1 Will and Trust Outline INTRODUCTION TO ESTATE PLANNING 1. Transfer of the Decedent’s Estate a. Probate Property – property that passes by will or by intestacy b. Nonprobate Property – property passing under an instrument other than a will. Includes: i. Joint tenancy property (real and personal) ii. Life insurance iii. Contracts with payable on death provisions iv. Interest in trust 2. Administration of Probate Procedures a. Terminology i. Intestacy – anything that does not transfer by the will INTESTACY: AN ESTATE PLAN BY DEFAULT 1. Basic Scheme a. UPC § 2-101 – Any part of estate not passed through will passes by intestate. i. Partial intestacy – will is drafted so poorly not all property is caught by probate. b. Rule: Law of the state where decedent was domiciled at death governs the disposition of personal property; law of state where real property was located governs real property. c. Shares go to i. Spouse ii. Descendents by representation iii. If not DS, DC’s parents equally iv. If no surviving parents, to the DS of the DC’s parents or either of them by representation; v. If none of the above, the to the grandparents or their DS. vi. If none to the state. 2. Share of Surviving Spouse a. UPC § 2-102 --Spouse Gets: i. Entire Estate if: 1. No descendent (DS) or parent of decedent (DC) survives DC or; 2. All of DC’s surviving DS are also DS of the surviving spouse and there is no other DS of the surviving spouse who survives the DC. ii. First 200k + ¾ of any balance of the intestate estate if: 1. no DS of the DC survives the DC, but a parent of the DC survives the DC. iii. First 150K + ½ of any balance of the estate if: 1. All of DC’s surviving DS are also DS of the surving spouse BUT the surviving spouse has one or more surviving DS who are not DS of the DC. iv. First 100K + ½ of estate if: 1. One or more of the DC surviving DS are not DS of the surviving spouse. b. Uniform Simultaneous Death Act – if there is no sufficient evidence of the order of deaths, the beneficiary is presumed to have died before the donor. i. Exception: In the case of joint tenancy, property is divided between tenants. ii. Proof: UPC and USDA require “clear and convincing evidence that the BF survived the donor by 120 hours (5 days). 3. Shares of the Descendents (DS) a. Generally: Children get what is left. If a child of the DC has died, leaving children of his own, they represent the dead child’s share. i. Sons in law and daughters in law are excluded in all states. b. Taking by representation: 2 i. English Per Stirpes – Divide estate by number of children (dead or alive) and then split among grandchildren.1 ii. Modern Per Stirpes (per capita with representation) – If there are living children of DC then it is exactly like English Per Stirpes. If there are no living children, it is divided equally among the first generational level of surviving heirs.2 iii. Per Capita at Each generation --each surviving DC in the nearest generation gets his proportional shares. The remaining shares are divided equally to the DS of the dead DS. 3 c. Negative Disinheritance i. UPC § 2-101(b) – you can disinherit for intestacy purposes through a negative will. 4. Shares of Ancestors and Collaterals a. Collateral Kindred – all person related by blood to the DC but who are not DS or ancestors b. First-line Collaterals – DS of the DC parents c. Second-line Collateral – DS of the DC grandparents other than DC’s parents and their issue. d. If the DC is not survived by spouse, DS, or parent, in all jurisdictions property passes to brothers and sisters and their DS. e. If there are no first-line collaterals property passes by 1 of 2 systems: i. Parentelic System: estate passes to grandparents and their DS, and if no grandparents then to great grandparents and their DS ii. Degree of Relationship: estate passes to closest of kin counting degrees of kinship. 1. Count steps on table of Consanguinity. f. Laughing Heir --Under UPC, great grandparents on up are laughing heirs and they do not get anything. g. Half Bloods – Majority of states treat half bloods as same as full bloods (half sister gets as much as full sister). 5. Transfers to Children a. Meaning of Children i. Adopted Children 1. Hall v. Vallandingham --Earl and Liz marry and had four children. Earl dies and Liz marries Jim and he adopts the four children. 25 years later, Earl’s brother Will dies intestate, childless and single. Earl’s children want the estate. Issue: Can the children that were adopted by another father take a share from the original fathers brother? Reasoning: Court said they cannot. Cannot receive dual inheritance. Adoption is like the rebirth of a new life. Adoption severs the prior family tree. The law prior to this case had been that the children of Earl could have inherited from the brother but the statute was modified by the legislature and the court said that was fine. The legislature determines what the rights of intestate will be. (Under UPC § 2-114 the children could collect) 2. UPC § 2-114 – Child adopted by the spouse of his natural parent CAN collect through the rights of the other natural parent. 3. Adult Adoption a. Most states treat just like regular adoption b. Typically done to avoid will contest. c. Minary v. Citizens Fidelity – mom left a will that paid income to the husband and sons. When the last beneficiary died the estate was to be distributed to her then surviving heirs. Alfred (son) adopted his wife so she would be able to inherit. The court held that widow of surviving life beneficiary of trust, adopted by life beneficiary as his child long after execution of will and death of testatrix was not an heir entitled to take remainder of trust under will providing that upon death of last surviving beneficiary remainder should be distributed to 'my then surviving heirs' according to laws of descent and distribution. The court reasoned that even though the state law permits such adoption and even though it expressly 1 A, a widow, has B and C as children. C has D and E as children and B has F. B and C die before A. G gets ½ and D and E get ¼. 2 In the above example D, E and F would all get 1/3. 3 A has B,C, D. B has E; C had x and Y. B and C die before A. When A dies, D gets 1/3. E, X, Y get to split equally the remaining 2/3. 3 provides that it shall be 'with the same legal effect as the adoption of a child,' we, nevertheless, are constrained to view this practice to be an act of subterfuge which in effect thwarts the intent of the ancestor whose property is being distributed and cheats the rightful heirs. 