. man assigned his mistress secretary profits from play not yet written. Court said she had an enforceable right to the future profits. This is distinguishable from Brainard because man in Brainyard was trying to avoid taxes by declaring a trust made up of the stocks. f. Must have a trustee g. Must have a beneficiary 1. Moss v. Axford, the court held that testatrix created a valid trust when she left property to Axford to give to the person who had taken the best care of her prior to death. court found the beneficiary was readily identifiable even though she wasn‟t named. a. Can‟t be too indefinite though – can‟t create a trust for your friends, or for relatives because too indefinite. h. Cannot violate RAP 2. Types of Trusts: inter vivos or testamentary. a. Bypass trust (credit shelter) created by one spouse for another. Trust corpus is at least the amount of the unified estate tax credit (650K in 2000). Typically, spouse receives a specific power to appoint the principal among the children in her will, and a limited power to invade the principal during her life. Thus, the trust will not be included in her estate. Saves taxes and gives surviving spouse maximum control. b. Crummy trusts – created by the settlor who wishes to take advantage of the 10K annual gift exclusion without making outright gifts. Allows the settlor to create a 10K trust and make annual contributions of 10K, beneficiary has the power for a limited period of time (30-60 days) to withdraw the 10K but never does. Otherwise operates as an irrevocable trust. Estate of Kholsaat c. Express trust – trust declared in express terms as distinguished from one inferred by law, directly created for specific dealings. d. Implied trusts – 1.) Constructive trust – raised by construction of law, to prevent the holder of legal title from enjoying a beneficial interest and thereby violating principals of equity. 2.) Resulting trust – established by a court in order to comply with presumed intention of the parties, usually when an intended trust fails. e. Life insurance trust – where settlor sets up an inter vivos trust and makes the trustee the beneficiary of the life insurance policy. The trust can be funded, in which case it comes into being at that time and the trustee makes the payments on the policy during the settlor‟s life, or Unfunded, in which case the 41 DE Outline Spring 2002 L. Foster trust does not come into being until after the settlor‟s death. if the trust is made revocable, it will be taxed as part of the estate, if irrevocable, it will not be counted. f. Marital deduction trust – where settlor creates trust for spouse, so that when settlor dies all of settlor‟s property not in bypass trust goes into marital deduction trust, and avoids the estate tax. After spouse dies, however, it is subject to estate tax. The most common form of this type is QTIP trust, where settlor restricts spouse‟s ability to invade the principal because spouse wants to assure that the principal reaches his children, either because he is afraid spouse will remarry and divert the money to new spouse, or because settlor has children from a prior marriage. Limits the surviving spouses control over the trust. g. Pour over trust – established during settlor‟s life, settlor leaves residue to trust. ACA 28-28-101. h. Spendthrift trust – not subject to garnishment by creditors. Can be reached to pay alimony, child support, atty fees, necessaries, and IRS tax liens. Beneficiary may not transfer interest in the trust. Can‟t create a spendthrift so that beneficiary becomes eligible for public assistance. i. Standby Trust – drawn up during settlor‟s life, and drafted so that it receives assets at his death (so doesn‟t exist until testators death). trustees have no duties until death. ACA 28-27-101 j. Supplemental needs trust – settlor creates trust for disabled child or grandchild or ward, and on that beneficiary‟s death, the state receives all amounts remaining in trust, up to the amount that the state expended on the beneficiary as assistance during the beneficiary‟s life. During life, beneficiary uses trust to supplement state benefits. k. Support trust – trustee supports beneficiary from trust income, typically created by directing that trustee hold property in trust for the „health, education, maintenance, and support‟ of the beneficiary. Usually judged by standard of living at creation of trust. 1.) Mandatory support trust – where the trust instrument specifies how much the beneficiary is to be paid. Creditors can reach these. „the trustee shall pay to Ben the entire net income of the trust, at least annually.‟ 2.) Discretionary trust – trust giving the trustee power to invade the principal and power to ascertain financial need of beneficiary and pay accordingly. 3.) Sprinkle trust – type of discretionary support trust where trustee has discretion to pay income to one or more beneficiaries at his discretion. l. Totten trust – type of discretionary support trust where trustee has discretion to pay income to one or more beneficiaries at this discretion. ACA 23-47-204(f) 3. naming spouse as beneficiary in a revocable trust is not defective by operation of law if they divorce. 4. Protection trust assets against creditors – a. Can get assets when 1.) Beneficiary assigns his interest 2.) Someone obtains a judgment against the beneficiary and garnishes the trust. 3.) Attachment/pre-judgment lien (not in AR) 42 DE Outline Spring 2002 L. Foster b. Three types of trusts that can keep creditors at bay 1.) Support trusts 2.) Discretionary trusts 3.) Spendthrift trusts c. Where a party obtained a judgment against the beneficiary of a discretionary trust, they couldn‟t garnish the trusts assets, but were able to garnish any payments made by the trustee to the beneficiary or any payments to others for the benefit of the beneficiary. 5. Duties of Trustee – a. Must be honest, deal in good faith, distribute money only for trust purpoes. b. Reasonableness standard c. Duty to inquire as to beneficiaries financial situation and pay accordingly – Marsman v. Nasca 6. Modification and termination of trusts – trusts can be modified or terminated three ways a. By direction of trust settlor 1.) Settlor can only modify, revoke, or terminate a trust if he expressly reserves the right to do so, if the trust instrument does not expressly state that the settlor reserves this right, it is considered irrevocable. AR follows this. 2.) When a settlor reserves the right to make an inter vivos revocation of a trust, he cannot do so by will b. Consent of the beneficiaries 1.) If settlor has died, all the beneficiaries can agree to modify or terminate the trust as long as the purpose of the trust has been fulfilled or no longer exists. Courts may appoint guardians ad litum to represent unborn beneficiaries. 2.) Adams v. Link – beneficiaries agreed to terminate trust – court said that intent of the settlor was to give beneficiaries monthly payments and if trust is terminated and beneficiaries receive a lump sum, then this would defeat general intent and purpose of the trust. The court added a third element: a long with all interest parties agreeing and general purpose is accomplished by termination, the court added that no fair or unlawful restriction imposed by the T will be nullified or disturbed by such result. 