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Trusts and Estates

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					Trusts and Estates
Outline
Spring 2007
Professor Krishnakumar
Basic Wills
      Conditions in a will are fine, it’s not a state action, it’s a personal matter (Shapira)
          o Exceptions: a court won’t enforce a will conditioned on breaking up a family, illegal activities,
              or forfeit of certain freedoms.
          o Requiring a person to marry, even marry from a specified class, is enforceable, unless the class is
              too small (5 people is too small). Example: must marry a Jew to get inheritance.
                   Problem: courts don’t like to determine if someone is Jewish.

Liability of Drafter for Malpractice
      In 41 states, the attorney owes a duty to the intended beneficiary if the will is sloppily drafted
       (Simpson).
      In NY and 8 others, the attorney is not liable to intended beneficiaries, because there is no privity of
       contract.
           o But there are some cases where the attorney has fiduciary duty of intended beneficiary, as in the
               case where the lawyer is the attorney for the whole family (Hotz v. Minyard)

Nonprobate Property
      This passes outside the will:
          o Joint Tenancy: upon the death of one of the tenants, it automatically passes outside the will to the
              other tenants.
          o Life insurance
          o Contracts with Payable on Death provisions
          o Interests in Trust

Intestacy
      It is a default rule.
      Common Law: Per Stirpes.
            o Classic per stirpes.
                     This method is still used in a minority of jurisdictions.
                     The defining feature: you start dividing the estate at the at the closest line to the decedent
                        as possible, whether there is a survivor on that line or not.
                     Example: A is the decedent, and has no surviving spouse. She has 2 children, B and C.
                        Both B and C died before A did (indicated by bold italics in all examples), and are
                        therefore, not a “survivors.” Nevertheless, because we are using classic per stirpes, we
                        begin dividing the property at the closest line to A: the generational line of her own
                        children, B and C, rather than beginning the division with the next generation, of D, E
                        and F. Therefore, B’s ½ share will be “divided equally” by B’s only issue, D, and C’s ½
                        share will be divided equally by his two children, E and F.
            o Modern per stirpes
                     The difference with modern per stirpes is that you begin dividing up the estate on the first
                        generational line away from the decedent, in which at least one person is alive.

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      New York (post 9-1-92): Representation
         o You start dividing at the first generational line in which someone is alive. But, if their are dead
            members of that line, you pool their shares together, and divide them evenly amongst their
            collective issue.
         o NY: EPTL 1-2.14 and 1-2.16
                 EPTL 1-2.14 applies for wills pre-1992 (modern per stirpes)
                 EPTL 1-2.16 applies for wills post-1992 (representation)
         o NY: EPTL 4-1.1
                 If Decedent is survived by:
                         A spouse only: the spouse takes it all
                         A spouse and issue: spouse takes $50k + ½ remainder, issue split rest, by
                            representation.
                         Issue only: all to issue by representation
                         Parent(s) only: the whole to the parent(s)
                         And so on
                 Doesn’t go past great-grandchildren of grandparents.
                 Half-blood relatives count as full-blood
                         Note: Virginia says half-blood gets half-share, Mississippi says half-blood only
                            takes if there are no full-bloods.

Issues applicable to both Wills and Intestacy
      Negative Inheritance: can disinherit children in every state but Louisiana.
          o NY: EPTL 1-2.19
          o Doesn’t affect issue of disinherited parties
      Simultaneous Death
          o We treat each party as if they survived the other (EPTL 2-1.6), but this can be modified by will.
      Termination of Parental Rights (EPTL 4-1.4)
      Adoption
          o General rule: once a child is adopted, it is no longer part of the biological family and cannot
              inherit (NY Domestic Relations Law § 117), although you can from your adoptive family.
          o NY Exception:
                   NYDRL § 117(1)(e): adopted person can share in biological parents’ estate if:
                          The deceased natural relative is a natural grandparent or a descendant of a natural
                              grandparent, and
                          The adoptive parent is either a stepparent, a natural grandparent, or a descendant
                              of a natural grandparent.
          o In an interfamily adoption, the child inherits according to natural relationships only, not adoptive
              ones. Can therefore sometimes inherit twice.
          o Generally, only real adoptions are counted (can’t adopt gay lover).
          o NY: We have an equitable adoption doctrine: equity shows that the child should have been or
              would have been adopted, but it is up to the individual court’s equitable powers.
          o Homosexual: no problem, one partner can adopt other partner’s child (Adoption of Tammy)
      Children
          o Birth Date
                   There is a rebuttable presumption that gestation is 280 days, and if it’s to a child’s
                      advantage, a court will treat the child as having existed from the date of conception, if
                      born alive.