4. Equitable Adoption a. Requirements i. Must be an agreement between natural parents and adoptive parents to adopt a child ii. The natural parents must fully perform (turn over child) to adoptive parents iii. The child fully performs by moving in with the adoptive parents iv. The adoptive parents die intestate. b. O”Neal v. Wilkes --Facts: Patty O’Neal was shuffled around to several people. She had no parents. He aunt took her in and could not deal with her so she transferred her to Page who was her aunt. Page took her to a couple who wanted a daughter named the cooks. They raised her as their own. It appeared there was an agreement between parents and Patty lived in the household. The aunt did not have legal custody. The court here took a pretty technical view of what equitable adoption means. The decent did not like it. Court held that since the aunt did not have legal custody, no parent could transfer custody so she was not adopted. ii. Posthumous Children 1. Child who is conceived before but born after death of father. a. They are treated like any other child. iii. Nonmarital Children 1. In all States, child can inherit from the mother. 2. Majority of states permit inheritance of father where there is: a. Evidence of a subsequent marriage b. Acceptance by the father c. By adjudication during the life of the father or d. By clear and convincing evidence after death. b. Advancements i. Generally: Transfer to a child reduces the DC estate. ii. UPC § 2-109 – Transfers to children during the DC life are advancements only if: 1. the DC declares in a contemporaneous writing or the heir acknowledges in writing or 2. a writing indicates that the gift should be taken into account in computing the division and distribution of the DC interest. iii. Common Law – any gift is an advancement c. Guardianship and Conservatorship of Minors i. If minor’s parent die and do not appoint a guardian in the will, the court will appoint one for them. 1. Guardianship terminates when the child becomes of age; dies; or is adopted. ii. If designated by will, courts look with deep suspicion. Must have sufficient recording requirements. iii. Property Management Options 1. Guardianship of Property – wards until child is of age; no investment powers 2. Conservatorship – gives guardian trustee powers with the authority to control investment a. Appointment and supervision by the court is required 3. Custodianship – person given property to hold for benefit of minor. Essentially the money is given to the custodian for benefit of child. 4. Trusts – trustor can tailor bequest with the most amount of flexibility 6. Bars to Succession a. Two ways an heir can be barred from getting share in estate: Voluntary and Involuntary b. Involuntary Bars i. Type of Conduct that can prevent taking of property: 4 1. Murder a. In re Estate of Mahoney – Wife killed husband and then wanted his inheritance. Court ruled that she held the inheritance in constructive trust. 2. Voluntary Manslaughter a. Key: Intent to kill i. Involuntary manslaughter would not provide constructive trust because there is no intent. ii. Who takes if killer is barred? 1. Killer is stated to predeceased the victim. In a constructive trust, the court distributes to the next person in line. iii. Standard of Proof 1. If there is a conviction that is all that is needed. Acquittal is not res judicata and an conviction is res judicata. iv. Are children allowed to take property that would come to them as a result of the intestacy law when their mother was the killer? Jurisdictions are split. c. Voluntary i. Disclaimer – used when person in line to take inheritance declines. 1. Common law – property still went to the disclaimer and then passed onto next person 2. Modern UPC – disclaimers is treated as if he died before DC. a. Some statutes require disclaimer within 9 months (other offer no limitation). 3. Avoid Creditors a. When the creditor is the IRS ---Cannot disclaim i. Drye v. U.S. – Ron has a daughter Teresa. Erma, Ron’s, mom dies and tries to leave the property to Ron. Ron attempts to disclaim, so his daughter would get the money and not his creditors. The S.C. sided with IRS, because Ron ultimately had control of the property. b. When the creditor is not the IRS, you can disclaim i. Troy v. Hart – Letitcch (L) was a resident of a hospital that was paid for by medicade. L had a situation where he had three sisters who he was not in touch with. One sister dies intestate and Millred, his other sister was appointed as personal rep of the dead sisters state. M goes to L and asks him to disclaim. M wanted his share. If there was no disclaimer each would get 100K but of there was M would get an additional 50K. What is the problem? L was getting medicade and the attorney objected. Can a person receiving medicade disclaim assets? What did the court do? The court did allow the disclaimer but the person will be treated as if they did not. The court did not allow the disclaimer. Though the government was being defrauded. Ct. said they would allow disclaimer to stand with a suggestion that M and G keep their windfall to serve to the benefit of the government. It is against public policy to allow a defrauding of the government by such a strategy. Essentially the court is creating a constructive trust. This is a legal fiction. WILLS, CAPACITY AND CONTENT 1. Mental Capacity a. Requirements: i. Testator must be of an adult age and; ii. Must be capable of knowing and understanding in a general way: 1. nature and extent of the property; 2. natural objects of his bounty; 3. understand the disposition of that property; b. Key: Capability not actual knowledge c. Threshold is very low; not mistake 5 d. Burden challenging will is very high i. Cannot rely on generalizations; must show facts ii. In re Estate of Wright – Lorenzo (L) gave some of his property to several people. He gave most of his property, not to his family but to a friend. Who would take under intestacy? His daughter. The family challenged. The probate court denied the petition. What evidence was brought to the probate court, alleging that Lorenzo was not of sound mind when he executed the will? The notary and witness said that they did not believe he was of sound mind. The S.C. did not however think, despite the testimony, that he was insane. There is a higher standard than just generalizations or a few instances. Additionally when someone signs a will or is a witness there is a presumption that the person is insane. e. Insane delusion i. Generally: An insane delusion is one to which the testator adheres against all evidence and reason to the contrary. ii. Majority View – A delusion is insane even if there is some factual basis for it, if a rational person in the testators shoes could not have reached the same result. iii. Minority (CA) – is there any factual basis to support testators belief. 