3.) Even if the trustee protests a trust can be terminated early if all beneficiaries consent and none are incapacitated as long as there is no material purpose in continuing the trust. 4.) Two exceptions 1. spendthrift trusts – may not be modified or terminated because it would violate settlor‟s intent. AR 2. discretionary trusts, support trusts, and trusts that postpone the beneficiaries right to distribution of the principal cannot be terminated or modified. If settlor agrees during his life to terminate such trusts, it will be okay. c. Without consent of all beneficiaries – 3rd way is when the purposes of the trust cannot be carried out. 1.) Mistake – 43 DE Outline Spring 2002 L. Foster 1. when the settlor created a trust for the benefit of her gkids not knowing of generation skipping tax, courts allowed reformation of her will because her intent was to make her children the trust beneficiaries to minimize tax consequences. 2.) Impracticability, impossibility, illegality. a. If the purpose for which a trust is created becomes impossible, impractical, or illegal, the trust will be terminated, even spendthrift trusts can be terminated if they fall below a certain amount. 3.) Fraud or Duress 4.) Merger Section IV. CHARITABLE TRUSTS - Charitable Trusts (aka Public Trusts) are different from private trusts and have different elements. In Charitable Trusts, there does not have to be an Identifiable Beneficiary. Also, private trusts are not subject to the Rule Against Perpetuities. Cannot set up a Charitable Trust for your family. The state, through its Attorney General, enforces Charitable Trusts. 1. The federal estate and gift tax laws permit a 100% deduction for gifts to charities but they may be subject to state taxes. 2. Can a trust be both Charitable and private? Yes, they are called Mixed or Split Interest Trusts. There ate two: Charitable Remainder Trust – trust gives life estate to someone and remainder at person‟s death goes to charity and Charitable Lead Trust. 3. Charitable Purposes: 1.) Relief of Poverty. 2.) Advancement of Education. 3.) Advancement of Religion. 4.) Promotion of Health. 5.) Governmental or Municipal Purposes. 6.) Other Purposes the Accomplishment of which is Beneficial to the Community. a. Shenandoah Valley National Bank v. Taylor. Henry set up trust to benefit elementary school kids for their education. Trust paid income to kids twice a year. The heirs attacked the trust b/c if it fails, they get it. Ct. said this was not a Charitable Trust b/c the kids would take the money and spend it on anything, probably candy, and this is not Educational. He should have made trust payable to the school or he could outline in the trust what the money should be used for – books, supplies, etc. 4. Questions a. If Henry‟s will provided: “I devise my residue to Jane Doe, currently a teacher at John Kerr school. request, but do not require that she distributes . . . ,” how would residue be distributed? These are Precatory Words so this is an Outright Gift and Jane will get the money and can do as she pleases w/ it. b. Suppose Henry‟s will had created a trust, but provided that, at specified times, the trustee “Shall divide the net income to as many equal parts as there are children in the first, second, and third grades of the John Kerr School whose families have 44 DE Outline Spring 2002 L. Foster incomes in the bottom third of all families who send students to the school.” Would the trust have been upheld? Yes – purposes are for Poverty and Education. 5. Can you set up trust to award the best teacher in AR? Cts. will look at criteria and make sure criteria is objective. 6. When the Charitable Purpose is borderline, then Cts. will use a general Community standard to determine if purpose is really charitable. THE CY PRES DOCTRINE – Applies to wills (charitable bequests) and charitable trusts. Two types: a) charitable remainder trusts happen when settlor creates a LE in a private individual and a remainder in a charity, and b) charitable lead trusts happen when settlor creates a LE in a charity, giving the remainder to a private trust 1. Three Conditions for Cy Pres: 1.) Gift must be to a Charitable Organization for a Charitable Purpose. 2.) It must be impossible, impractical, or illegal to carry out the donor‟s stated Charitable Purpose. 3.) It must appear that the donor had a General Charitable Intent – the particular institution in the trust was merely an agent for effectuating the gift. 2. The Cy Pres Doctrine should not be applied if the testator has: (1) manifested a specific charitable intent; (2) has anticipated possible failure of the trust; or (3) has made alternate disposition of the property if the charitable gift should fail. 3. In determining whether the testator had a General Charitable Intent, Cts. may consider: a. the existence of a reversionary or gift-over provision; the existence of a limitation or reservation on the use of the gift; whether the bulk of the estate was bequeathed to charity; and whether specific devises and bequests were made to individuals who would have taken the estate by intestacy. i. Estate of Crawshaw, Ct. determined that donor had Charitable Intent so Cy Pres Doctrine applied. ii. The Buck Trust – woman left $9 million to county to provide for the needy in the county. There was no needy in the county trustee wanted to use it in a poorer county. Ct. said no and used strict compliance of the trust even though trust really was not being used. iii. Estate of Wilson, There were two cases that were consolidated. The trusts discriminated b/c they gave high school men money for college. Equal Protection of Fourteenth Amendment were raised in both. 1. In one case, the trustee was a bank. The local school would send a list of names to the trustee to determine who got the money. School was under no legal involvement to provide the names. Ct. found that there was gov‟t involvement b/c school is public. A state cannot discriminate. So the Ct. used Cy Pres power to Reform the trust by striking the clause involving the school in the process and inserting new clause saying the young men must apply directly to the trustee bank. 2. The other case had same trust except that it was to help poor males attend college. The Board of Education was the trustee. Ct. replaced Board b/c they are public officials and cannot discriminate and put in a private trustee. 45 DE Outline iv. Lockwood case – trust gave money to Congregational (a religion) white kids to attend Spring 2002 L. Foster college. Trustees went to court b/c there were too few applicants. Ct. changed trust by removing racial and gender restrictions but kept the religious restriction. 