WILLS AND TRUSTS OUTLINE v2

WILLS AND TRUSTS NOTES ANALYSIS ADMINISTRATION OF PROBATE 3 3 4 4 4 5 5 5 6 6 6 6 8 8 8 10 11 INTESTECY Determining timing of death Non-Probate Property in CA and all property at CL Timing of Death in CA Identifying a Surviving Spouse Pre-Deceased Spouse’s Reversionary Rights Identifying Children Conceived before but born after fathers death Statutory Adoptions Adoption of Minor Children Special Issues In Identification Property Characterization and Determining Jurisdiction Tree of Consanguinity Common Law: Four Types of Intestate Taking Determination Bars to succession of property through Intestacy WILLS Analysis Probate Will Requirements & Formalities Codicils Holographic Wills Revoking a Will Determining What is Your Will: Multiple Documents and Acts of Indep. Significance. 13 13 13 14 15 15 16 17 1 Ademption 20 TRUSTS Analysis: 22 22 TYPES OF TRUSTS ELEMENTS OF A VALID TRUST Modification of a Trust Termination of a Trust Administration of Trusts i. Power of Appointment ii. Two Types of Powers iii. Testamentary Power of Appointment iv. Lifetime Power of Appointment v. Exercise / Termination / Failure of a Power of Appointment vi. Trust Protectors i. Future Interests in a Transferor ii. Future Interests in a Transferee Rule Against Perpetuities Duties in Administration of Trusts 23 23 24 24 25 25 25 26 26 26 27 27 28 28 30 2 ANALYSIS 1. Determine Timing of Death i. Determine who Heirs are 2. Characterize all heirs as valid or invalid 1. Spouse 2. Children 3. Other „Issue‟ 3. Divide all property into probate and non-probate. i. Probate = all property that goes by will or intestacy. 1. Community and Separate Property goes through probate unless a specific type that is non-probate. ii. Non-Probate = 1. Life Insurance 2. Payable on Death benefits (IRA / 401k etc) 3. Interests in Trusts 4. Joint Tenancy / Comm. Prop w/ Survivorship 4. Divide Property: i. Will – follow instructions ii. Non-Will Property – Go through Intestacy 1. Intestacy – Tree of Consanguinity a. Determine Surviving Spouses Share first. i. UPC: Spouse Takes All** ii. CA: See Rules b. If no surviving spouse OR there are additional takers, go to tree of Consanguinity c. Choose a Per Stirpes Method and Apply. ADMINISTRATION OF PROBATE 5. Appointment of Executor (named in will) or Administrator (named by court). i. -Executor’s duties: 1. Inventory and collect decedent‟s assets 2. manage the assets dueing administration 3. Receive and pay creditors claims 4. clear chain of title to assets 5. Distribute remaining assets to those entitled. a. Real Property is Devised to Devisees b. Personal property is bequeathed to legatees. ii. Executors are required to post a bond (insurance usually) unless it is waived in the will. 6. Obtain Letters of Administration for domiciliary jurisdiction and ancillary administration letters in other jurisdictions with real or titled property. i. Authorizes the executor to act on behalf of the estate. 1. Probate will be opened in each state in which there is real property, so should make sure the will is valid in each of the 50 states. 3 a. Three witnesses + a notary, in a closed room all witnessing the signing. ii. Two Forms of Letters 1. In Solemn Form (Formal) – Notice given to all stakeholders under the will and court involved. 2. In Common Form (Informal) – Ex Parte proceeding of the court with no notice. But caveat challenges could be filed by stakeholders later. 3. UPC: Any stakeholder can demand formal probate. a. All creditors have to file claims within a specified period. Usually one year. 7. Guardianship i. If you die intestate the court decides who will be the guardian. Court uses criteria that may preclude the wishes of the natural parent. ii. Guardians are appointed by the court and are often times a lawyer the judge is familiar with. All costs of the guardian are taken out of the estate. All actions of guardian must be approved by the court. iii. CONSERVATORSHIP: UPC and Uniform Conservatorship Act of 1977 enact a conservatorship system. 1. It is more flexible than guardianship. INTESTECY 8. Definition: 9. When Property is not properly disposed of in a will or non-probate fashion, the state‟s intestate succession statutes govern the disposition of the property. 10. Reasons for Intestacy i. Will not Valid ii. Will doesn‟t dispose of al the property iii. Will omits certain people. 11. Determining timing of death i. Non-Probate Property in CA and all property at CL ii. A person succeeds to the property of a decedent only if the person survives the decedent for an instant of time. iii. If there is no sufficient evidence (clear & convincing standard in CA) of the order of deaths (i.e. Common Disaster), the beneficiary is deemed to have predeceased the donor. 1. Death = circulatory & respiratory functions stop, or brain stops functioning. iv. Thus neither inherits from the other and CP and SP goes to individual descendants. 1. EXCEPTION: Where there is a life insurance policy, the proceeds are distributed as if the insured survived the beneficiary. 4 v. Timing of Death in CA 1. Time Required to inherit Intestate Property: must survive decedent by 120 hours (clear & convincing evidence) PC § 6403. a. Exception: if this rule would make property escheat to the state. 12. Identifying a Surviving Spouse i. A Spouse is Someone Who Was: 1. Formally married 2. Putative Spouse (CA) a. Requirements to be Putative Spouse i. A putative marriage occurs when one or both spouses relies on a good faith belief he/she is validly married but such marriage is in fact void or voidable. FC § 2251. 3. Domestic Partners (CA) a. Requirements to be Domestic Partners i. Men and Women who live together under an agreement of marriage and cohabitate will in a court of equity be treated as married on the basis of contract law (Vallera). However not for purposes of Family Law, such as consanguinity. 