1. The delusion must impact the testamentary disposition of the property. 2. In re Strittmater – What did S do with her property? She gave it to the National Women’s Property. Who contested the will? Family members. Would these guys be worthy heirs? Probably not since they have not seen her. The delusion must impact the disposition of the property. Court thought she was operating under a delusion. 3. In re Honigman* – Frank drafts a will leaving out his wife because he though she was cheating. His wife Florence challenged it saying he was delusional. What was brought out showing that Frank was suffering from an insance delusion? He was obsessed over it. Came up with ludicrous stories. Rule – A person operating under an insane delusion with respect to one of his heirs, is incapable of making a will with respect to that heir. In order to establish an insane delusion you must show something more than the fact that the testator was operating under a fixed, incorrect belief. Different than mistake. It doesn’t matter that there were other reasons for constructing the will the way it was. It is sufficient that the delusion may have caused the wills provisions. Only the part affected by the delusion is invalid. iv. Majority Rule – a will is bad when it depository provision were or might have been caused by the delusion. Causation is presumed. v. Insane Delusion v. mistake 1. mistake is correctable, insane delusion is not. 2. Undue Influence a. Generally: Will of testator is coerced into that which he does not desire. b. Undue Influence Test 4– i. the testator must be susceptible to undue influence; ii. the influencer had the motive to exercise undue influence; iii. the influencer had the opportunity to exercise undue influence; iv. the disposition is the result of the influence. c. Burden of Proof i. B1 (Proponent of the Will) – Must show will was properly executed. ii. B2 (the contestant of the will)5 – If B1 is met, contestant can challenge the will if he has: 1. A confidential relationship with the testator AND; 2. Something else. 6 4 Estate of Lakatosh – Did Roger exert undue influence over Rose? Yes. Was she susceptible to UDI? Roger met her when she was 70 years old. He met with her several times a day. She was an elderly woman who was susceptible. Did Roger have the disposition to influence her? Yes, he siphoned off money. Got himself appointed as the attorney in fact. Did the influence affect the disposition of the property? Yes. She left the property to Roger. It was an unnatural disposition of her property. Under the power of attorney, Roger gave some money to another lady that was a personal friend of his. 5 Under Lakatosh person must prove: 1) Conf. Rel; 2) person received bulk of the estate; 3) DC will and intellect was weakened. 6 a. Restatement requires suspicious conduct iii. B3 (Proponent) – Influencer must show: 1. He was operating with clean hands in good faith AND;; 2. the testator acted voluntary, willingly and intelligently d. Rules i. No contest clauses are usually allowed unless there is a showing of a probable cause to contest the will. 3. Fraud and Duress a. Fraud i. Generally – Misrepresentation made knowingly and intentionally for the purpose of affecting the testamentary scheme 1. Look for misleading testator ii. Elements 1. Misrepresentation with intent to effect disposition 2. Causation 3. Strike the part of the will affected or place in constructive trust iii. Rule: Only use undue influence or fraud where 3rd party is involved. 1. Puckett v. Krida – Hired nurses for a woman who had alzhiemers disease. The nurses persuaded the woman that her relatives were wasting money and wanted to keep her in a nursing home. Is this fraud or UDI? Sounds like fraud because they are making false statements. They are trying to mislead the testator. Look for misleading in fraud. b. Duress i. Generally: Duress is when undue influence becomes overly coercive. Could involve threat or wrongful act to procure result. 1. Latham v. Father Divine – Lady dies and leaves property to Father Divine. Burden is on lady then it shifts to the family. They alleged duress. The will is proper except for the duress. They are saying that the will would not have been a will if father Devine had not acted wrongfully. This case only stands for the proposition that the cousin’s stated a cause of action. a. Remedy is often to place a constructive trust or cancel part of will the was the result of duress. WILLS: FORMALITIES AND FORMS 1. Execution of Wills a. Requirements (UPC § 2-502) i. Writing ii. Signature of testator iii. Attention by witness 1. Must be signed in front of witness or acknowledged in front of witnesses a. Stevens v. Casdorph --Was this a valid will? No because the witness were two bank employees who signed with will outside of the presence of the testator and each other. Therefore the will is denied probate. Rule: signature shall be made or the will acknowledged by two witnesses present at the same time. 2. Witness must sign within reasonable time a. In Re Groffman – Husband dies with will leaving some to his kids from a prior marriage and some to his current wife. Current wife challenged the will. What was the problem? The witness were not both present at the same time. The sequence of events are described on 204. The deceased signed before asking the witnesses. The witnesses also signed separately. He did not sign in front of them 6 In the Lakatosh case, what is needed in Penn on the part of the person who are challenging the will? There was confidential relationship. That the person enjoying such relationship received the bulk of the estate and that the decedent’s intellect was weakened. 7 so it is denied probate. Rule: Signature must be in front of witness who can acknowledge the act simultaneously. 3. Tests a. Line of Sight test: you must be capable of seeing the witness in the act of signing. If testator is capable of seeing the signing then it is okay. Do not actually have to see them sign b. Conscious presence test: presence is found through site of hearing or general consequence of events that the witness comprehends that testator is in the act of signing. 