4. Notes on Trustees: a. In 1999, AR enacted the Revised Uniform Principal and Income Act. This starts at ACA 28-70 p. 101. The Standard of Judgment and Care is ACA 28-71-105 p. 119 and Prudent Investor Rule is ACA 23-51-200-9. b. These were enacted to provide a liberal standard if invading principal when trust money is used to invest. It allows the trustees to invest in more riskier stocks and not just conservative, low-yield stocks. Chapter 8: POWERS OF APPOINTMENT Section I. TERMINOLOGY AND CLASSIFICATION Restatement definition of Powers of Appointment: Authority – held by nonowner – to designate – beneficial interest OR Power of Appointment over the Appointed Property. 1. A trustee can have Power of Appointment (P of A) and this is an additional power to trustee‟s other powers over the trust. Donor – person who creates P of A. Donee – person who receives the P of A and who Exercises it. Objects of the Power (or Permissible Appointees) – persons Eligible to receive the property. Appointees – persons who are appointed by the donee. Takers in Default – if P of A is not exercised by donee, they receive the property. General Power – donee can appoint anyone, including himself. Power is General if it is exercisable in favor of the donee, the donee‟s creditors, the donee‟s estate, or the creditors of the donee‟s estate. Special Power (or Non-General Power) – donee restricts the class of potential appointees. i. The donee does Not have Title to the property of the trust, the donor has the title and it passes directly to appointee. The donee is Not a Fiduciary like a trustee or executor. ii. If P of A is not exercised, it expires and does not go to P of A‟s estate. It goes to the Takers in Default. Exclusive Powers – when donee can exclude Objects of the Power. Non-Exclusive Powers – when instrument says that donee must appoint some assets to each member of the class. Presently Exercisable – when P of A can be exercised immediately. Usually when P of A is by deed or by will. Testamentary – P of A is not Presently Exercisable but is exercised when donor dies and will takes effect. i. Also, donor can set a certain time when donee gets P of A; i.e. when son reaches 21 he gets P of A. ii. The P of A is typically used in trust and it gives the donor flexibility. It is a way to postpone distribution of property to the future. 46 a. b. c. d. e. f. g. h. i. j. k. DE Outline Spring 2002 L. Foster 2. Problem on Terminology a. John Smith creates a trust, and directs that income from the trust should be paid to his wife and daughter for so long as either remains alive. The trust instrument provides: “I grant to the survivor of my wife and daughter a power to appoint the principal, by will, among any blood relatives of my wife or my self. If the power is not exercised, I direct that, at the death of the survivor of my wife and daughter, the trust principal should be divided as if I survived my wife and daughter and then died intestate.” 1. The Parties: a. Who is the donor? John. b. Who is the donee? Wife or daughter depending on who survives. c. Who are the members of the class of permissible appointees? Blood relatives of John or his wife. d. Who are the takers in default? Heirs who would take if wife or daughter predeceased John. 2. Scope and Timing: a. Is the power general or specific? If wife survives, power is Specific b/c she can only appoint the blood relatives. If daughter survives, the power is General b/c daughter can appoint herself since she is a blood relative of John or his wife. Daughter can will it to her estate. b. When will the power become exercisable? By will. Suppose the trust instrument were changed to give the survivor a power to appoint “by deed or by will.” Would the power then be special or general? When would the power become exercisable? When the first one died – survivor. Since it says “by deed or by will,” daughter can give it to herself when she gets power. Section II. CREATION AND EXERCISE 1. How do you create a P of A? When donor manifests an Intent to create the power in an otherwise effective transfer – usually a trust. Do not need the words “Power of Appointment” but you should use the words. a. Estate of Hamilton, Trust is setup for advent of QTIP trust. Milton gave wife P of A but qualified it by saying the principal was to be “paid, transferred or distributed . . . in such a manner . . . as [wife] may by her Last Will and Testament direct and appoint;” Milton specified, however, that this P of A was exercisable only by specific reference to said power in Milton‟s will. In other words, when wife died and her will is exercised, it must Refer back to his will. But, in her will, she Referred back to the P of A in Milton‟s 1966 will. The 1966 will had been revoked by 1975 will and a another will in 1982 (the above quoted will). Ct. said that since wife Referred to a P of A in a will that does not exist, then she did not make the Specific Reference as demanded by the 1982 will. In her will, wife left P of A to son from previous marriage. Milton had daughters from previous. This probably influenced the Ct. rule this way b/c Milton‟s daughters were getting nothing and Milton‟s stepson would get the appointed property. 47 DE Outline b. p. 618 Uniform Probate Code Inadvertent Exercise of Power – if instrument creating P of A expressly requires exercise by Reference, it is presumed that donor‟s intention, in requiring that donee exercise the power by making reference to the particular power, was to prevent an Inadvertent Exercise of Power. c. Hypo: Donor creates trust to H and gives him testamentary P of A to give property to others. After donor dies, H creates a will leaving residue to charity. If will diverts all property to charity and leaves nothing to the children b/c lawyer used boilerplate language, this is Inadvertent Exercise of Power (H did not intent for all the property to go to charity). Spring 2002 L. Foster 2. Common law is to exercise a power effectively, the donee must intend to exercise it and comply w/ the requirements of exercise imposed by the donor and the rules of law. But, Cts. often hold that a disposition of all “property to which I may have a P of A at the time of my death” constitutes a “Specific Reference” to a P of A. This is the rule in AR. a. Will of Block, Dina, the donor, gives son, Paul, P of A to distribute trust principal among his twin sons, but not his third son, Cyrus. When Paul dies, he did not Refer to the P of A in his will. Paul left is estate in trust to be divided up into three shares – 35% for each twin and 30% for Cyrus. Under Common Law, P of A would not be exercised b/c it was not Specifically Referred to in Paul‟s will. But, NY Ct. rules the opposite and says Reference to P of A is presumed. Ct. says Dina‟s property that Paul has in trust will be split 50-50 for the twins. Section III. SCOPE OF THE POWER 1. Problem – Anna Smith‟s will disposed of the residue of her estate into a trust, by terms of which trust income was to be paid to her husband Ben during his lifetime. Anna‟s will also gave Ben a P of A to appoint the corpus, by will, “among our common descendants.” Anna died in 1994, survived by Ben and the couple‟s two children, Chauncey and Dagmar. The residue of her estate was valued at $1 million. A year later, Ben remarried and had another child, Esther. Ben approached you for advice and asked