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                 NY hasn’t addressed the proposition of frozen sperm/posthumous children. California
                  did in Hecht.
                       The courts will consider:
                              o Best interests of the child
                              o State’s interest in orderly administration of estates (paternity test)
                              o The deceased’s reproductive rights (consent to child and to support of
                                  child)
         o Nonmarital Children
               All states allow inheritance from mother, some allow from father.
               NY: EPTL 4-1.2
                       Non-marital child is the legitimate child of the mother, and of the father if:
                              o A court has declared paternity, or
                              o The father has acknowledged in notarized letter, or
                              o Paternity has been established by CCE and acknowledged, or
                              o Blood test has been done that establishes paternity by CCE.
               Some states have parentage acts with different requirements.
         o Surrogate Parents: the biological parents are the sole parents if the fetus is carried by a surrogate
           mother who is unrelated to fetus (Johnson v. Calvert)

Bars to Succession
     Advancement
         o In an intestate estate, the child has the burden of showing that lifetime gifts were not
             advancements of the inheritance.
                  Most states have a rule that a lifetime gift is not presumed to be an advancement unless
                    intended as such. UPC requires it in writing.
                  Gifts of college tuition are never considered advancements.
         o NY: Controlled by EPTL 2-1.5. For it to be an advancement, there must be a contemporaneous
             writing. Also, it must be an existing will. A will written after an advancement wipes away all
             the advancements.
                  EPTL 2-1.5(c) and (d) tell how to calculate shares after an advancement.
                  Advancement to X is charged to X’s issue via anti-lapse statute.
                  It is preferable to write advancements into the will.
     Disclaimer/Renunciation
         o Anyone can disclaim any probate or nonprobate interest, or any part of an interest, except to
             avoid IRS lien.
         o It makes it so that the disclaiming party is treated as having predeceased the decedent.
         o NY Rule: EPTL 2-1.11
                  Requirements:
                         In writing, signed, and acknowledged by renouncer,
                         Accompanied by separate sworn affidavit saying that renouncer has received no
                            consideration for renouncing,
                         Filed within 9 months
                  It’s irrevocable.
                  EPTL 2-1.11(d) talks about distribution.
         o Baird: cannot anticipatorially disclaim an interest to avoid a tort judgment.
     Homicide
         o Most states have a slayer statute that says that if you’re convicted, you can’t inherit, and hold
             property in constructive trust for a deserving party.



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         o NY: No slayer statute. But via case law, for voluntary manslaughter or murder, a convicted
           defendant cannot inherit.
                But they can use the estate for their defense (Menendez)

Guardianship and Conservatorship of Minors
     Guardianship of the person: acts in place of parent. Has no control over assets.
           o Guardian ad litem: for litigation
     Guardianship of the property: acts for minor’s property. Court must approve everything. Expensive and
      silly.
     Conservatorship: new system, similar to trust
     Custodianship: good for small amounts of property. Give gift to minor with X as custodian.
     Trust: most flexible

Will Challenges
     Standing (Surrogate Court Procedure Act § 1410)
          o Only someone with an interest in the will can contest it: someone who would have taken if the
             will was ineffective because of unsound mind or undue influence.
          o Lawyers and executors may not challenge.
     Lack of Mental Capacity
          o T must have mental capacity when will is signed.
          o Requirements:
                  T must understand he’s writing a will
                  T must understand nature and value of property
                  T must understand who the natural objects of his bounty are
                  T must understand the nature of the disposition he is making
          o You can be generally crazy but still have made the will during a lucid interval. Also, even if you
             are crazy, unless it affected the disposition it’s okay.
          o Policy reasons for requiring lucidity
                  A will should represent the testator’s true desires.
                  The testator’s family should be protected
                  The law depends on legitimacy, and decisions made in a reasonable manner.
                  Sane person is assured his property is left the way he wants it.
                  Public policy (forbidden from destroying property)
                  Senile or incompetent testator should be protected from exploitation by cunning persons.
     Insane Delusion
          o If you’re normally sane but hold on to a belief that no sane person could.
          o Requirements:
                  T has false conception of reality
                  This false conception affects T’s will
          o Even if belief is true, it’s still an insane delusion if he had no rational basis for believing it.
     Undue Influence (around page 158-166)
          o There must be some sort of coercion.
          o In some jurisdictions, it must be proved that
                  The testator was susceptible to undue influence
                  The influencer had the disposition or motive to exercise undue influence
                  That the influencer had the opportunity to exercise undue influence
                  That the disposition must appear unnatural and appear to be a result of the influence
                     (leave out natural objects of T’s bounty)