4. Disinterested Witness a. Estate of Parsons – Will of Parsons was witnessed by three people (Evelyn, Marie, and Bob). The CA statute at that time required two disinterested witnesses. What was the problem? Two witnesses received something in the will and were thus interested. Who attacked the will? Parsons hiers since they would take under intestacy. Under the common law what would happen? A person who was interested was not competent to be a witness and thus the entire will is ineffective. The CA statute only dqs the interested witnesses parts and leaves the will as is. Thus the two witnesses would not get what they were owed by the will but everybody else wood. i. The CA rule now is that if you have an interested witness there is a rebuttabal presumption that the will was procured by fraud, UD, durees, etc. Thus it does not invalidate the device but you have to show that the will was not provided for, for the above reasons. ii. Under UPC an will or provision is not forfeited because of interested witness signature. iii. Common Law A person who was interested was not competent to be a witness and thus the entire will is ineffective iv. Capacity 1. To be competent to make a will, Testator must be: a. 18 years of age; and b. capable of knowing and understanding, in a general way, 1) nature and extent of his property, 2) the natural objects of his bounty; and 3) the disposition he is making. v. Testamenrty Intent b. Mistake in Due Execution i. Extrinsic Evidence --Extrinsic Evidence is admissible to determine whether a document constitutes a will pursuant to Section 6110 or 6111, or to determine the meaning of a will or a portion of a will if the meaning is unclear. ii. Rule: A court may not rewrite a clear and unambiguous will, even for the purposes of implementing the obvious intentions of the testator. 1. In Re Pavlinko’s Estate – What was the mistake? The wrong will was signed. Helen dies, then Vasil. Why wasn’t the mistake covered when Helen died? The will was never offered for probate. What happened if the will was discovered for probate and Vasil discovered the mistake? Vasil could have corrected the problem. However the court ruled because of the mistakes, the wills were meaningless nullity. 2. In Re Snide --There was H and W who had except in the name of the donors and beneficiaries. They had a mutual will. These have the great defect that when one person dies they become a contract that cannot be modified. The argument was that Harvey lacked the required testamentary intent because he never intended to execute the document he actually signed. The court rejected the contention that strict compliance with the signature requirement of the Wills Act prevented remedy for "a mistake so obvious." The court did not order the unsigned will to be probated under a substantial compliance doctrine such as that in Ranney. Rather, the court reformed the mistaken terms of the will that the decedent actually did sign. The husband was the decedent, and 8 the court ordered the names in his will corrected as he intended so that he left his property to his wife and not to himself. a. * On a test say if the court followed Pavlinko then ___, if the followed Snide then ___. c. Holographic Wills i. Generally: Will that meets all requirement except for witnesses ii. Requirements: 1. Writing 2. Signature of testator 3. Capacity 4. Testamentary Intent iii. Kimmel’s Estate – The morning Kimmel died he mailed a letter and at the end of the letter he casually mentioned what should happen to his assets. There was not otherwise a will. How was this different than a will? Did not have witnesses, signature was informal, etc. Question is does not show language showing finality of transfer or rambling of future transfer. Ct. said he possessed testamentary intent. Since he used words like “if anything should happen” showed intention. He also said to save it. iv. UPC § 2-502(c) – allows extrinsic evidence to be used to show testamentary intent 2. Revocation of Wills a. Revocation by Writing or Physical Act i. Generally: All states permit revocation of a will by 1) a subsequent writing executed with testamentary formalities, or; 2) by a physical act such as destroying or burning the document. (UPC § 2-507) 1. Oral declarations are invalid in all states 2. If will is not properly revoked it is admitted to probate. b. Revocation Change in Family Circumstances i. 3 Types of Changes 1. Divorce – divorce revokes any portion with the x-spouse in it. a. Non-Probate property i. Generally is not affected by divorce ii. UPC applies probate divorce rule to non-probate property as well. 2. Marriage --General rule is that spouse gets her intestate share unless it appears from the will that the omission is intentional. 3. New Child After production of will – children are protected. a. They can share in the property. c. Doctrine of Relative Revocation i. DRR Rule: If T revokes his will upon a mistaken assumption of law or fact, the revocation is ineffective if T would not have revoked his will had he known the truth. 1. So this is not going to be what T really wants. What the testator really wants, you can’t give him because the testator made a mistake in doing the revocation (although it is a valid revocation). So what DRR lets us do is undo the revocation. a. Note: So look for a valid revocation that is made because of a mistake to trigger DRR. b. Ex: In holographic will, you write “I devise X” and this is legit. For DRR to kick in, you probably MEANT to do that, but didn’t. ii. DRR Elements: 1. Valid revocation 2. Because of mistake of law 3. Alternative disposition that failed 4. This is the gift that T wanted to give but failed 5. T’s presumed intent 6. Here we look @the alternatives of what we can give the devisee and presume which one the testator would rather had given the devisee. 