these: a. Can he make an appointment of ½ of the trust corpus in further trust, w/ income to be paid to Chauncey for life, and principal to be distributed, at Chauncey‟s death, to Chauncey‟s children? Ben can give all to one appointee b/c it is an Exclusive Power. He also can create a further trust. Ben could also give in his will the P of A to Chauncey. He would be creating another P of A but it would be upheld as long as it is consistent w/ the P of A Ben has. b. What will happen if Ben appoints 1/3 of the trust to Esther? Ben cannot do this. Esther is not a common descendant of Ben and Anna. c. If Ben exercises the power in favor of Chauncey and Dagmar, will they be able entitled to make gifts from the appointive property to Esther? Yes, this is a gift. EXCEEDING THE POWER’S SCOPE 1. Will of Carroll, Ct. voided entire bequest. Father, the donor, had will giving property to daughter, the donee, in trust for life and at her death to her children or any relatives. When daughter died, she wanted to give the trust property to her husband but trust said it had to be a relative. So daughter willed trust to 48 DE Outline Spring 2002 L. Foster cousin who signed a contract saying he will give it to daughter‟s husband. Ct. said no and that this amounted to fraud. CONTRACTS TO APPOINT AND RELEASES 2. Hypo: Suppose a mother gives her son a power to appoint among the son‟s children. In his old age, the son needs care, and contracts w/ one of his daughters to exercise the P of A in favor of that daughter in return for the daughter‟s promise to provide lifetime care. Can the daughter enforce the contract against her father, the donee of the power? The power is Specific b/c son could not give power to himself. Cts. typically hold that when a power is special, a donee‟s contract to appoint is unenforceable, at least so long as the contract benefits a person outside the class of permissible appointees. 3. If power is Presently Exercisable, you can make a contract if neither the contract nor the appointment confers the benefit on a non-object. The power also must be General. If the power is not Presently Exercisable, the assumption is that the donor wanted to permit the donee to retain discretion until some point in the future, when more circumstances relating to the appointment will have unfolded. 4. You may Release a P of A. There might be some more on this – H/O from class Chapter 9: CLASSIFICATION AND CONSTRUCTION OF FUTURE INTERESTS Section I. CLASSIFICATION OF FUTURE INTERESTS A. FUTURE INTERESTS AND PRESENT INTERESTS: 1. Even if FI is not possessory, still legally recognized and enforceable at the time it is createdcan sue trustee and can sue FI b/c it is alienable. 2. CATEGORIES (future interests held in the grantor): RAP does not apply!!! It doesn‟t matter about RAP. a. Possibility of Reverter i. T devises land to a church as long as it‟s used for church purposes. ii. What is left over is a possibility of reverter – if it is a fee simple determinable then the FI is a possibility of reverter. T‟s heir‟s has a possibility of reveter. b. Right of Entry (sometimes called a right of re-entry or a power of termination) i. T  land to the church but if the church ceases to use for church purposes, T and his heirs or devises can re-enter and retake. Fee simple subject to condition subsequent, and T has a right of re-enter. Once T is dead his heirs and devisees have the right to re-enter. c. Reversion i. O  to A for life – O has a reversion and A has a LE ii. O dies in will B gets everything. It will pass by the will to B iii. If O dies intestate with C as the heir then C will have the reversion 49 DE Outline Spring 2002 L. Foster 1. Once a reversion always a reversion. C will get whatever A had – it doesn‟t change in the process. 3. CATEGORIES (future interests held in persons other than the grantor) a. Indefeasibly Vested Remainder. i. T wills something to A for life, then to B. B has a vested remainder. ii. Doesn‟t have to say „and to his heirs‟ iii. T  sets up a testamentary trust income – A for life, then at A‟s death the principal will go to B. A has a LE in the income of the trust. B has a remainder in the principal. 1. What if B predeceases T? Lapse. It will depend on what B is in relation to T. If B is related to T then it will lapse and goes to B‟s issue. 2. If B dies before A it will go to B‟s estate. b. Vested Remainder Subject to Open (or subject to partial divestment, or subject to partial defeasance) i. T  to A for life, then to A‟s children. A has one child. A‟s child has a vested remainder subject to open. A could have more children. 1. Still a vested remainder even if A is 90 years old. Can have a child up to the time of death. c. Vested Remainder Subject to Complete Divestment (or subject to complete defeasance) i. T  to A for life, then to B, but if B does not survive A then to C. ii. Because it is not in the same clause. “,then to B,” 1. B has a vested remainder subject to divestment. 2. C has an executory interest. d. Contingent Remainders i. T  to A for life, then to A‟s children (A has no children) 1. Right now A‟s children have a contingent remainder because they are not ascertainable. ii. T  to A for life, then to B‟s heirs. (B is alive) 1. Contingent because you don‟t have any heirs until you are dead. iii. If the remainder men are unascertainable, or iv. if the remainder has a condition precedent. 1. T  to A for life, then to B if B survives A. 2. T  to A for life, then if B survives A, to B. a. B has to be alive when A dies to receive. 3. T  to A for life, then to B if B survives A, otherwise to C a. Alternate contingent remainder. Condition precedent. B surviving A – it will go to B. if not then it will go to C. e. Executory Interests i. T  to A for life, then to B, but if B doesn‟t survive A then to C. 1. It comes along and cuts short the preceding interest. C‟s interest cuts B‟s interest short. 50 DE Outline Spring 2002 L. Foster ii. T  to A for life, then to B, but if B doesn‟t graduate from law school then to C. 1. B has a vested remainder subject to divestment 2. C has an executory interest. 3. shifting executory interest. not coming from O or T. iii. T  to A for life, then 5 years after A‟s death to B. 1. The land would revert back to O if it were a conveyance – but it converts back to the estate for the time. Springing executory interest. 4. Does the Interest cut short or “divest” a vested remainder in fee simple? a. If Yes, it’s an Executory Interest i. “Blackacre to my daughter D for life, remainder to my grandson G, but if G fails to survive D, then the remainder to my nephew N”-N HAS AN EXECUTORY INTEREST ii. Hint: These usually follow vested remainders subject to complete divestment 5. IF NO, does it follow a certain time gap between the end of the previous estate and the time when the interest will become possessory? a. IF YES, it’s an Executory Interest. i. “Blackacre to my daughter D for life, and one year after her death I direct that Blackacre pass to my grandson G”-G HAS AN EXECUTORY INTEREST 6. IF NO, it is one of the four types of remainders-is the remainder held by unascertainable person or persons? a. If YES, it’s a Contingent Remainder i. “Blackacre to my daughter D for life, remainder to her children.” At the time of death, D has no children. ii. Children‟s future contingent interest takes effect at T‟s death. Subject to condition precedent also could be Vested Remainder Subject to Complete Divestment. 