13. Pre-Deceased Spouse’s Reversionary Rights i. In California: ii. Distributing property on death of a previously pre-deceased spouse. 1. Real property (CPC 6402.5(a)) a. in limited circumstances when second spouse dies within 15 years of first spouse, and the second spouse has no issue and no new spouse, then can go to first family‟s spouse 2. Personal property (CPC 6402.5 (b) a. Same as real property, except second spouse has to : i. die w/in 5 years ii. have title iii. worth equal or greater than $10k 3. How to avoid CPC 6402.5 a. get married b. get rid of the asset c. spend it d. write a will e. live longer than 15 years past your deceased spouse f. have issue 5 14. Identifying Children i. Natural Children 1. CA a. A person is a “natural parent” and child a “Natural Child” if: i. is established where relationship is presumed and not rebutted ii. may be established through Uniform Parentage Act iii. One of the following conditions exists 1. A court order entered during father‟s lifetime declaring paternity 2. Paternity is established by clear & convincing evidence that the father has openly held out the child as his own. 3. It was impossible for the child to be held as his own and paternity is established with clear & convincing evidence a. i.e. dead or didn‟t know @ the child b. When the natural parent of their family is trying to inherit from the child: i. The parent acknowledges the child, AND ii. The parent supported the child, ii. Conceived but not Born Children 1. Conceived before but born after fathers death 2. To Child‟s advantage to be treated as in being since conceived and shall be treated as such if born alive. 3. Rebuttable presumption if over 280 days after „fathers‟ death. iii. Adopted Children Issues 1. Statutory Adoptions a. Adoption of Minor Children (Hall v. Calendingham) i. (Maj.) Once a child is adopted, the adopted child loses all right of inheritance from its natural parents. ii. Child is severed from prior family tree and is treated as being attached only to the new family tree. 6 1. If only one parent adopts, only sever relationship w/ same sex natural parent 2. Causes a problem when same sex couples want to adopt. 3. Unless you meet requirements of CPC 6451: a. Father and kids lived together as parent and child, OR b. Couldn‟t live together, parent died before child born (posthumous), AND c. adoption of a step parent, OR d. after death of another parent. e. If all requirements are met, can inherit FROM original father and Through father, but Father and his relatives cannot inherit BY the kids f. EXCEPT: But if adoption was by deceased spouse‟s spouse-if step mom had adopted F‟s kids once F died, then step mom could inherit from the kids (BY kids) 4. iii. (Min. / CA/ UPC): Does not sever the relationship when the children are adopted by the step father. b. Adoption of Adults (Minery) i. Some states allow adults to be adopted. ii. Adoptor must be older than adoptee iii. Adoption for the purpose of bringing into the testamentary line under a previous testamentary instrument is counter to the intent of the adoption laws and is void for such purpose. c. Adoption is not revocable. 2. Equitable Adoptions (O‟neal v. Wills) a. Adoption occurs on principles of equity on whether or not a person should be treated as a child of the decedent even though there has not been a formal adoption. b. Law allows a person who was accepted and treated as a natural op adopted child to share in the 7 inheritance of the foster parents property. CA § 6455 i. Dissent says look to the activity of the foster parents c. This case has been greatly criticized. 15. Special Issues In Identification i. Half Bloods 1. Most States don‟t have any distinction between half and full blooded kin. 2. Old English Rule said half bloods can‟t inherit 16. Property Characterization and Determining Jurisdiction i. Community Property 1. A deceased spouses share of community property is freely alienable and will be devised per the will or will follow intestacy. 2. If falls to intestacy goes to surviving Spouse. ii. Separate Property 1. Devise According to the deceased‟s will 2. If no will, if surviving spouse, she takes. 3. If no surviving spouse, tree of Consanguinity iii. Real Property 1. Devise determined by the law of where the land is located iv. Personal Property 1. Bequeath determined by the law of where the decedent was domiciled at death. 17. Tree of Consanguinity i. Community Property 1. Goes to Surviving Spouse 2. If no surviving spouse, then treat like SP. ii. Separate Property: 1. Choose Per Stirpes method and Apply. a. Give Spouses Portion First, Heirs Second. b. UPC: If there is a surviving spouse and any children of the deceased are also children of the surviving spouse, surviving spouse takes everything. 2. California Strict Per Stirpes a. There is a spousal portion and a rest of decedent‟s portion. b. If spouse is pre-deceased, then entire SP estate goes to heirs. c. If Surviving Spouse, and 8 i. No children, grandchildren, siblings, nieces or nephews = Spouse takes all ii. Deceased has a living child or issue of predecease child = Spouse takes ½ and other ½ spread equally iii. No children but parent(s) or siblings or nieces/nephews, = Spouse takes ½ and other ½ spread equally iv. Decedent leaves >1 child = Spouse gets 1/3 of Estate and 2/3 spread equally v. Decedent leaves 1 child and issue of at least 1 other child = Spouse gets 1/3 of Estate and 2/3 spread equally vi. Decedent leaves issue of 2 or more deceased children = Spouse gets 1/3 of Estate and 2/3 spread equally d. If NO surviving Spouse (in accordance with § 240 definition of Equally): Note: as