3. Components of a Will 9 a. Integration of Wills i. Doctrine of Integration – All documents present at the time of execution, intended to be part of the will are integrated into the will. b. Republication by Codicil i. Doctrine of Republication by Codicil – will is treated as re-executed as of the date of the codicil unless the testator’s will can be shown as otherwise.7 1. Only applies to a validly executed will. 2. Only applies if it will further testator’s intent 3. Example A makes will X and then revokes will X with Will Y. Then A published s codicle to the first will Will X is viewed a republished. c. Incorporation by Reference i. UPC§2-510 --Any writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification. ii. Elements 1. Writing 2. Writing must be in existence when the will is executed 3. Will has to show intent to incorporate this document 4. Will has to sufficiently identify document (so that we know what we’re trying to be in) iii. Clark v. Greenhagle** --There was a will dated 1977. Greenhagle was the EX and was to take the property left under the will except what was mentioned in a memorandum which excepted out specific gifts. The TX had a list she make constant changes too. After executing the will TX wrote in notebook changes to property bequests. The notebook alone is not a will. It is not signed, witness, etc. It is simply a notebook. In 1979 she added the gift of a painting to D (listed in the notebook). TX died. P gave out property based up memo. Refused to give painting to D based upon notebook. Can the entry be incorpated by reference? Not according to the UPC. It was after execution of will. How did D end up with the property. Ct. said that it was a valid codicil. Therefore bequest in notebook is valid. a. Key: Incorporation by reference is applied when there is a separate document, not present at execution, yet still in existence, AND referenced by the will. b. NOTE If you cannot use incorporation by reference try and use codicil. d. Acts of Independent Significance i. Doctrine of independent significance permits a court to fill in certain “blanks” in the testator’s will by referring to documents or acts effectuated during the testator’s lifetime for primarily nontestammentar motives. 1. i.e. “at my death” NOT “I have a memo that tell you to give…” 2. Must have control of what is being given. (i.e. Key to drawer) 3. Must have testamentary motive ii. Examples 1. “I leave $5,000 to each person who is in my employ at the time of my death.” a. THIS WILL WORK as AIS It is assumed that she did not employ persons for the purpose of passing property to them at death, but because they were good workers. The act of employment has independent significance apart from the fact that the person employed will receive a bequest at the employer’s death 2. “I leave all real property to be distributed by a trust named in Barney’s will.” a. THIS WILL WORK as AIS The execution or revocation of another individual’s will IS such an event to trigger AIS. i. Barney’s establishing the will and devising his own property is an act that is significant, apart from T’s will-making! ii. Note: if will is ALREADY in existence when testator’s will is executed, use incorporation by reference (provided Barney’s will meets IBR elements) 7 i.e. I write a will, and later I write a letter to be added to the will. 10 3. “I leave to Susan everything in my bank safety deposit box at the time of my death.” a. THIS WILL WORK as AIS A safety deposit box can only be accessed by the owner. Thus, there is LESS of a problem of susceptibility of fraud. 4. I leave to Susan everything in my right drawer at the time of my death.” a. THIS IS NOT GOING TO WORK as AIS What if Susan knows about this bequest and suddenly jams diamonds, banknotes, cash, and other objects into her box? TOO susceptible to fraud! iii. NOTE: A finding of independent significance MAY turn on judicial appraisal of possibilities of fraud. Thus, on test, analyze this (ex: something in-between the desk and safe deposit box scenario, like a personal chest where ONLY testator had access with a key + combination) WILL SUBSTITUTES (5 TYPES) 1. Life Insurance a. Generally: LI contracts or written agreements pass according to the agreement or contract as a WS. i. If it does not meet the formalities and the distribution is testamentary in nature, then you must meet the statutory requirements of the wills statute or else the transfer is ineffective. ii. Cook v. Equitable Life – Cook bought life policy and named wife as beneficiary. 14 years later Cook died named second wife and son as beneficiary under holographic will but never changed name on life ins contract. The court held that the first wife takes b. Payable on Death agreements i. Majority: valid ii. Minority: invalid. iii. Estate of Hillowitz – H was in an investment partnership. Clause in agreement that interest in partnership would go to widow. Question is whether value of partnership interest should pass to the widow under the partnership agreement or through intestacy (i.e. through a will)? POD designations in a contract are valid WS, even though testamentary in nature. This is the majority rule in the courts. This is a POD thing and proper. c. UPC § 2-804 – divorce revokes x-spouse on LI or POD. 2. Pension Accounts a. Egelhoff v. Egelhoff – What is the complicating factor in this case? Both the life insurance policy and pension were governed by ERISA. What was ERISA? Income security act which is federal law and provides that the document that is governed by ERISA is over state law. What docs are they talking about? Life insurance and pension. What does a LI contain? Beneficiary and POD designation. Who is the beneficiary? The decedents first wife. There was a divorce but Egelhoff never changed the WS docs. If you have a WS and there is a change in family circumstances and you have a statue that allows for the change it is no problem, but if there isn’t a statute then you need to change it. Donna was Egelhoff’s first wife, and there is a statute that revokes Donna’s interest. Who takes? The decedent’s children from his first marriage. If the WS is governed by ERISA then you look at its requirements instead of statutes. ERISA says you look at the plan document. 3. Multiple Party Bank Account a. 3 Types i. Joint Tenancy with right of survivorship –A and B can draw from account during life and the survivor can take the balance. ii. Bank Account with a POD designation – B does not have the right to withdraw during life of A, but B takes balance upon death of A. 1. Is this a WS? Yes iii. Agency Bank account – A and B can both have the right to draw on the account, but on the death of A, B does not take. 1. Is this a WS? No, because B does not take on death. 2. Franklin v. Anna National Bank – Frank put sister’s name of bank account. Why would a bank want you to sign a JT. Make clear who gets money on death. General rule is that you comply with signature card that was signed but then, not withstanding the card based 11 upon clear and convincing evidence you can show that the money is supposed to go else where. Agency account is not a valid WS. Money goes through will CONSTRUCTION OF WILLS 1. Mistake or Ambiguous Language a. Rules i. Majority – Cannot use extrinsic evidence to vary terms of a will. ii. Plain Meaning rule: extrinsic evidence may be used to resolve ambiguities in the will but the terms cannot be disturbed by the evidence. 