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       o NY: you have to have confidential relationship plus something else (suspicious circumstances, or
           other evidence)
                To constitute “undue influence” in NY, it must be shown that the influence exercised
                   amounted to a moral coercion which restrained independent action and destroyed free
                   agency, or which, by importunity which could not be resisted, constrained testator to do
                   that which was against his free will but which he was unable to refuse or too weak to
                   resist.
       o In PA, burden of proof is normally on contestant, but shifts to the proponent to show everything
           was above board if contestant proves that: (Lakatosh)
                There was a confidential relationship,
                The person enjoying such relationship received a bulk of the estate,
                The defendant’s intellect was weakened.
       o Explanation: Lipper: putting in an explanation as to why she was disowning her grandchildren
           was effective, explained away any chance of undue influence.
   No-Contest Clause
       o Provides that a beneficiary who contests gets nothing.
       o NY: EPTL 3-3.5: upheld unless:
                There is probable cause of forgery,
                It was revoked
                If the challenger is a minor or incompetent.
   Bequests to Attorneys
       o Most courts presume undue influence except when attorney is related to decedent.
       o NY: Attorney must submit facts and circumstances of the gift.
   Attorney naming self executor or trustee
       o Not unethical if the attorney discloses the conflict, gets consent, and client has independent
           counsel (Johnson)
   Other Conflicts
       o It’s not enforceable or ethical for attorney to name self the attorney for the executor. Since
           executor is personally liable, must be able to select own attorney.
       o Executor shouldn’t also be a witness. Executor fights for the will, witness is neutral.
   Fraud
       o Fraud in the Inducement:
                Using a misrepresentation of facts in order to get someone to make a gift (Puckett)
                        Example: tell T his sister is dead, if she is not.
       o Fraud in the Execution
                Misrepresent contents of document to get T to sign.
                        Example: have T sign a will that isn’t read
                This must be proved by CCE.
       o For both forms of fraud, we must determine that the gift was the fruit of the fraud.
                Requirements:
                        There must be a knowing misrepresentation
                        T must be deceived by the misrepresentation
                        It must cause the bequest at issue.
   Duress
       o Forcing someone to make a will
       o Latham: court found religious duress by Father Divine
       o Pope: some but not all beneficiaries forced T to sign will by duress. Court disinherited all of
           them since they wouldn’t have gotten anything but for the duress.



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     Tortious Interference with Expectancy
         o Marshall: Anna Nicole case. She recovered under TIWE when family depleted assets to keep
             them from her.

Will Execution
     Formalities
          o Ritual Function: we want to make sure T’s statements were intended to pass the property
          o Evidentiary Function: proof that the will is real and not a forgery
          o Protective Function: proof that there was no duress or undue influence.
          o Channeling function: provides assurance for testators and scriveners, and regularity in probate.
     Requirements (NY: EPTL 3-2.1)
          o Signing: will must be signed at end and initialed on every page, in the presence of the witnesses.
                  Can be signed by another, in T’s presence and under T’s discretion
                  An “X” or anything else is sufficient if it was intended to be the whole signature.
                  Strictly interpreted in some states (Pavlinko)
                  In NY, the will that T signed is probated (Snide) even if it was the wrong will.
                  Nothing after the signature can be given effect, unless the will doesn’t make sense
                      without that part, in which case we throw the whole will out.
                           Affidavits and minor paperwork can come after the signature.
          o Witnesses: all states require at least 2, some require 3.
                  They sign an attestation clause.
                  Often, lawyer’s secretaries are used, because they are impartial.
                  In some places, witnesses must sign in each others’ presence, but in NY, they can sign
                      within 30 days as long as they watched T sign.
                  If signature substantially complies with requirements, it’s valid (Ranney)
          o Publishing: some states, like NY, require T to say “this is my will.”
          o Self-Proving Affadavit: proof that the witness witnessed the signing, even if the W can’t be
              found. Not required by statute, but almost malpractice if it’s not done (NY SCPA § 1406)
     Some states say that it’s overreaching if the firm holds the will, but in some states it’s the best practice.
     Wills are written to hold up in every state in case will is probated elsewhere.
     Substantial Compliance:
          o Test: proponent establishes by CCE that the will substantially complies with the Wills Act
              formalities
                  We look to the purposes of the act (ritual, evidentiary, protective, channeling)
                  Example: if you signed somewhere other than the bottom.
     Interested Witness
          o Normally they are disqualified
          o NY: Purging Statute, EPTL 3-3.2. They are competent to testify, and the will is valid, but the
              bequest to them is void unless witnessed by at least two disinterested witnesses.
                  Mere appointment as executor, or executors fees, doesn’t make you interested.
                  The witness gets the lower of:
                           The amount of the will bequest, or
                           The amount he would get in intestacy.
                  The money the interested witness doesn’t get:
                           Goes into the residuary if there is one, or
                           Is distributed by intestacy.
          o Disclaimer: You can disclaim your interest, but the test is whether you were interested when you
              witnessed.
          o Note that you can be a beneficiary under the will and still witness a codicil.

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     Codicil
         o Republishes will
               As long as you have disinterested witnesses for the last codicil, it’s cool.
         o A child born after a will but before a codicil, who is left out of will, is out of luck (Azcunce)

Holographic Wills
     No formalities. Vary from state to state.
     Requirements:
          o Mostly, must all be handwritten.
                  Sometimes, the material provisions must be handwritten.
     Stationary store wills:
          o Sometimes, they are valid, if the printed portion can be eliminated and it still makes sense
              (Mulkins)
          o Sometimes, if the intent is clear it’s probated (Muder)
          o Sometimes handwritten portion is insufficient as a will (Johnson)
     Letter from father to sons can be probated as a holographic will (Kimmel’s Estate)
     NY EPTL 3-2.2: Only valid if made by soldier, sailor, or mariner during wartime or while at sea.