soon as we find a category that fits stop & distribute EQUALLY i. Issue 6402(a): 1. moving down the first column including grandkids ii. Parents equally 6402(b): iii. Issue of parent(s) 6402(c): 1. brother/sister and below including nieces/nephews, etc. 2. half-siblings v. step sibling a. half siblings-count as full blood b. step siblings-not treated as siblings iv. Grandparents of decedent or issue of grandparents of decedent 6402(d): 1. continue down column 3 v. Issue of predeceased spouse (6403(e)) 1. i.e. decedent‟s step kids 2. this goes off the chart vi. Columns 4 and 5 (6402(f)) 1. look for the lowest # on chart and they win 2. tie breaker-if same number, look to who‟s in closest column vii. If no one in the columns (6402(g)) 9 1. then we give it to the in-laws e. Equally = Division By Representation into equal shares (CPC 240) i. If all survive in one generational class: 1. then divide into as many equal shares as are living members of that class 2. I.e. if all kids are alive or grandkids ii. If surviving classes are mixed 1. Go to 1st generation where at least 1 person is alive 2. Count the living people on that line & dead w/ issue 3. Give each an equal share to each living and dead on that line, 4. Heirs of the deceased split their deceased parents share equally between each other 18. Common Law: Four Types of Intestate Taking Determination i. Per Stirpes – people lower on the tree step into the shoes of the people higher up if the higher ups are dead. 1. Strict Per Stirpes – The pro rata division is done at the level of the children. Issue of deceased children split child‟s share through representation. O A (1/2) B (1/2) DEFG(0.5/4) C (1/2) 2. Modern Per Stirpes – the entire estate is apportioned pro-rata across all takers. i.e. DEFG and C above would each get 1/5. 3. English Per Stirpes – Divide the property into as many shares as there are living children of the testator and deceased children who have descendants living. 4. Uniform Probate Code – Equally near equally dear. Each child of testator, predeceased or not, is allocated an equal share of the estate. Then the share allocated to predeceased children is pooled and split evenly among those representatives of the predeceased children that survive. a. Said Differently, Each level of genealogy is distributed evenly. Those shares allocable to predeceased parties fall through to the next level and are again re-distributed equally among all 10 surviving people at that level. 19. Bars to succession of property through Intestacy i. Cases in which an otherwise eligible take is barred: ii. Conditions of Barring: 1. Homicide a. Courts may allow killer to inherit, because putting a stay on inheritorship is another form of punishment beyond jail not called for in the law. b. Stays to the killers taking under the tree of consanguinity can be created or implemented by: i. By statute ii. By Court created law of equity by ignoring the consanguinity statute. iii. Constructive Trust to prevent unjust enrichment. Legal title passes to the next in line 1. Constructive Trust is a legal fiction 2. It separates legal title from beneficial title. 3. Legal title vests in the trustee 4. The benefit of the title (the property) rests in the beneficiary. c. Court created a constructive trust with the outcome tied to whether she voluntarily or involuntarily killed him. i. Here the legal title vests in the trustee, the court, and ii. The beneficial title vests in the next person in the tree. iii. Beneficiary can sell / transfer / pledge the property as the constructive trust is a legal fiction. d. UPC § 203 Bars a killer from succeeding to probate and non probate property. (Goes beyond a normal intestacy statute). e. When is it sufficient to prove culpability? i. Intestacy is a civil issue. Doesn‟t have anything to do with criminal law. ii. A criminal acquittal doesn‟t take them out of the woods. Must see if they are not guilty under the lower preponderance f the evidence standard. 2. Acts Not Homicide a. CA: Abuse of Elder or Dependent Adult b. Others: Abandonment 11 c. China: is the party worthy of taking? 3. Voluntary Disclaimer “I don’t want” a. Disclaimer Interests are treated per strict per stirpes b. Three Elements of a gift: i. Intent??? ii. Delivery iii. Acceptance 1. Under common law an intestate successor cannot stop property from passing to them. 2. If there is no acceptance… 3. CA Has a disclaimer statute.. c. Gift and Estate Tax imposed on the value. i. One reason a person might disclaim is for gift and estate tax purposes. ii. If the parent disclaims it might go to the child who has a lower tax rate. iii. A person might disclaim to keep the property away from creditors that the heir has. 1. Disclaimer must meet the requirements of the Internal Revenue Code § 2518 to not be taxable. a. Qualified Disclaimer = a disclaimer that is made within the 9 months after the interest is created or after the donee reaches 21 whichever is later. 2. This does not work if the creditor is the federal government. a. Power to channel the estates assets warrants the conclusion that property is held or a right to property is held, and it is therefore subject to federal lien. 4. Advancements (P. 114) a. Common Law Rule (greatly criticized): Amounts were treated as an advancement unless they are specifically discussed as not an advancement. b. UPC 2-109: Not an advancement unless the parties say that it is. c. CA Rule is similar. PC § 6409: Calls for monies that are paid are not considered an advancement unless specified. 