1. Mahoney v. Grainger – It is only where testamentary language is not clear in its application to facts that evidence may be introduced as to the circumstances under which the testator used that language in order to throw light upon its meaning. If there is no doubt as to where they property should go in the will, extrinsic evidence cannot be used a. *Personal use exception --if the EE show testator always referred to a person or thing in an idiosyncratic manner, the evidence is admissible. 2. Patent v. Latent Ambiguity a. PATENT AMBIGUITY = on the face of the four corners of the document i. Common Law: EXTRINSIC EVIDENCE is NOT allowed for patent ambiguities. ii. You don’t have to admit ANYTHING to know there is ambiguity, so the will fails. b. LATENT AMBIGUITY = you have to admit extrinsic evidence to even see if there is a problem i. Examples: 1. When the will clearly describes a thing and two or more things describe that things 2. When no person or thing fits the description but things or person partially fit description ii. Common Law: EXTRINSIC EVIDENCE IS allowed for latent ambiguities. iii. You have to let it in to know if there’s an ambiguity at all, so let it all in. c. CA AMBIGUITY i. CA abolishes difference between patent and latent. ii. If meaning is unclear, we don’t care if it’s patent or latent iii. No Reformation – cannot reform a mistaken word or meaning in a will (can’t correct innocent terms in a will) iv. Equiovation --When two or more people fit the description in the will equally, we will allow extrinsic evidence to see what T meant 1. Ex: “I leave my entire estate to the University of Southern California, known as the UCLA.” So is this UCLA or USC? 2. Arnheiter v. Arnheiter --ambiguity on face of will. Ct allowed EE to correct mistake. What was mistake? Testator did not own property she gave away. What did the court do? They tried to correct mistake and embraced legal maxim where erroneous description does not efficieate legal device. Ct. has no power to correct will by adding words but we will do that anyway. So essentially the court allowed the change from one house to the next house based upon legal maxim. v. False Description doctrine --allows courts to correct ambiguities if they can strike out words and the resulting description is still operative. BUT NOTE you CANNOT add words. 1. Estate of Gibbs --Gave property to Robert J instead of who they intended Robert W. Both existed. They looked at intent of decedent. He knew Robert W for 20 years but barely knew Robert J. They admitted evidence to prove intent. Rule: Details of identification are prone to mistake so they should not be afforded complete protection from outside evidence. 12 2. Death of Beneficiary before Death of Testator a. Lapse i. To take property under a will, the devisee must survive the testator 1. If the beneficiary dies before the testator (or before the T’s specified required survival period) then under lapse we do not give the devise to the beneficiary. 2. If the testator gives a void gift (to his dog), then under lapse, we do not give the devise to the “beneficiary.” ii. Issue Where does gift go?8 iii. Steps:9 1. Step 1: Determine what type of gift it is. a. Specific --A specific thing (my house, my car, my 100 shares of GM stock, all the money in my bank account) b. General --Usually is money $1,000, any good used car, 100 shares of GM stock c. Demonstrative --Hybrid of specific and general gift that is usually satisfied from a particular fund or source of property. “I give $1,000 to D to be paid from the sale of my house on Cherry Lane.” d. Residue --I give all the rest of my property to my kids e. Class --No hard-and-fast definition. i. Court looks @testator’s intent to see if he intended to create a class ii. FACTORS: 1. Whether T used a class label 2. Whether the shares are uncertain until the testator dies 2. Step 2: Determine if Anti-Lapse Statute Applies a. For anti-lapse to apply, the transferee, has to be a specific kind of person: i. T’s kindred or T’s spouse’s kin. (i.e. someone on table of consanguinity); and ii. Transferee must leave issue. b. If both of these are satisfied then the gift goes to the issue. c. If language requires survivorship then AL statutes do not apply.10 d. Note Anti lapse statutes try and focus on two things: the intent of the testator and the relationship between the devisee and testator 3. Step 3: If no Anti-Lapse statute applies Apply Common Law a. Specific, General, or Demonstrative i. `Lapsed gift goes into residue 8 Common Law Hypo • T’s will says my piano to A and all the rest to B. • A predeceases, so the gift to A lapses. o Who gets the piano? – B (specific gifts lapse into the residue) What if B died instead? – Intestacy! (Since the residue gift lapsed) 9Estate of Russell (p.388) – Involves a holographic will. It was a valid holographic wil because it was signed, written, intent and capacity. Is there an ambiguity? A latent one because without knowing that Roxy is a dog it has none on its face. Since Roxy is a dog it is a void device. Who was Chester Quinn? Her buddy. This case centers on the construction of a will. The extrinsic evidence in this case was that Roxy was a dog. What did the probate court used extrinsic evidence for? Used to show intent of Thelma (the devisee). The probate court said all property was left to Chester to take care of dog. S.C. overruled and found that the extrinsic evidence could be used to show Roxy was a dog but not the evidence to show Thelma’s intent. After that was decided the instrument was void. They followed the minority rule in this case. 10 Allen v. Talley – TX anti-lapse statute. Mary had 5 children (JA, CA, LA, LT, JJ). Were the 5 alive at time of execution. Yes. At time of M died only CA and LT were alive. From the stand point of relationship they were all equal, thus no problem here. Who are then the potential beneficiaries of M, if the AL statute applies? The children of three dead brother or sisters. The relationship is not a problem but the question is regarding the intent. What was the intent of M? If M intended that the AL would not apply who takes? The survivors. But if M wanted the AL to apply then all five would take. The problem was in the language which stated “unto my living brothers”, “to share and share alike”. If the language requires survivorship then the AL statues does no apply. 