7. IF NO, it is subject to a condition precedent? a. IF YES, it’s a Contingent Remainder i. “Blackacre to my daughter D for life, remainder to G if he survives D, otherwise to N”-G HAS A CONTINGENT REMAINDER. 8. IF NO, is it subject to a condition subsequent? a. If YES, it’s a Vested Remainder Subject to Complete Divestment. i. “Blackacre to my daughter D for life, remainder to G, but if G does not survive D, then to N.”-G HAS A VESTED REMAINDER SUBJECT TO COMPLETE DIVESTMENT. 7 & 8 are very difficult to tell the difference. 9. IF NO, is it certain to become possessory whenever and however the preceding estates end? a. If YES, it’s an Indefeasibly Vested Remainder 51 DE Outline Spring 2002 L. Foster i. T‟s will devises the remainder of her estate to a trustee, and directs that “income be paid to my sister, S, for life, then to my daughter, D.” Even if D predeceases S the income will go to her estate, so the remainder in D is indefeasibly vested. ii. D is ascertainable so goes to her estate if she predeceases T. 10. IF NO, is it a certain interest but subject to open (or, subject to partial divestment)? a. IF YES, it’s a Vested Remainder Subject to Open (or, subject to partial divestment). i. T‟s will devises the remainder of her estate to a trustee and directs that “income to be paid to my son, Q, for life, then to be distributed among Q‟s children.” At the time of T‟s death, Q has 2 children, R and S. R and S HAVE VESTED REMAINDERS SUBJECT TO OPEN. ii. Possibility of more people being born, Q still alive so possibility of more children. iii. Arkansas retains these common law future interests. It has not abolished any by statute. Webb v. Underhill – have to have a vested remainder to partition. Both the kids and the Gkids have contingent remainders contingent on their surviving the W. court held it to be alternative contingent remainders. Not following the comma rule – but this was the way the court decided. A. Problem pg 680. 1. T‟s will provides: “I devise $100k in trust, and I direct my trustee to distribute income to my daughter until my daughter‟s death. At my daughter‟s death, I direct my trustee to distribute the trust principal a. To my son, S.” Indefeasibly Vested Remainder. Not subject to open because its not a class. b. To my daughter‟s children, in equal shares.” If there is one child – Vested Remainder Subject to Open, because there are some children alive. If there were no kids – contingent remainder. c. To my nephew, N, if he survives my daughter.” Contingent Remainder or Vested Remainder Subject to Complete Divestment. Could go either way because of the comma. B. EXECUTORY INTERESTS Interests that would cut short a vested remainder. 1. Interest that Partially Divests. a. e.g. example when kids are alive with possibility of future kids. Kids alive have vested remainder subject to open and kids not yet born have executory interests. 2. Time Gap. a. If a party has to wait for example a year then the party has an executory interest. 52 DE Outline Spring 2002 L. Foster Problem pg 681 1. “To my brother B for life, remainder to B‟s daughter, D.” Indefeasibly Vested Remainder. 2. “To my brother B for life, remainder to B‟s children.” If no childrenContingent Remainder, but if 1 kid then Vested Remainder subject to open. 3. “To my brother B for life, remainder to those of B‟s children who survive B.” Contingent Remainder or Vested Remainder Subject to Complete Divestment. If we use pure analysis it will be contingent remainder. No comma and within same clause therefore a condition precedent. 4. “To my brother B for life, remainder to those of B‟s children who survive B by one year.” Time GapExecutory Interest. Springing. Problems 683 – T‟s will devises 100K to a trust, and directs the trustee to distribute trust income T‟s income to T‟s sister S for so long as S lives. The instrument provides further that when S dies, the trust should terminate, and the trust principal should be distributed. 1. To my daughter D - Case 1 – to E 2. To my daughter, D, if she survives me. Case 2 – to E a. But if we change 2 to survives S – it will go to the college 3. To my daughter, D, if she survives me, and if she does not, to her issue, per stirpes. Case 3 – to E a. Case 3 – to survive S – it will go to E and F. b. Lapse will cover if they die before T, but not about what happens to the Life Beneficiary. In residuary clause of T‟s will she leaves „the residue of my estate to the Trustees of Williams College.” Suppose D survives T, but dies before S. Suppose further that D‟s will left all of her property to her husband, E, and that she died survived by E, and he two children, F and G. In cases 1, 2, and 3. how should the 100K be distributed? Section II. CONSTRUCTION OF FUTURE INTERESTS: Gifts to Individuals. 1. Problem is when holder of Future Interest predeceases Life Estate Holder. Similar to Lapse but not dying b/f T. 2. Should a condition of survival be implied? 3. In RE Estate of Ferry, Grantor set up a trust in the will, son was Life Beneficiary, if son was living when trust terminated then to the son‟s wife and issue. If not then to sister. If sister has to survive the son then her interest is contingent, if not then vested and does her estate take? Question before the court was that the decedent didn‟t say what would happen in this situation. it could go to sister‟s heirs. Or to son‟s estate. He didn‟t have a W or kids – if he had they would have gone to them, but he had devised it to people not related. Mary is named last so the Ct. concluded that she did not have to outlast the son for the estate to 53 DE Outline Spring 2002 L. Foster 4. Reasons for Early Vesting. CL rule – courts use when it suits their purposes. Choose to vest later for other reasons. b. At common law there was a presumption in favor of early vesting because it made the interest alienable. Today the interest are freely alienable so no need for presumption. c. Today courts can use early vesting to prevent problems with the Rule against Perpetuities. d. Early vesting also allows persons to possess earlier. e. Tax Issues work against early vesting. 