Revocation
     NY Requirements: EPTL 3-4.1
         o Not easy to undo a formal execution. There must be an intent to revoke. Only 2 ways:
                 Another will, or a writing revoking the will executed with will formalities, or
                 Physical act of will destruction.
                          Destruction of one of several copies is sufficient.
                          You must destroy all of it, or nothing.
         o There is a rebuttable presumption that if a will cannot be found, it was destroyed by the testator
            (Harrison)
                 This even revokes duplicates.
                 We look for some other evidence of intent, though.
         o Intent is necessary, but not enough. Writing “null and void” on will is insufficient (Thompson)
                 It would have been enough if the words of the will were physically obscured (written
                    over the words)
                 A court could order a constructive trust to avoid frustrating T’s intent.
         o If a court finds two executed wills, it will try to read them together, and the second one is treated
            as a codicil. If the first is wholly inconsistent with the second, it’s discarded as we assume it’s
            superseded.
     Dependent Relative Revocation and Revival
         o DRR
                 If you revoke a prior will as part (dependent upon) of your execution of a new will; then,
                    if it turns out that there is some sort of error in the new will, the old will is going to
                    remain.
                          If it’s obvious that T wouldn’t have revoked Will 1 unless he was making Will 2.
                             Basically we have to be sure that T would prefer W1 over intestacy.
                          If the reason for the new will is written on its face, then that reason must be
                             fulfilled.
                 In NY, it’s by case law. NY CoA hasn’t ruled on whether this applies in NY. It probably
                    does.
         o Revival: EPTL 3-4.6(a): the only way to revive a will is a new writing.


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     Revocation by Operation of Law
         o If you get divorced and then die before changing your will, the divorce revokes any gift to ex-
            spouse.
                 But gifts to relatives-in-law are not revoked.
         o NY: EPTL 5-1.4 for divorce
         o NY: EPTL 5-3.2 for after-born children
                 If a child is born after the execution of a will, and not provided for in any way by T:
                        If T left nothing to other children, and everything to wife, then this child gets
                           nothing
                        But if T had some children who got a cut, or no children when will was made, we
                           give child a share according to EPTL 5-3.2.
                 Source:
                        If it’s a class gift, then from other members of class
                        If it’s a limited provision, then from the residuary, and after that, ratiably from
                           other family members.
         o Disinheriting children also disinherits the children of those children (In Re Estate of Laura)

Incorporation by Reference
     This doctrine doesn’t have any effect in NY. The referenced document must be:
         o In existence at the time of the will, and
         o Clearly identified in the will
     Act of Independent Significance
         o You can declare that X will receive the car you own when you die. You can sell the old car and
              get a new one. As long as the beneficiary and the identity of the property is there, it’s fine.
         o This assumes that there is an independent significance for getting a car.

Contract to Make a Will
     It is legal to make a contract to make a will. Specific performance is allowable.
     NY: Must be in writing (EPTL 13-2.1)
     Joint Wills
           o Can be revoked until one party dies.
           o Must specifically say it’s a joint will
           o When each testator dies, it’s probated as his will
     Reciprocal Wills
           o Two parties write separate wills with mirror image bequests.
           o Via v. Putnam: H and W1 made reciprocal wills, and said that neither would change it. After
               W1 died, H didn’t change will but married W2. After H died, W2 sued for a cut.
                     NY Rule: kids take priority, as creditors.
                     Florida Rule: spouse takes priority.

Non-Probate Transfers
     NY: no law expressly permitting non-probate transfers, but they are allowed by case law (Hilowitz)
          o UPC: expressly allows for non-probate transfers in § 6-101.
     Joint Tenancy
          o X and Y have joint title, when X dies, Y has whole title. Can’t convey interest by will.
          o In bank accounts, it’s a joint account only if they both act as owner. Otherwise, it can be an
             agency account with no succession to Y when X dies (Franklin)



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      Payable on Death Contracts
           o Regular contract with a third-party beneficiary.
           o The procedure for changing the beneficiary must be strictly followed. You can’t do it by will.
               (Cook)
      Life Insurance
           o Proceeds not taxable because they are not reachable during life.
           o NY Rule: Creditors can’t get at it if the beneficiary is a spouse or child.
                    But under UPC it is reachable by creditors.
                    Must be a true life insurance policy, not a savings account (Wilhoit)
      Totten Trust
           o A savings account that provides when O dies, X gets the money.
                    Must be a savings account (EPTL 7-5.1)
           o Not a trust.
           o May be revoked by withdrawal, or changed by will.
      Pour-over Wills
           o Essentially, settlor makes a trust naming T as trustee, then anything left over when settlor dies
               goes to T in trust.
           o They are valid even if unfunded at time of creation (Clymer), but this applies only for pour-over
               wills.
           o NY: Inter vivos trust must be signed, notarized, in writing (EPTL 7-1.17)
                    Trust must be made before or contemporaneously with pour-over will (EPTL 3-3.7)
      Durable Power of Attorney
           o DPoA is for planning for incapacity. Normal PoA evaporates when giver becomes incompetent.
           o PoA not normally enough power to revoke a trust unless the PoA specifically gives that power
               (Franzen)
      Healthcare Directives
           o Institutional Directives (ex: living wills)
           o Healthcare Proxy (agent is held to substitute judgment for that of giver)
           o Combination of the two
      Trusts
           o EPTL 7-1.16: Lifetime trust is irrevocable unless otherwise specified
                    Revocable trusts can be modified in any matter specified by trust, or by will.
                    Revocation of trust can be done in any manner specified in the trust (Pilafas)
           o Trusts are taxable
           o A beneficiary does not acquire a property interest in a trust (Farkas)
           o Creditors
                    When creditors want to access trust assets, courts look to see how much of those assets
                       the settlor could reach while alive (State Street)