13 b. Residue i. Lapsed residue falls into intestacy ii. But note If you have MORE THAN ONE residuary beneficiary and devise fails to one residuary beneficiary, give to OTHER residuary beneficiary (not intestacy). c. Class Gifts i. Lapsed gift goes to remaining class members (does not lapse) b. Class Gifts i. If a gift is to a class, and a member dies before the testator, the surviving members of the class divide the total gift, including the deceased member’s share ii. Beneficiaries described by their individual names but forming a natural class, may be deemed a class gift if the court decided, after admitting extrinsic evidence, that the testator would want the survivors to divide the property. 1. Dawson v. Yucus – What was the language in the will that caused the grief in the case? Second clause that said 1/5 of farmland went to nephews. Question is over what did she intend… Class or no class? If Gene and Stewart take as a class, since one of the nephews died before the testator, the other would get the portion. If this device were to fail, the amount would go to residuary. The person entitled to residuary is suing. What did the court think? Court said that it was not a gift or no class. What was the reasoning? There was not mutual descriptions such as to the nephews. She used their names. She made a proper class elsewhere in the will so she knew how to do it. Ct. found that there was no gift to a class, therefore Genes share drops to residuary and the residuary takers will take the interest. iii. Application of Anti-lapse to gifts 1. TYPE OF BEQUEST COMMON LAW CPC ANTI-LAPSE Specific or general bequest If devisee dies before T: the specific or general devise LAPSES falls into the residue. If devisee is: 1) T’s kindred, or T’s spouse’s kindred; AND 2) Devisee leaves issue then goes to: Devisee’s issue Otherwise: Common Law (residue) Residue If devisee dies before T: the heirs of T take in intestacy. If devisee is: 1) T’s kindred, or T’s spouse’s kindred; AND 2) Devisee leaves issue then goes to: Issue Otherwise: Other residuary beneficiary If none: Intestacy 14 Class Gift If devisee dies before T: the surviving members of the class divide the gift (no lapse). If devisee is: 1) T’s kindred, or T’s spouse’s kindred; AND 2) Devisee leaves issue then goes to Issue Otherwise Common law (Remaining Class members) 2. 3. GO OVER THIS AGAIN 3. Changes in Property After execution of Will a. Four Types of Devises i. Specific Devise – testamentary disposition of specific piece of property ii. General Devise – testamentary disposition of a specific amount of money, etc. iii. Demonstrative Devise – hybrid; a general devise, payable from a specific source. iv. Residuary Devise – what ever is left over. b. Ademption by Execution i. Generally: Taking away of property that is in a will before death. 1. Only applies to specific bequests; not demonstrative, residuary or general ii. 2 Approaches Taken by Courts: 1. Identity Theory – If a specific devised item is not in the testator estate at death, the gift is extinguished a. Escape Hatches to Identity Theory: i. 1) Classify the devise as general or demonstrative rather than specific. 1. If the court declares it to be a general device ademption cannot occur because it cannot only apply to a specific device. ii. 2) Classify the intervivos dispositions in form, not in substance 1. Is real estate to stock a change in form or substance? Books says change in form although looks like a substance change. A bank account to a CD is a change in substance and therefore it could be adeemed. iii. 3) Construe the meaning of the will at the time of death rather than at time of execution 1. if device said by Lincoln car, and at time of execution testator owed a 1984 and at death owned a 1999, you would construe at time of death to get 99. 2. Intent Theory (Followed by UPC) – If item is not in estate at time of death, the devisee could still be entitled to cash value of item if he can show that is what the testator wanted. a. Wasserman v. Cohen (p.406) – This case involves a bequest of real estate contained in a revocable inter vivos trust. What was the problem? In the will it had specific property appointed at a certain address but the testator sold the property before he died. Now the person the devisee that was supposed to take the property sued and says that she wants as a remedy, the proceeds from the sale arguing that it was the testator’s intent. Who is going to suffer the loss if the court had said yes to the devisee? The residuary takers suffer the lost. What did the Ct due? They followed the identity theory so the P did not get it. The essential point of the identity theory is that if the specific gift is not in the will at the testator’s death then the gift is extinguished. 11 11 What if you could show by extrinsic evidence that it was the testator’s intent for the cash value to go to the devisee? You cannot look at this evidence under the identity theory; you could under the intent theory. 15 c. Stock Splits and the problem of Increase i. Testator owns stock in corporation (100 shares) ii. Corporation decides they want to split stock (THEY take 100 shares and split them 2-for-1, they will re-issue 200 shares AFTER split, which were worth THE SAME as the 100 shares BEFORE the split) 1. SO will says “I give 100 shares to A” CA will give 200 shares to A. 2. You give devisee the amount WITH the split d. Ademption by Satisfaction i. This only applies to GENERAL devises 1. i.e. Will gives 10K to A, but testator gives 10K inter vivos gift 2. This is like advancement in intestacy 3. In CA you need a writing! Otherwise, A will end up with 20K (inter vivos + will) a. Requirements are the same as advancement ii. Requirements: 1. A contemporaneous writing by the testator that this a satisfaction 2. A writing acknowledge as such by donee (at any time) e. Exoneration of Liens i. At common law, there was a doctrine which said the very first thing you had to do when somebody died, executor had to pay all debts, taxes, outstanding bills from funeral, last illness, etc. 1. At common law, this means person took house WITHOUT mortgage a. But in many cases, this wiped out the entire estate 2. CA, like most states reversed common law and person takes WITH mortgage a. Devisee takes subject to the lien b. You only pay mortgage if will SAYS pay the mortgage, then transfer the house. f. Abatement i. The problem happens when 1. The Estate has insufficient assets to pay all debts as well as all devisees 2. Some devisees must be abated a. The order of abatement is: i. Intestate – take first ii. Residual – take second iii. General – take third iv. Specific – divide whatever is left pro rata. b. Note – This is the default rule but testator can put order of abatement in his will. ii. UPC § 3-902 – if testatmenrty plan would be defeated the shares can be distributed to affect the testators intention. Restrictions on the Power of Disposition 1. Rights of a Surviving Spouse a. Non-community property states say you MUST will your spouse something b. Community property states say you DON’T have to will your spouse anything. i. PROBLEM = what if a couple was married in a separate property state, then moves to a community property state? 