5. Matter of Kroos, Remainders with conditions of survival, Wife was a life beneficiary then to 2 kids in fee simple. If either kid predeceases then to descendents. Daughter died with no kids (only husband). Husband tried to get wife‟s share. “Share and share alike…. forever” was important language. If either A or B predecease W then their heirs would take. A dies with no descendants. Then W dies. Whether A‟s devises will get her share? T wanted it to be kept in the bloodline, or that the daughters interest was vested and would go to H. or contingent remainder based on survivorship. MAJ RULE – because of the language that they got vested remainders. Subject to divestment if the children predeceased the wife and left decedents. Vested remainders subject to divestment. Ct. held that the 2 kids received a vested interest, only subject to divestment if predeceased left to descendents. a. Will be a question like this on the test but it will be more clear and based on Gray‟s wording. Construction of gifts. pass to her heirs. Holder was specifically named. Mary‟s interest vested at Joseph‟s death. Vests before it becomes possessory. Since she is no longer alive it will go to her heirs. a. Come up again in RAP 6. Browning v. Sacrison, Survivorship provision, drafter was not clear who survived. Daughter Life Beneficiary, 2 grandkids to get remainderif either died then all to the survivor. Ct. said remainder contingent on them survivingremaining son takes everything. a. Clear misinterpretation of the way it is worded – either of them is dead refers to the Gsons. And they have contingent remainders. Section III. CONSTRUCTION OF CLASS GIFTS – Problem when adding to a class. When we have devises to classes – a couple of problems arise. 1. Class Closing Rule-membership can increase until at least 1 member becomes entitled to the property. rule on 707 – membership then closes when that member is entitled to the property. 2. Pg 707 T‟s will creates a trust, and directs that income be paid to T‟s wife for life. T also directs that, at his wife‟s death, the remainder be distributed “to my grandchildren”. At T‟s death, T has 2 grandchildren, A and B. After T‟s death, but before his wife‟s death, another grandchild, C is born. It appears likely that one of T‟s children will have more children after T‟s wife‟s death. Who is entitled to share in the trust remainder? a. Solution: A, B, and C may share, but additional grandchildren may not. A, B, and C, are entitled to possession at the wife‟s death. The class-closing rule closes the class of grandchildren at that point, because otherwise, it would be impossible to distribute any amount to A, B, and C. b. Grandchildren, at T‟s death 2 grandkids had vested remainder subject to open. 1 more kid born b/f wife passes away. Ct.‟s have held that class closes when life estate finishes. 54 DE Outline Spring 2002 L. Foster 3. EXCEPTION: if at the time that T‟s wife dies and there are no members of the class – its not until 2 years later that a gkid is born. Then the class won‟t close until all the children are dead. a. In Re Evans’ Estate, The oldest grandchild had to reach 30, before beneficiaries would get their share of the principal. when does class close? 6 at T‟s death and 9 now when the oldest has reached 30. C.t. held that class should be closed after very 1st grandchild reached 30. what kind of interest does the kids have? Contingent. They could die before they turn thirty. Court held that this was a vested gift. Class closes at the first gkid reaches thirty. Divided into 9 shares. If gikd 3 dies before 30 – the share of 1/9 goes to that child‟s estate. 4. T  100K in trust income to be distributed to her husband. H, for life, remainder at H‟s death „to my nieces and nephews who reach 21‟ a. Class will close when F reaches 21. FGK b. GJK but not F. when G reaches 21. c. Earliest that the class could close was at H‟s death so this is the exception. so won‟t close until B‟s death 5. Decrease in Class Membership. a. General Rule: Members of class take their share of any predeceased member. Wording in the will can change this. Gifts to „Heirs‟ have to say when you want Heirs to be determined. 1. Harris trust and Savings Bank v. Beach – W survived 51 years after H‟s death. all 3 daughters were dead. Some Gkids and GGKids still alive. Trust said distributed equally among my heirs. If we said at his death – 3 daughters and wife would be heirs. Some of the daughters left their money to charities – and the money would have gone to their estate. If we use heirs at her death – it will be Gkids and GGKids – court held for them. Cite the general rule – heirs are determined at the settlor‟s death unless the will or trust provides evidence to the contrary. AR case that holds the same way. a. GGKids wanted per capital. Gkids wanted per stirpes. Court went with per stirpes Chapter 10: THE RULE AGAINST PERPETUITIES – Prevents contingencies from being too remote. FUTURE INTERESTS-to be good- MUST-Vest-OR-Fail. WITHIN 21 Years of-Measuring Life-in being-at creation of the interest. “No future interest is good unless it must vest or fail within 21 years of the death of someone in being.” a. To answer questions ask: 1. 2. 3. 4. When is the interest created? What kind of interest is it? When is the last moment that it will either vest or fail? Who can we use as a measuring life? b. When are FUTURE INTERESTS CREATED. a. WILLwhen T dies. b. REVOCABLE TRUSTSAt T‟s death. 55 DE Outline Spring 2002 L. Foster c. IRREVOCABLE TRUSTExecution of the Will (signing and has to be funded otherwise not in existence) d. IRREVOCABLE TESTAMENTARY TRUSTWhen T dies. c. example: 749: 1. A for life, remainder to A‟s surviving children. A‟s interest is a present possessory interest, and therefore a vested interest. as a result, A‟s interest is not subject to the RAP. if it is a present interest it doesn‟t violate the RAP. 2. T  300,000 to Q bank as trustee, with directions to pay income to A for life, and then to distribute principal to A‟s surviving children. A‟s interest, even though held in trust, is a present interest, and therefore not subject to RAP 3. T  300,000 to Q bank as trustee, with A for life „so much of the trust income as trustee, in its uncontrolled discretion, deems advisable,‟. A‟s interest is not vested until the trustee exercises its discretion. A‟s interest is valid under the RAP because the trustee cannot exercise the discretion to pay income to A after A‟s death. 4. O  Blackacre to „my sister S and her heirs for so long as Blackacre is no longer used as a single family residence‟ this is a possibility of reverter – no RAP. 5. T  „A for life, remainder to A‟s children until the death of A‟s last surviving child, then to B‟ okay. 6. T  property in trust, with directions that income should be distributed „to A for life, then to A‟s children and their heirs so long as at least one child of A remains alive,‟ and with direction that at the death of A‟s last child, the principal will be distributed to those of A grandkids then living. When will the future interests in A‟s children and in A‟s grandkids vest. a. Two future interest, 1 in the children, and 2. those in the grandkids who surviving A‟s last surviving child. b. When do these interest come into being? At the death of T – expectancy because things could change (ambulatory) c. Contingent remainder – A‟s kids have a contingent interest for the purposes of the rule. Contingent or vested subject to open at the time the interest is created (T‟s death). d. A‟s kids interest will either vest or fail when A dies. There interest turns possessory at the point that A dies. Can‟t be subject to open anymore. Or it will fail if A dies with no kids. e. Who do we use as a measuring life? A. vest or fail within 21 years of a life in being. She is alive at the creation and it will vest or fail at her death. f. What kind of interest do the Gkids get? At least vested subject to open. If there are none it could be contingent. g. The death of A‟s last child it will vest or fail. All we need is for one Gkid to survive. If we use A it has to vest or fail 21 year of A‟s life. Must have a measuring life – if none it fails. h. So this fails. 