Construction of Wills
          o If there is no patent or latent ambiguity, then a court won’t let in extrinsic evidence to contradict
             the express terms (Mahoney, NY SCPA 1420)
                  Latent: ambiguity shows up when will applied to certain set of facts
                  Patent: clear from face of will
          o Extrinsic evidence is relevant if there is some question as to whether the wills act formalities
             were followed.
                  Example: Fleming: one necessary witness knew it was a sham will, extrinsic evidence in
                     form of witness’s testimony allowed in.


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     Sometimes a court will jump through hoops to reform a will (Arnheiter: Will directed trustee to sell
      304 Harrison Ave, but she actually owned 317 Harrison. Executrix goes to court and asks for them to
      correct an obvious mistake. Court says they won’t correct the will. No reformation rule. But they will
      ignore the number, and Harrison Ave has a lot of properties, so they allow extrinsic evidence).
     Extrinsic evidence allowed where there was an error by the scrivener, and the standard is CCE
      (Erickson)
     Sterner: if a will gives everything in fee simple to X, and whatever she doesn’t use up, to Y, then Y is
      out of luck. X can do whatever she wants with the property, even leave it to someone else.

Lapses
     If a specific gift is invalid (donee is dead or an animal) then the gift goes into the residuary.
           o If the residual donee is invalid, then the residuary passes through intestacy. (Russell)
     Anti-Lapse Statutes
           o NY: EPTL 3-3.3: Whenever a devise is made to a brother or sister of T, and the devisee is dead,
              then the issue take by representation (unless before 1982, then per stirpes).
                    Also applies to class gifts, but it doesn’t work to give gifts to issue of people who died
                       before execution.
                    If gift is made to unnamed class members “my brothers,” and one brother dies, the anti-
                       lapse statute doesn’t apply and he’s cut out. But it does save gifts to named members of
                       classes.
           o UPC: grandparents and descendants are covered, not just siblings, and classes include deceased
              people, unlike in NY.
           o Allen: “Living Brothers and Sisters” apply to people who survive T, not people alive at
              execution.
           o Jackson: a court will sometimes reform from “to devisee and her heirs” to “to devisee or her
              heirs” to prevent property from escheating.
           o Power of appointment is preserved by anti-lapse rule, as long as the necessary relationship exists
              between donor or donee.
     Class Gifts:
           o Dawson: IL Rule: “a gift of aggregate sum to a body of persons uncertain in number at the time
              of the gift, to be ascertained at a future time, and who are all to take in equal or some other
              definite proportions, the share of each being dependent for its amount upon the ultimate number
              of persons.”
     Ademption
           o If a will devises a gift, but T loses it, sells it, or gives it away before death, it’s ademed and you
              don’t get it.
                    Applies only to specific devises (my diamond ring). If T sells his ring before death, B
                       doesn’t get it.
                    General devises (cash) do not ademe. We sell your stuff till we get the money.
                    Demonstrative devises don’t ademe (cash from the sale of some asset). If the asset is
                       gone, we treat it as a general devise.
           o NY Rule:
                    If there is a fire, or theft, the gift doesn’t ademe.
                    EPTL 3-4.2: property devised in a will is given subject to other agreements (i.e.,
                       mortgage)
                    EPTL 3-4.3: Specific Property transferred out of estate before death ademes.
                    EPTL 3-4.4: If a conservator transfers it out, then the devisee gets the value of the
                       property (sort of an intent theory)
                    EPTL 3-4.5: If insurance proceeds are paid on a specific gift, and the proceeds are paid
                       after T’s death, then the proceeds are paid to the devisee.
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           o EPTL 12-1.2: Order that we satisfy debts from estate:
                 Distributees (from intestacy)
                 Residuary Beneficiaries
                 General Devisees
                 Demonstrative bequests
                 Specific Beneficiaries/Devisees
                 Spouse getting marital tax deduction