12 i. Cal CPC 6409-don‟t believe everything is an advancement ii. need a writing signed by the decedent and has to be contemporaneous w/ the gift OR iii. the recipient can acknowledge in writing that it‟s an advancement at any time 1. hotchpot-treat the intervivos gift as part of the estate and count against the one heir‟s share of the estate iv. When dealing w/ advancements-add, divide, subtract 1. ex. 300,000 estate, but A got a 30,000 advancement-ADD now 330k 2. since 3 kids, each gets 110,000, except take the 30,000 out of A‟s share, so A gets 80,000 v. 6409-If recipient of advancement dies b/f decedent, advancement doesn‟t count against recipient‟s issues unless is specifically states so vi. Value of the gift 1. property is valued @ the time of possession OR 2. at enjoyment of party OR 3. at time of decedent‟s death WILLS 20. Analysis: i. Did the decedent leave a valid will? 1. Capacity? 2. Intent? 3. Formalities? a. Absent the requisite formalities the Will will fail and property will be distributed per the intestacy statute in that state. ii. What constitutes the valid Will? 1. Look to Integration and Republication iii. Has the valid will be revoked? iv. How should property be distributed 1. Acts of Independent Significance 21. Probate: i. Defined: when administering a will or intestacy must go through court. ii. Probate = court approved asset splits. 1. In CA don‟t have to go through probate if spouse takes everything or estate is less than $100K. 13 2. Reasons to go through Probate: a. Protection from creditors i. creditors only have short SOL to present claim b. Court stamp of approval on distribution of property c. Ability to collect property and transfer title iii. Jurisdiction: 22. Will Requirements & Formalities i. Pre-Requisites for a Valid Will: 1. Testamentary Intent a. Evidentiary Question. b. Standard: Clear and Convincing. ii. UPC § 502 Formalities 1. Must be in Writing a. UPC & CA 2. Must have signature of the testator a. UPC: in testators conscious presence b. CA: Signed by one of the following i. Testator, or ii. In Testator‟s name by some other person in testator‟s presence 1. By the Testators direction or conservator 3. Must have signature of the attesting witnesses a. UPC: 2 Individuals within reasonable time after he or she witnessed the signing of the will or testators acknowledgement of the will or signature. b. CA: Must be witnessed by 2 persons (other than a notary) present at the same time who know the doc is a will when testator either: i. Signs the will ii. Acknowledges the signature iii. Acknowledges the will c. Case law: Depending on the jurisdiction, some states require the witnesses to be contemporaneously present in same place, others don‟t. i. 1982 – England got rid of the present at same time requirement. ii. Some states have a “line of sight” test. 1. Testator need not see the witnesses sign, but he must be able to see them should he look. d. Order of Signing: i. Tesatator Must be First e. What Constitutes a Signature 14 i. Does it have to be at the bottom of the document? ii. Videotape wills? iii. Computer Files as wills? 1. Many jurisdictions do not allow. f. Attestation Clause i. It is a self proving affidavid ii. The will can be admitted to probate even if the witness predeceases. g. Interested Witnesses i. CL: Interested Witnesses (recipient of property under the will) are disqualified, and not counted as a witness. ii. CA: will is valid, but bequest to the interested witness is void iii. Disclaiming the property – it goes to the point of the creation of the interest. 1. Except: Purging Statutes (P. 215) Apply purging statute first, then disclaimer statute. iii. Formalities serve 4 functions in the law: 1. Ritual a. Reinforces the gravity of the act 2. Evidentiary a. Increases the reliability of the evidence 3. Protective a. Channeling i. Standardizes to way wills are written and executed 23. Codicils: i. “Codicil” = A testamentary Instrument that amends but does not replace a previous testamentary instrument. 1. Can be printed or holographic. ii. Has same requirements as the original will as to formalities. 24. Holographic Wills i. Wills that are either all hand written, or are pre-printed with fill in the blanks. 1. „Holographic Wills‟ also include wills that are not properly witnessed and attested. ii. Requirements: 1. Capacity 2. Testamentary Intent 3. Material provisions have to be in testator‟s handwriting, not entire will 4. Signed by Testator 15 5. iii. Proving a Holographic Will: 1. UPC: Intent that the document constituted the testators will can be established using extrinsic evidence, including nonholographic areas of the will. (UPC § 1990) a. Standard = Clear and Convincing. 2. CA: Extrinsic Evidence is admissible to determine if a document constitutes a will, or to determine the meaning of a will or a portion of the will if the meaning is unclear. 3. There has to be enough material provisions for the holographic portion of the document to stand on its own, otherwise the document is void for deficiency. a. Knock out surplus and re-construed the will. b. This may invalidate the will. c. The printed portion of a will cannot be given dispositive effect, but it can be used to show what the hand written words mean. iv. 25. Will Language i. Conditional Language (PC 6015) 1. Not a condition, but just a reason for writing the will 2. Presume that the language of condition does not mean that the will is to be probated only if the stated event happens, but is instead merely a statement of the inducement for the execution of the will, which can be probated upon death for any cause 3. 