7. T  to A for life, then to A‟s children and their heirs for so long as at least one child of A remains alive, and directions that the death of A‟s last child, the principal should be distributed. a. Gift to kids is the same as last time – so that is valid. b. Gkids interest is created at T‟s death. 56 DE Outline Spring 2002 L. Foster c. Vest or fail at the death of A? why wouldn‟t it vest or fail at the death of A‟s last child. Problems 1. T devises Blackacre “to A for life, remainder to the first child of A who a. REACHES THE AGE OF 18. When is the latest it can vest? No later than 18 years after A‟s death. A is a measuring life, therefore it is VALID. 1. Created at T‟s death. 2. interest that is subject to RAP. 3. last moment that it will vest or fail – is 18 years after A‟s death. it is valid under the rule. Use A as a measuring life. b. REACHES THE AGE OF 40. When is the latest it can vest? No later than 40 years after A‟s death. A cannot be the measuring life, and A‟s child might be born after the interest is created, and so cannot be the measuring life, and therefore it is INVALID. 1. last moment that it will vest or fail – 40 years after A‟s death. 2. no one is a measuring life. GRADUATES FROM COLLEGE. When is the latest it can vest? No later than an unspecified time after A‟s death, since maybe no child went to college till they were quite old. A cannot be the measuring life, and again, A‟s child might be born after the interest is created, and so cannot be the measuring life, and therefore it is INVALID. Cannot guarantee that It will be within 21 years. Cannot use anyone as the measuring life. c. 2. T devises property, in trust with directions to pay income to A for life, and then distribute principal TO THE FIRST CHILD OF MINE (T) WHO REACHES AGE 18. When is the latest it can vest? A‟s death. Either A or T‟s child can be a measuring life-why? Because they both were alive at the creation of the interest (T‟s death). So it is VALID. 5. interest is created at T‟s death. 6. it is a contingent remainder – child might not be 18 7. children are the measuring lives in this example. TO THE FIRST CHILD OF MINE WHO FINISHES COLLEGE. When is the latest it can vest? When a child finishes college. Since T‟s child is a measuring life, it is VALID. 8. use T‟s child as a measuring life. They have to finish college while they are alive. 9. If none of them have graduated from college when they are all dead then it fails. b. a. 57 DE Outline Spring 2002 L. Foster 3. T devises property, in trust, and directs the trustee to pay income to my sister for life, then to my sister‟s children and their heirs until the death of the last survivor of my sister‟s children, and then to distribute principal to MY BROTHER‟S CHILDREN. What kind of interest? Contingent because we don‟t know if he has kids. When is the latest it can vest? Brother‟s death (even though it may not be POSSESSORY then). When does interest begin? T‟s death. Who is the measuring life? Brother=VALID. 10. Contingent interest. 11. When the brother dies – that is the last moment. Can‟t have any more kids when he dies. Vests if he has kids – but it doesn‟t become possessory until the sister dies. 12. Vested but not possessory. MY BROTHER, IF HE IS THEN ALIVE. When is the latest it can vest? Sister‟s last child‟s death. Who is the measuring life? Brother=VALID. 13. created at T‟s death 14. Subject to RAP – it is contingent on his survival. 15. Last moment it can vest or fail is at death of last survivor of sisters children. (because if he is alive it vests, if he is dead – its has already failed. 16. Measuring life? The brother. If T‟s brother is alive – then he is a measuring life. It fails at the death of his nieces and nephews. T is the measuring life. 17. If it goes back to the preceding generation can usually use this. THOSE OF MY BROTHER‟S CHILDREN WHO ARE THEN ALIVE. When is the latest it can vest? Sister‟s last child‟s death. Who is the measuring life? Can‟t be brother-could be more than 21 years after his death. Can‟t be sister for the same reason. Can‟t be sister‟s children, since she could have more who then wouldn‟t have been alive at creation of the interest. INVALID. 18. Last moment that it could vest or fail = last survivor of the sister‟s children. 19. Brother‟s children could be born after the creation of the interest. 20. Same for sister – so no. it will fail since it is a contingent interest. MY YOUNGEST GRANDCHILD. When is the latest it can vest? Death of brother and sister. Who is measuring life? Brother and sister, they are both alive when interest is created. VALID. 21. It is subject to RAP? Yes – contingent 22. At the death of the sister and brother (T‟s children) is the last moment it can vest or fail. 23. Measuring life is T‟s children. They are alive – so yes. MY OLDEST SURVIVING GRANDCHILD, PER CAPITA. When is the latest it can vest? Death of last surviving child of sister. Who is measuring life? Can‟t be brother or sister, can‟t be sister‟s kids, can‟t be Gkids. INVALID. 24. Won‟t work – no measuring life. e. d. c. b. a. 58 DE Outline Spring 2002 L. Foster 1. What if T‟s brother were dead at the time of T‟s death? Would any answers change? YesCbecause if the brother were dead, that means he couldn‟t have any more children and they could be used as measuring lives and the interest would be VALID. 2. What if T‟s children were all dead at the time of T‟s death? E would now be VALID because grandchildren could all be used as measuring lives. 3. Pg 763. Problem 1. S creates an irrevocable inter vivos trust, and directs that income be paid “to my children and their heirs until the death of my last surviving child”, and then directs that the trust principal be divided equally “among my grandchildren.” Is the interest in grandchildren valid under the Rule? The interest is created at the beginning of the trust-S could have more children, so theirs can‟t be measuring livesINVALID. 25. Grandkids have a contingent remainder 26. Vest or fail at the death of the last child 27. Children can‟t be measuring lives because it was created during his life – so he could have more children. 28. If it is only a class – then if one person in the class won‟t make it work – then it won‟t work. 29. If the trust were revocable – then it is like a will – can change it until you die and it‟s the same as a testamentary trust and it is created at T‟s death. Watch out for these 4. page 765. Problem 1 S, an 85 year old settlor of an irrevocable inter vivos trust  trust income be distributed to myself for life, then to my children and their heirs until the death of my last surviving child, and at that time the principal should be distributed among my then-living grandchildren, per capita. 