Election
     Homestead Provision
         o NY EPTL 5-3.1
                  Family members keep all sorts of household items.
         o All this is immune from creditors, and can only be reached if there isn’t enough to pay for
             funeral.
     Election: NY EPTL 5-1.1-A
         o Prevents you from disinheriting your spouse.
         o Only a spouse of the opposite sex can claim election at the moment, could change (Cooper)
         o Guardian must elect if his charge is on Medicaid, because if he doesn’t he might be dropped
             from the rolls (Cross)
         o Things that count as part of the estate:
                  From EPTL 5-1.1-A(b)(1):
                         Gifts causa mortis
                         Any gift made within a year of death, except gifts under the annual gift exclusion
                         Totten trusts
                         Any POD account
                         Property the decedent owned in joint or entire tenancy
                                 o Bank accounts:
                                         if joint bank account is between T and SS, we count 50%.
                                         If between T and a third party, set up before marriage, we count
                                            50%
                                         If between T and a third party, set up during marriage, we count
                                            whatever SS can show was put there by T.
                                 o Property:
                                         If joint between T and SS, we count 50%
                                         If joint between T and another, we count up to 100%, depending
                                            on how much T funded.
                         Any trust property that decedent had a right to
                         Any right to a pension or retirement plan
                         Any right to which decedent had a power of appointment which is presently
                             exercisable.
                  Trust property counts as part of estate (Sullivan), as long as:
                         T retained the right to income, or
                         T retained the right to invade the principal, or
                         T could revoke the trust.
                  Other things
                         Any lifetime transfer by the decedent if the decedent enjoys life use or life
                             income, of if T can revoke, consume, invade, or dispose of the principal.
                                 o Even if T isn’t the only principal and can do it with one other person.
                         Out-of-state property is included
                         Life insurance is NOT included.
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                  We subtract funeral expenses first, before calculating the net estate.
         o (b)(2): If there is a joint tenancy with someone other than the spouse, we count the value of the
             property to the extent that the defendant contributed.
                  If there is no proof, we assume it’s half.
     NY Rule: EPTL 5-1.1-A(a)(2): election
         o The spouse get the greater of:
                  $50k, or if the estate is $50k or less, the whole estate, or
                  1/3 of the estate.
         o If the property is not left absolutely, the spouse must choose between her elective share now, or
             the life estate or trust.
         o Right to elect can be waived during or before marriage. Can be partial. Must be in writing and
             notarized. Prenuptial agreement (Garbade, EPTL 5-1.1-A(e))
                  In extraordinary circumstances, a waiver can be waived by courts, if there is coercion
                      (Grieff)
         o Election must be done absolutely within 2 years, should do it within 6 months.
     Disqualification: EPTL 5-1.2
         o Divorce, void marriage, separation, abandonment, failure to support
     Standing
         o Only the surviving spouse has standing to pursue the elective share (or her heirs if she dies after
             electing). But note that the spouse must actually be alive to do the electing.
     Paying the Share: Where the money comes from
         o First, we take everything in the will that SS gave up when she elected and give them to her.
         o Then, we take pro rata from every other estate beneficiary (including non-probate beneficiaries)

Trusts
     Elements:
          o Trustee
                  But no trust fails for want of a trustee
          o Beneficiaries
                  Must be definite. “My Friends” is not sufficient (Clark)
          o Trust property
                  There must be one, even if it’s only the basis of a future property that goes into the trust.
     Creation
          o Requirements:
                  Intent to create a trust
                  Identifiable trust property
                  Identifiable beneficiaries
          o You can name yourself beneficiary and trustee as long as there is another beneficial owner.
              Basically, trustee must owe equitable duties to someone other than himself.
                  Trust property must be transferred to trustee (EPTL 7-1.18)
          o Hebrew: it’s enough to create a trust to deliver a memorandum saying that a gift was made.
          o Brainard: if there is no trust property at the time of creation of trust, then the settlor must
              “manifest anew” his intention when the property is present. Brainard wanted to make a trust to
              avoid taxes.
                  But, in Speelman, a similar situation not done to avoid taxes WAS a trust.
          o It need not be called a trust to be a trust. Also, calling it a trust doesn’t make it one.
     Inter Vivos Trusts
          o Must be funded (EPTL 7-1.18)
          o Must be in writing, signed, notarized, witnessed (EPTL 7-1.17)