26. Revoking a Will i. A will can be revoked by writing or physical Act 1. All states permit revocation of a will in one of two ways: a. By a subsequent writing executed with testamentary formalities (the best way) i. Revoke the prior will and add a subsequent writing replacement. b. Can also revoke a will by a physical act, such as destroying (by burning) a will. i. Oral declarations without more is inoperative in every state. c. If will is not revoked in a manner permitted by statute it is admissible into probate. d. UPC § 1990: A burning, tearing or canceling is a revokatory act on the will whether or not the burn tear or cancellation touched any of the words on the will. i. Previous statutes said must destroy words on the will. 16 e. CPC 6120-can revoke will by: i. Subsequent will ii. Physical act or canceling of will 1. if canceling the will, canceling words must touch the words of the will 2. Ripping up will must be done in presence of and by the direction of the testator 3. Never advise this since it makes unclear what to do w/earlier will 4. In CA can revoke part of the will 5. If you revoke by physical act of a copy, doesn‟t count. Duplicate original does count though. ii. Contract to Revoke or Not Revoke a Will 1. A contract to make a will or devise, or not to revoke a will or devise, or to die intestate, may be established only by: a. Provisions of a will stating material provisions of the contract, or b. An express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or c. A writing signed by the decedent evidencing the contract. 2. The execution of a joint will or mutual wills does not create a presumption of a contract not to revoke the will or wills. a. There must be clear and convincing evidence of a contract not to revoke a will. 27. Determining What is Your Will: Multiple Documents and Acts of Indep. Significance. i. Will Interpretation 1. Courts Do not want to reform a will. a. No Reformation b. No Extrinsic Evidence 2. Two Rules: a. Plain Meaning Rule (i.e. No extrinsic evidence rule). i. The Will has been subjected to many tests, and in a form to achieve many functions. Parol Evidence would essentially abandon these protected functions. There are exceptions. ii. Exceptions to the Plain Meaning Rule 1. Extrinsic evidence is allowed to bring in questions about: 17 a. Meaning of an ambiguous Term in the Will b. Capacity. b. No Reformation Rule i. Reformation is an equitable remedy that would be to make the will what the testator intended to say. Courts normally take position they do not have the power to do this. 3. ii. Earlier Created Documents 1. Incorporation by Reference a. Three Criteria: (all must be manifest) i. Writing in existence at the time of the Will ii. Will manifests an intent to incorporate iii. Will specifically refers to the document. (with reasonable certainty). 1. If you have a valid holographic will, incorporation by reference can be used to get the types part in. 2. Doctrine of Integration a. Documents are physically present when the will is executed b. Testator intends for the documents to be integrated into the Will i. Is typically an appendix or exhibit after signature page. iii. Later Created Documents 1. Doctrine of republication by Codicil a. A validly executed codicil re-dates and republishes entire will on the new date of the codicil b. (Maj) Codicile only works where there is a preexisting valid testamentary instrument. c. (Min) A validly executed codicile operates as a republication of the will no matter what defects existed in the earlier document (in effect curing the will). d. Ex. i. married, had will, got divorced ii. will-codicil-stating republication by will naming new executor iii. since there is a will after the divorce-will still goes to ex spouse e. Ex of change in publication date. i. Under the doctrine of republication by codicil, the date of publication of the will is 18 brought forward to the date of the codicil, which allows the document that was not in existence at the time of the original will to be „in existance‟ and therefore incorporated by reference. (Clark v. Greenholden). iv. Acts of Independent Significance 1. Issue: Need to determine who to give property to or what to give them because Will is telling you to look outside to determine what or who a. (ie I give $100 to each of my employees at death) 2. RULE: A will may dispose of property by reference to acts and events that have significance apart from the effect upon the disposition made by the will whether they occur before or after the execution of the will or before or after the testator‟s death (UPC 2-512) v. Power of Appointment 1. Special Power, Ccn‟t appoint yourself, must be a charity. 2. Testamentary power because have to appoint in will. 3. Ex. Sara leaves residue of her estate to any charitable trust designated by her brother Barney. 28. -Will Substitutes and Interpretation i. No Reformation Rule 1. Courts do not want to reform a will. 2. Plain meaning of the doc. a. Extrinsic evidence ok when dealing with issues of:. b. Capacity c. Latent Ambiguity d. Mistake ii. First Tenent iii. Joint Tenancy w/right of survivorship iv. Community Property w/ right of survivorship 29. -Division of Assets under a Will i. -The Issue of Lapse 1. General Procedure: a. If the devisee does not survive the testator, the devise lapses. i. In the event of a class gift the proportions just change to reflect one less class member. b. If there is a lapse the gift goes to the residuary. i. Generally no residue of the residue is allowed. 1. Except: a. CA allows to go to a different residuary. 19 c. If no residuary taker specified, then anti-lapse statute steps in. i. If determination of residue ambiguous, can use extrinsic evidence. ii. CA: If residuary is kin to testator, Residuary‟s Issue will take as alternate residuares. d. Anti-lapse statutes substitute another beneficiary for the predeceased devisee. e. If none of the above in effect the gift falls to intestacy. 2. When not to apply lapse procedures: a. When will provides a substitute disposition. i. Ex. To A if he survives me, but if he doesn‟t to B. b. If the wording shows an intent to give to a class i. To my living brothers and sisters. 