30. created during his life – 31. subject to RAP because it is contingent 32. If in his will then yes – 33. To fix this name the children. 34. fail – the measuring life – we don‟t know because he could have more children. 5. Page 766. Problem 2 T, in her will, creates a trust, and directs that  trust be distributed to my children and their heirs until the Boston Red Sox win the World Series, and at that time, the principal should be distributed to a. to my then-living nieces and nephews. 35. created at T‟s death 36. Executory interest – because it will cut short the preceding one – have to have then living nieces and nephews – it is also contingent. So call it executory. 37. When they win – it will vest or fail. Vest if they are alive, fail when they are dead. 38. But no measuring life because not all of them are alive. b. to my now-living nieces and nephews 39. yes. Because they can be measuring. 40. Won‟t work – but didn‟t listen for why c. to my now-living nieces and nephews who are also alive when the Red Sox win the world series. 59 DE Outline Spring 2002 L. Foster 41. will work because they are alive when the interest is created and also when they win the world series so it works. 6. Dickerson v. Union National Bank – widow isn‟t named. And waiting until the Gkids reach 25 years old. Son could marry someone who isn‟t born yet. And thus cannot be a measuring life. So court threw it out. APPLICATION TO CHARITABLE GIFTS AND TRUSTS: page 773 1. if future interest in a charity follows interests in non-charities, the future interest is valid only if it certain to vest or fail within the period of the rule. 2. give to one charity and then if something happens it goes to another charity – that is fine. 3. RAP with Charitable Trustsnot subject to RAP. SECTION VI. SAVINGS CLAUSES - Can be used to avoid RAP, but has to be very carefully drafted. Consequences of invalidity – page 774 1. if an interest is void – the void interest is removed. The court will strike the void part. a. T  income to be paid to my children for life, then to my Gkids for life, principal to be distributed at the death of my last surviving Gkid, to my greatGkids in equal shares. 2. or, also strike the divesting solution and then leave the rest. a. Didn‟t get example Problem with Mixed Trusts. Only Valid if the future interest is certain to vest (or fail) within the period of the Rule. PLANNING FOR INCAPACITY: page 826 1. AR has two types a. Guardianships – impaired by physical illness, mental illness, chronic drug use or booze that they lack the ability to take care of their property or themselves. i. Of the person – take care and maintain the ward – blah blah minors ii. Of the estate – protects, preserves, accounts for it – to the extent applicable to trusts. Has possession of the property. But the ward still owns it. b. Conservator – because of advanced age or disability is unable to manage property. i. Same power as a guardian – they just don‟t have custody of the person. 2. A ward can make a will – the testamentary capacity is low. 3. A guardian can make a will – but only in Cali 4. A ward can make testamentary gifts, but the guardian has the power to revoke. 5. Guardian can make a gift if the court agrees POWER OF ATTORNEY 1. Agent or atty in fact – person who has set up the power of attorney is the principal. Good for specific purposes – one thing or continuing over time (traveling Europe). Ended when the principal becomes incompetent traditionally. 60 DE Outline Spring 2002 L. Foster 2. What has been created recently is the durable power of atty. They are like guardians but don‟t have to go to court – you just do it. Get a form and fill it out and go to a notary. 3. Powers of an atty in fact depend on the terms of the instrument. AR has adopted the power of atty form on page 846. 28-68-401 a. In AR code – the statute explains all the different types of powers. b. The form has extra spaces – to give special instructions, to limit or extend powers of the agent. 4. Starts immediately and will continue if revoked – and has the possibility of being durable – continuing after you become incapacitated. 5. Estate of Huston – involves a power of attorney – Amber was atty in fact for an elderly woman with her finances. Someone else help her person. She wanted to give them something after she died. Agent set up annuity – that was intended to go to him after death. set up wrong – and attempted to transfer it after her death. court said that there was oral agreement and clear evidence. Under the terms of the instrument he didn‟t have the power to make gifts to himself. She would have to issue something in writing. ESTATE ADMINISTRATION: 1. Gpa dies intestate with: (1) cash, (2) bearer bonds (3) no debts. Kids (2) agree of how to administer his estate. If all of these things are true then it is fine. You can avoid administration. 2. 100K in bank – with only his name, also the bonds only his name. Need letters of administration to get it out. a. If this was a joint – then draw it all out, if it were POD then death certificate 3. dubious claim with 50K creditor, and a kid claiming to be a child. 4. Statutes: a. A point of 5 years – after that you can‟t take a will to court. 28- 40-103. if a later will is found – it is barred. b. 28-40-106 – prior to being nominated as executor – the person may take necessary to the management and preservation of the property. if taken in good faith – then they won‟t be held responsible. c. 28-40-113 – interested persons can contest a will. heirs, devisees, spouses, creditors, or anyone else having property right, or interest in, or claim against the estate. (can contest even if you have nothing to gain.) d. 28-41-101 – starts at 50K (but don‟t worry about this – not in statute book) ANCILLARY ADMINISTRATION – if someone passes away with property in another state – then the PR – will have to file ancillary proceedings to dispose of the property. if die intestate then it will be taken under that states law Personal representative: Administrator CTA – if the administrator doesn‟t want to be a PR 28-48-101 – who the court will appoint as an executor – 1. someone named 2. then surviving spouse (or who the spouse nominates) 3. someone named 4. someone named nominated. a. Who cannot? 61 DE Outline Spring 2002 L. Foster i. Under 21 ii. Unsound mind iii. Convicted and unpardoned felon iv. Corporation v. Court finds unsuitable. vi. Non-resident of AR unless appointed by the clerk. b. Once you are appointed – you are a fiduciary c. Removing 28-48-105 d. Compensation – 28-48-108: PR shall be allowed such compensation that the court finds just and reasonable. The amounts named cannot be exceeded. i. But the court can allow compensation in addition to this. Or can take it down if the court feels just. ii. PR may employ legal counsel. If so: 1. adds up 26.5K for a million estate. But the court can say it too much or too little. 2. 28-50-102 – cut off for when claims aren‟t allowed: 1. Within 3 months of notice. 2. If no administration or notice – 5 years after death. 28-50-110 – special section for contingent claims – can wait up to two years. 62