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   Honorary Trusts (for pets)
       o You leave money to a person, who cares for the animal. Person is on honor to care for animal.
       o Can’t violate the RAP, and theoretically, the animal could live past the person, so they normally
           fail.
       o Searight: money ($1000) would only last 4 years at 75 cents/day, so it didn’t violate RAP.
   Semi-Secret Trust
       o Corpus given to friend, in order to distribute “as he sees fit.”
                 Note: a secret trust is just a gift to a friend who gives it to someone else.
                 Courts will sometimes enforce a constructive trust if the beneficiary of the secret trust
                   doesn’t do what he’s supposed to (i.e, give land back like in Hieble). Note that the
                   person asking the court to intervene must have clean hands.
       o Olliffe: some courts won’t enforce a semisecret trust.
   Pour-Over Trust
       o The trust must exist at time of death.
       o It must have a beneficiary other than settlor.
       o It’s not void, even though T:
                 Can get income for life
                 Can have power to amend or revoke
                 Can have power to control trustee
                 Can have power to have life insurance or employee benefits paid to trust
                 Can name herself as trustee
   Oral Trusts
       o Allowed only in some jurisdictions when:
                 Inter vivos: Hieble: confidential relationship + oral agreement, constructive trust
                   imposed
                 Upon Death: Olliffe: seems to be enforceable if it’s definite enough
   Trustee’s Duties to Beneficiaries
       o Duties:
                 To account
                 To inquire (into B’s needs, if Trustee is allowed to dip into corpus)
                 Of Loyalty (no self-dealing)
                 Of Prudent Investment
                        EPTL 11-2.3: NY Prudent Investment Act: advocates for modern diversified
                           investment theory, and allows delegation.
                 To care for trust property (insure, etc)
                 Not to delegate authority
       o Violations
                 Self-Dealing: breach of duty of loyalty for executor to sell property to his wife. Doesn’t
                   matter if price was fair. If there was a bone fide purchaser, you might not get it back, but
                   the profit is evenly divided amongst beneficiaries. If the price goes down, the
                   beneficiaries can ratify the sale (Hartman)
       o Damages:
                 NY: Rothko:
                        If there is a duty to retain and the fiduciary sells, we have appreciation damages
                           up until time of trial.
                        If there is authorization to sell, and a different breach of fiduciary duties (i.e., self-
                           dealing), then we have date of sale damages.
       o Immunization: you can’t exonerate or immunize a trustee from liability for negligence.


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   3 Main Types of Trust
       o Spendthrift: restricts voluntary or involuntary inalienability of the beneficiary’s interest
                If you fear that beneficiary isn’t competent to handle money, you give it to him for
                  certain purposes only.
                He can’t assign interest in income from trust property to anyone
                       Except, in NY: Beneficiary can assign any income over $10,000 (which he must
                           still keep) to certain close family members (EPTL 7-1.5).
                The extent that he can use it is the extent that creditors can get at it.
                       Exceptions:
                                o IRS can get at it.
                                o If the trust is for education and support, and there is money not needed for
                                    those things any more, then the excess is reachable.
                                o Legal dependents can get at money. Includes child support and alimony.
                Shelley: B had spendthrift trust and two ex-wives. Income is reachable for child support
                  or alimony payments, but corpus isn’t reachable (in some courts child support may reach
                  principal).
                NY Rules:
                       EPTL 7-1.5: All trusts in NY are spendthrift, unless it’s expressly stated that it
                           isn’t.
                       EPTL 7-3.1: Self-settled trusts are not considered spendthrift, so creditors can
                           reach income and principal (unless they are retirement or pension trusts).
                       CPLR § 5201: Up to 10% of trust assets can be seized. Creditors fight over this.
                       EPTL 7-3.5: Necessary creditors (food, hospital, etc) can reach income
       o Support: restricts trust assets to pay for needs, education, medical care. Restricts the right of the
           beneficiary to the money. Only necessary amounts paid.
       o Supplemental Needs: only $ above Medicaid coverage can be paid out of trust fund.
   Modification and Termination of Trusts
       o Termination:
                Terminates when distributed to remaindermen
                Terminates when purpose ceases (EPTL 7-2.2)
       o Modification:
                In NY, all trusts are irrevocable unless otherwise stated in trust.
                Even if it’s an irrevocable trust, if everyone who has an interest in it agrees, then it can be
                  revoked (beneficiary, testator, etc) – EPTL 7-1.9
                If the testator is dead, or everyone doesn’t agree, then there is a problem.
                                o Note: guardians of minor beneficiaries can’t consent for the minors, unless
                                    the change is for the benefit of the minor.
                       In that case, we balance the interests of the settlor vs. the interests of the
                           beneficiary.
                       We can modify if all the beneficiaries consent, and there was an unforeseen
                           circumstance that frustrated the settlor’s interest. (Stuchell)
                                o Note: maximizing settlor’s interest is not good enough. We must have a
                                    situation where we need to change the trust to effect his interest at all.
                       We can terminate it if all the beneficiaries consent, and termination doesn’t
                           frustrate the settlor’s interest.
                                o Can’t frustrate ANY material purpose of trust (Brown)
                EPTL 7-1.6: court can use discretion to order payout to B if it effectuates S’s intent, even
                  without consent of other beneficiaries.


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                     For charitable trusts: Cy Pres doctrine: can reform trust to allow it to be used for the
                      testator’s intent (Neher)
                           In NY, it may be changed if “circumstances have changed making the letter of the
                              trust impractical, and where there was some more general charitable intent.”
                           Note that if a charity is the remainderman, it’s not a charitable trust because by
                              the time the charity gets it, the trust is extinguished.
     Settlor’s Creditors:
          o If the trust is revocable, then S’s creditors can get at it. Otherwise they can’t.