3. Void Gifts a. A gift is void where the devisee is: i. Dead at the time the will is executed ii. The devisee is an animal that is ineligible. iii. Devise is treated as lapsed. ii. Ademption (Property not addressed in will) 1. Extinction: a. Only Relates to Specific Devises b. Two Jurisdictions: i. Identity Theory Juris 1. If specifically devised item not in testators estate, the devise is extinguished. Intent irrelevant. a. Ex. If testator sold or gave the property devised in the will away before dies. ii. Intent Theory Juris (CA and UPC) 1. If the specifically devised item not in testators estate, devisee entitled to cash value of the item if intent of testator can be shown. a. Burden of proof on Devisee. iii. Exceptions: 1. Change in Form not Substance (i.e. change in bank name) 2. Classify as general not specific (i.e. 100 shares og GM stock v. 100 shares of my Gm stock). 2. Satisfaction 20 a. If Will calls for a general devise (i.e. cash) to devisee and testator inter-vivos gives such a gift, does it satisfy the will? i. Old Strict Rule: No unless intent to satisfy the will is shown in writing. ii. Modern Rule: Presumption of satisfaction of the devise. (??) 3. Abatement a. When the estate has insufficient assets to pay debts as well as all the listed devisees. b. Can only have a devise after debts have been paid. c. What happens when not enough money to distribute in the manner in which the will called for? i. Residuary gets crammed down first. ii. General Devisee iii. Specific Devisee iii. Restrictions on the Power of Disposition 1. Widow’s Election a. Gives husband a life estate in testator‟s CP on the condition that his CP be given (along with testators) to devisee‟s in your will after his life. 2. Omission a. Unintentionally Omitted Spouse i. A make a will that does not provide for a spouse ii. Then you marry iii. Will cannot be changed in any way (no codicil after marriage about anything) iv. If the above, then spouse cut in?? b. Omitted Children i. Child must prove sequence 1. Will, child not in will 2. Child born or adopted 3. No change in will or codicil ii. Protection from unintentional omission, CA will protect an omitted kid in 3 situations: 1. Child born after execution of the will (will or revocable IV trust) 2. CPC 21622-unaware of the child‟s birth 3. testator believed child was dead iii. Exception CPC 21621 (only exceptions for “a” under protection from unintent. omiss) 1. gave everything or almost everything to child‟s mom 21 2. intentional omission, but don‟t allow extrinsic evidence 3. transfer outside the will iv. EX: husband H has 3 kids, drafts will leaving everything to PLS, then has kid #4 & dies 1. only kid #4 is an omitted child 2. how much does kid 4 get? 2/3 x ¼, so kid #4 gets 1/6 3. if more that 1 kid, kid get 2/3 of intestate share 3. Disinheritance a. In all states except Louisiana, children have no protection from intentional disinheritance by the parents. b. We do need protection from an unintentional omission. i. The omission of a child born after the execution of a will is protection by state statutes designed to protect against the unintentional disinheritance of such child. ii. UPC 2-302: Un-mentioned children are cut in on what is given to the rest of the children. (II) TRUSTS 1. Analysis: i. What Type of Trust is it? ii. Is it a valid Trust? 1. All Elements Met? a. Has Trustee Accepted? 2. RAP not violated? 3. Has it been revoked? iii. 2. Overview: i. A trust is a legal fiction. A device where Property has a bundle of rights attached to it. Each right can be divided into two categories. 1. Legal title a. Held by Trustee i. The manager of the property ii. Fiduciary Level of Care 1. Duty of Loyalty and Prudence. 2. No Self Dealing 3. Duty to inform and account to beneficiaries. 22 2. Equitable Title a. Held by Beneficiary i. Gets the income & corpus ii. The Settlor / Trustor creates the trust and puts the property into the trust. 1. A trust that is created during the life of the settler is referred to as an intervivos trust. 2. A Trust created by will is a testamentary trust. 3. Types of Trusts i. Revocable Trusts 1. settlor/trustee/beneficiary are the same person 2. Settlor can revoke. 3. On death property passes to residual beneficiaries. ii. Irrevocable Trusts iii. Living Trust 1. Can be modified or revoked anytime prior to death. At death be iv. Testamentary Marital Trust v. Trust for Incompetent Person vi. Simple Trusts 1. Beneficiaries can demand res at anytime. vii. Charitable Trusts 1. Exempt from RAP 2. Not for benefit of beneficiaries. Non Terminable Trusts: viii. Spendthrift Trust 1. For benefit of person who can‟t take care of themselves. 2. Not allowed to be terminated prior to the time provided for in the trust. a. Note 4(a) UTC 411(c) Existence of a Spendthrift clause is not presumed to constitute a material purpose of the trust. ix. Support Trust x. Discretionary Trusts xi. Trust for Minors 4. Elements of a Valid Trust i. Declaration of Trust 1. Oral for Personal Property 2. Written for Real Property or Testamentary Trust ii. Delivery 1. The property must be sufficiently delivered to indicate that settler intends the trust to be binding. a. Trustee‟s acceptance is not critical in the creation of the trust. 23 b. In order for the trustee to have a fiduciary obligation, must accept the appointment. i. An affirmative act may be sufficient to accept the appointment (Uniform Trust Code). ii. Test: Would a reasonable person conclude that X has accepted the trusteeship. 2. Resignation: a. CL: Court order or consent of beneficiaries required b. UTC: May resign on 30 days notice. iii. Proper Beneficiaries 1. Must be ascertainable 2. Cannot be same person as trustee iv. “Res” / Property 1. There must be property put into the trust 5. Modification of a Trust i. Not allowed unless in a state with the UTC in effect or a trust protector appointed. 1. UTC States (CA): § 412(a): Court may modify the administrative or dispositive terms of a trust or terminate the trust because of circumstances not contemplated by the settlor, so long as it is done in accordance with the settlor‟s probable intention. 2. UTC § 416: Allows a modification to achieve the settlor‟s tax objectives. ii. However, when a termination is contrary to a material purpose of the settler, a trust will not be allowed to terminate. 1. This is inherent for certain trusts: a. Spend Thrift Trusts are not allowed to be terminated prior to the time provided for in the trust. i. Note 4(a) UTC 411(c) Existence of a Spendthrift clause is not presumed to constitute a material purpose of the trust. b. Support Trust – Same as Spend Thrift c. Discretionary Trust - Same d. Trust for Minor Children – Same i. Can‟t terminate and get money before hit the certain age. 6. Termination of a Trust i. Trust cannot be terminated even if all beneficiaries consent if termination would be contrary to a material purpose of the settler ii. 4 types of trust w/ a material purpose = CANNOT TERMINATE 1. Spendthrift 2. can‟t get stuff until designated age 24 3. discretionary trust 4. support trust iii. makes it almost impossible to terminate iv. Terminating a trust early causes the life beneficiaries to get everything and the remainder interests are terminated. v. Revocable Trusts 1. Only a Settlor can revoke a trust a. (maj) If created by written instrument, irrevocable, unless there is an express or implied provision that will allow revocability. i. No revocation in a will. b. (Min). Trust is deemed to be revocable unless there is language that makes it irrevocable. (CA & TX) (UTC § 602(a)). i. UTC allows revocation in a will. 7. Administration of Trusts . i. Power of Appointment 1. Definitions: a. Donor: Creates the Power b. Donee: Holds the power c. Object: The persons in whose favor the power may be exercised d. Appointee: A person in whose favor the power has been exercised. e. Taker in Default: the person who takes when the donee fails to exercise the power. 2. Anyone can be vested with a power of Appointment. 3. Creation: a. Donor must have intent. b. Express or Implied c. Words of wish or desire (precatory language) do not create. ii. Two Types of Powers: 1. General Powers of Appointment: (P 589) a. A power exercisable in favor of: the donee, his estate, his creditors, or the creditors of his estate. b. Owner of Property: The Donee c. Powers of Donee: Absolute. To create any type of estate or new powers of appointment. d. Rights of a Creditor against a Donee of a General Power: i. (Trad): Creditors may not touch Property under a power of appointment. 25 ii. (UTC / Mod): Creditors, once they have exhausted the Donee‟s other assets, may reach into the appointed property. 2. Special Power of Appointment a. A power exercisable in favor of: Anyone but the Donee or as limited in the special power grant. b. Donee agent for Donor c. Not Owner of Property for Tax Purposes iii. Testamentary Power of Appointment 1. Can only be exercised through a will. 2. Contract for Future Appointment Void: a. The donee of a life estate with a power of appointment at death can exercise through an enforceable contract to make an appointment in the future. iv. Lifetime Power of Appointment 1. Exercisable during the life of Settlor v. Exercise / Termination / Failure of a Power of Appointment 1. Once a Power of Appointment has been created it may be: a. Voluntary Release: Has effect of failure to exercise. b. Exercised: Writing Not Required. c. Ineffective i. Lapse 1. When beneficiary dies before donee dies. 2. Specific Devise: a. Goes to Residuary 3. Residuary Devise a. Falls out of will and goes to intestacy. b. CA – No residue of the residue allowed. c. UPC – Residuary gift that lapses will be shared by the other residuary takers 4. There are Anti-Lapse statutes that step in and prevent a lapse from occurring. 5. Anti-Lapse Statutes: a. Class Gifts: just redistribute. b. Will silent: statute substitutes a new beneficiary. c. Courts will construe broadly to avoid falling to intestacy. 26 d. There is an order of lapsing (see above) ii. Fraud: 1. No taking iii. Doctrine of Capture (Anti Lapse Statute?) 1. When there is a failure to exercise a general power of appointment, the takers in default take, a. If there are no takers in default, the property passes to the donor‟s estate through intestacy, unless the doctrine of capture applies. 2. Capture occurs when the donee of a general power of appointment manifests an intent to assume control of the appointed property for all purposes and not just for the limited purpose of giving effect to the expressed appointment. 3. Commonly manifested when the donee blends the assets. 4. If capture applies, donee‟s estate takes. 5. Only applies in cases where donee has a general appointment. vi. Trust Protectors 1. A person armed with specified powers. a. Usually power to replace trustee 2. May not be subject to fiduciary Duties. 8. -Construction of Trust Interests i. Future Interests in a Transferor 1. Reversion a. All types of Reversions are vested interests. b. Reversionary Interests arise when an owner conveys less than the whole interest owned. c. Reversionary Interests pass to heirs. 2. Possibility of Reverter a. (Exists when a present fee simple determinable is conveyed. If the determinable condition fails to be met the reverter occurs automatically). 3. Right of Entry (aka Power of Termination) a. Exists when the grantor conveys a fee simple subject to a condition subsequent. 