Rule Against Perpetuities
     In order to be valid, an interest must be certain to vest or fail within 21 years of the end of a life in being
      at creation of the interest.
          o Doesn’t prohibit remote vesting, only prohibits contingency.
          o Note: creation of interest is actual time of creation for irrevocable trusts, and death of settlor for
              revocable trusts.
     Analysis:
          o What is the contingency?
          o During whose lifetime, upon whose death, or within 21 years of whose death the contingency
              will happen or fail.
          o Is that person alive?
     Rule of Convenience:
          o If any member of the class is entitled to immediate possession, the class is deemed closed by
              convenience.
     NY Rules:
          o EPTL 9-1.2: If an estate would be invalid because a child won’t reach 21 in the perpetuities
              period, and the age requirement is more than 21, the age contingency is reduced to 21 as to all
              persons subject to the contingency.
          o EPTL 9-1.3: Women over age 55 are presumed infertile, and men or women can be proved
              infertile by evidence. Also, we assume that spouses are alive (eliminate unborn widow problem)
     Charitable Trusts
          o Are exempt from RAP.
          o Must really be charitable, can’t be “candy money” (Shenandoah)
     Notes
          o For a general power of appointment, for inter vivos trusts, the date of creation of the interest is
              when it is exercised. For testamentary trusts, it’s the death of the donor.

Estate and Gift Tax
     Unlimited exclusion for payments directly to schools, hospitals, etc., for medical/tuition expenses.
         o Doesn’t cover reimbursement or peripheral expenses (room, board, books, etc)
     Annual $12,000 exclusion for gift (only includes present values of future interests)
     Unified Transfer Tax Rate Schedule: Page 850
         o Gift tax procedure: see page 851
         o Gifts:
                  Not complete till donee has given up control
     To figure out tax owed:
         o Calculate gross estate
                  Any property that passes by will or intestacy
                  Any property in joint or common tenancy
                          Common: we count one-half.

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                 Joint: between non-spouses, we count the amount of money that the decedent paid
                  in to the cost. Burden of showing surviving tenant’s contribution is on decedent’s
                  estate (we assume it was 100% and, if prove, go backwards from there)
      Contents of joint bank accounts
               Same rules as for property
      Life insurance
               Only if the policy was payable to estate, or if decedent owned incidents of
                  ownership (right to change beneficiary, cancel, surrender, or assign)
      Annuities/retirement/death benefits
      General powers of appointment
      Lifetime transfers (includes appointments to other people, or even a release of a power to
         appoint)
      Transfers with life estate, control, or reversionary interests retained, or which are
         revocable
      Gifts within three years of death
o Bigger list on P. 869
o Subtract Deductions
      Unlimited marital deduction
               Technical Requirements:
                      o SS must be entitled to all income for life, payable annually or more often
                      o POA must be exercisable in favor of spouse or her estate, during life or by
                          will.
                      o POA must be exercisable by spouse “alone and in all events”
                      o SS’s interest must not be subject to a power in anyone else to divert
                          property elsewhere.
               Requirements:
                      o Transfer must not be of a terminable interest (no life estate, for example)
                      o Both spouses must be US citizens/residents
                      o Surviving spouse must actually survive the decedent
                      o Deceased spouse’s estate must actually include the property
                      o Property must be passed by will, intestacy, or nonprobate transfer
               These special trusts also qualify for the marital deduction:
                      o QTIP: Qualified Terminable Interest Property Trust: spouse entitled to all
                          interest for life, payable annually or more often, and no person, not even
                          the spouse, can appoint the gift to anyone but the spouse. Spouse can be
                          given special power to appoint by will.
                               Executor must timely elect to treat it as QTIP.
                               Spouse need not have any right to corpus, but they can if it says so
                      o POA: Power of Appointment Trust: same as QTIP, but spouse has general
                          power to appoint corpus to anyone in will. Since SS has a general power,
                          the assets will be included in SS’s gross estate at death.
                      o Estate Trust: gives trust to spouse for life, remainder to spouse’s estate.
                          Basically gives a testamentary general power of appointment. Don’t have
                          to give spouse all the income.
      $2M standard deduction
      Unlimited Charitable Deduction to approved charities
               IRS list: Publication 78
               Remainder shares don’t count for charity unless a unitrust or similar device is
                  used.


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                              o Unitrust: pays fixed percentage of payout, between 5 and 50 percent, to
                                 charity, per year, remainder to a charity.
       o Add Adjusted Taxable Gifts
       o Multiply by unified tax rate
       o Subtract Gift Tax already Paid
       o Bypass trust: to use both spouses’ standard deduction:
               Set up a trust containing the max deduction ($2M) and give spouse a special power of
                  appointment. Can give spouse (but need not give her):
                      Income from trust
                      Power to invade corpus under ascertainable standard (more than “happiness”), or,
                         have a trustee who is able to invade under any standard.
                      Right to withdraw greater of $5k or 5% per year
                      Power to serve as sole trustee
       o Bypass disclaimer trust: anything survivor disclaims goes into a bypass trust. Allows spouse to
          decide then what he needs.
   Generation Skipping Transfer Tax
       o When a property interest terminates in one generation and shows up more than one generation
          down, the tax is triggered. It’s a flat rate of 46% in 2006.




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