27 b. Same as Possibility of Reverter except only created a right to re-enter, not an automatic re-entry. ii. Future Interests in a Transferee 1. Remainder Interests a. Remainder Interests become possessory when all previous or simultaneously created interests expire. A remainder cannot divest a previously created interest. b. Vested Remainder i. Interests given to presently ascertainable person with no condition precedent. c. Contingent Remainder i. Interest given to a not presently ascertainable party, or ii. Is subject to a condition precedent. 2. Executory Interest a. Is a divesting interest b. Allows a transferee to step in on the property in possession of another transferee in the middle of their interest when a certain condition occurs. i. “Springing”: Interrupts a right of entry or revertor (i.e. divests a transferor) ii. “Shifting”: Interrupts a remainder interest. (i.e. divests a transferee) iii. Alienability of Future Interests 1. Holders of a Future Interest are not entitled to present possession or enjoyment, although they are presently existing interests. 2. Inter Vivos Alienability a. Common Law: i. Vested Remainders are alienable inter vivos. ii. Contingent Remainders and Executory Interests are merely chances at ownership, so not alienable inter vivos. b. Modernly: Vested, Contignent, and Executory Interests are all alienable, except if there is a spendthrift clause in the trust. 3. Testamentary Alienability a. Reversions, remainders, and executory interests are descendable and devisable, except if contingent upon surviving to the time of possession. 9. Rule Against Perpetuities i. Applies when there are contingent future interests in a trust. 1. Does not apply to charitable trusts 2. Does not apply to reversionary interests 28 ii. A future interest breaks unto two sub-types: 1. In Possession a. When rights to possession accrue 2. In Interest a. When owner(s) is ascertainable b. May be subject to „open‟ but that‟s ok. iii. Rule 1. Steps to take when dealing w/ problems a. When are interests created? i. IV transaction: as soon as it‟s delivered ii. Will: on testator‟s death iii. Irrevocable trust: minute a valid trust exists iv. Revocable trust: when power to revoke is destroyed, usually when Settlor dies b. Interests subject to RAP i. all contingent remainders ii. all executory interests iii. all class gifts c. Who is the life in being d. CALI Steps i. Do we have an interest to which RAP applies? a. all contingent remainders b. all executory interests c. all class gifts subject to open. 2. If Yes, ii. When did the instrument creating the interest become effective? a. Find the date iii. Who were the lives in being when the instrument became effective? a. Identify all humans in the facts b. identify only those alive at the time the interest was created c. Limit the list to those relevant: d. Are named as the measuring life e. Have at least a potential interest in the property f. Are named as the transferee(s) of a prior vested interest AND are before the 29 contingent interest in chain of title. g. Are able to influence or affect who might take. h. If there is no human to qualify, the 21 years is measured from the effective date of the instrument. iv. When is 21 years from the last “life in being” on the list? v. Is it possible it might take more than that time for the interest to vest or become impossible to vest? 1. If No a. Stop. The interest is good. 2. If Yes vi. What most likely will happen to this interest since it is not valid under RAP? e. Guarantee: interest is vested or destroyed & all classes are closed w/in LIB plus 21 years iv. Any interest that violates RAP is struck out and the valid interests are left standing, unless doing so would frustrate the purpose of the donor, in which case the entire gift is void. 10. Duties in Administration of Trusts i. –CL Trustee Duties 1. Loyalty a. No Self Dealing with trust assets i. If patently self dealing, no further inquiry is required for a conviction. ii. If in this situation either: 1. Disclaim Trusteeship 2. Go to Court and get the deal ratified. b. No Conflict of interest actions adverse to the trust. c. Must act in best interest of trust to preserve and grow the assets for the use and benefit which the trust was set up for. 2. Prudence a. Reasonableness b. Old Rule: Ordinary Prudence as a man would exercise in dealing with his own property. c. Modern Rule: Prudence as a Modern Investor i. Must link risk to reward. ii. Trustee shall consider the purposes, terms, liquidity and other variables in light of the needs of the trust. 30 iii. Must do so in the context of the entire portfolio, not each individual investment. 1. Therefore, one bad investment is not a breach of the duty in a big portfolio. 3. Accounting a. To the beneficiaries of all assets, income and liabilities. i. Balance and Income Statement ii. -ERISA Trust Duties 1. Pensions Governed by Federal Law, preempts state CL trust law. 2. Duties: Loyalty and Prudence a. Investing Decisions must be made based on market return and Risk i. Modern Portfolio Theory: 1. Risk Factors: a. Market b. Industry c. Company 2. Beneficiary Needs: a. May conflict if different classes of beneficiaries. 3. Equitable Adjustment Rule (Maj): Trustee will adjust allocation between principle and income as needed to fit the beneficiaries. 4. UniTrust (min): An income beneficiary gets a certain % of the trust and the principle beneficiary gets a % of the trust. b. Investing in social causes not allowed under ERISA. 3. A trustee names in consideration of special skills is held to a higher standard to use those skills. 4. Delegation: Trustee may delegate investment and management functions, so long as trustee behaves in a manner that is consistent with the UPIA. 31