1. QUASI COMMUNITY PROPERTY = CAVEAT acquiring spouse must die first. a. QCP: is property owned by the husband or the wife while domiciled elsewhere which would have been characterized as community property si acquired in a CP state. b. Effect: The spouse gets to collect ½ of separate property owned acquired by her spouse in a separate property state when he dies. However, if the other posue were to die first, she cannot will that property away. 2. If you’re non acquiring spouse you don’t get quasi community property 16 3. Property acquired in separate property state with marital earnings. a. Personal property (wherever situated) b. Real property (IN CA) acquired in separate property state + die domiciled in CA c. Multi State Holdings: i. The law if the situs controls real property ii. The law of where the marital domicle is located controls characterization of personal property (community vs. separate). iii. The law of the marital domicile at the death of one spouse controls the survivors martial rights. 2. Omitted Spouse a. General Rule – If a person makes a will, gets married and does not make a new will the presumption is he forget and intended to include spouse b. Spouse Does not receive a share if: i. The decedent’ failure to provide for the spouse in the decedent’ testamentary instruments was intentional and that intention appears from the testamentary instruments ii. The decedent provided for the spouse by transfer outside of the estate passing by the decedent’s testamentary instruments and the intention that the transfer be in lieu of a provision in said instruments is shown by statements of the decedent or from the amount of the transfer or by other evidence iii. A divorce occurs c. Procedure i. Omitted spouse must show that she was the wife and was left out of will ii. THEN, burden shift to show why she was not in the will. d. Intent to omit on face of will. i. The WILL must say this. NO EXTRINSIC EVIDENCE is allowed 1. But note Disinheritance clauses do NOT apply to future spouses 2. Ex: Estate of Shannon: Testator executed will and said “I want daughter to inherit all property.” + disinheritance clause intentionally omitting all other living persons and relatives. 3. After execution, testator married new wife 4. Holding New wife WILL inherit. e. Outside transfer to the spouse, which is intended to replace the will i. Extrinsic evidence is OK here (and it’s usually the AMOUNT of a transfer) 1. Most common examples are a. Life Insurance policy that names WIFE as beneficiary b. Pension Plan f. Valid written waiver, waiving right to testator’s estate (prenuptial agreement) 3. Right of Issue a. United States i. In 49 states, it’s OK to omit child (exception = Louisiana) 4. Omitted Child a. In CA, we protect omitted children in THREE scenarios i. After-born child (born after execution of testamentary instrument) 1. SEQUENCE is important a. You write will b. THEN child is born/adopted c. THEN you die i. Note republication by codicil CHANGES the order (will is republished) ii. Ex: Azcunce: T made will, made codicil, child was born, then made another codicil which made no provisions for the child. This child is NOT an omitted child situation (but child can possibly sue lawyer for malpractice for failing to tell testator about express need to provide for child in 2nd codicil) ii. Erroneous belief in death of your child 17 iii. Unaware of your child’s birth b. Exceptions i. Intentional Omission (appears in testamentary instrument) 1. “I intentionally leave nothing to children acquired before or after this will.” ii. Will devised substantial portion of estate to omitted child’s parent 1. (it’s assumed that the parent will give this $$ to the child) iii. Decedent provided for kid outside of the will (extrinsic evidence is OK here) 1. Ex: insurance, pension, inter vivos gift, etc. Trusts 1. Trusts Defined a. A trust is an device wherby a trustee manages property for one or more bfs. i. Essence of trust: settlor is transferring property to one person for the benefit of another. 1. Thus, when it is unclear if a trust is being established, look to see if the essence of the trusts exists ii. The words “trust” is not required we look for intent to create a trust relationship 1. Ex: “To T for the use and benefit of B during his natural life.” valid trust iii. Trusts are used to get around the inflexibility of wills. 1. Often, people like to write a will that states “I will write a memo that devises all my little pieces of property.” BUT this does not work unless the memo is a valid will itself 2. Instead, a trust can be used, which is easily amended. iv. Trusts are particularly attractive if decedent owns real property in another state 1. If this property is not put in a trust, it will be probated twice 2. Trusts Generally a. Trustee gets legal title; bfs get equitable title b. Inter vivos trust is by declarationr or deed of trust c. Testamentry Trust is created by a will d. Elements of a Trust i. Settlor – person who writes the trust. Makes sure there is intent ii. Trustee – you look for an affirmative declaration of acceptance of a trustee. Cannot be imposed upon a person without their acceptance. 1. Must have delivery unless settlor is trutsee iii. Beneficiary – person who is receiving the benefit under the trust iv. Property – the subject of the trust also know as Res e. Trusts Analysis (4 key questions) i. Has a valid trust been created? 1. If it’s unclear run through all the elements of a trust 2. If not, what is it? ii. Has the trustee accepted the office? 1. Trustee is personally liable, so we don’t want to impose onerous duties on someone unless they accept the office a. NOTE: a trust will NOT fail for want of a trustee. Someone will be appointed. 2. Silence and inaction are NOT acceptance 3. Silence and action IS acceptance (ex: if trustee takes $100,000 of the trustee money and puts it in the bank) iii. Look at actions of: 1. Settlor a. Has settlor amended trust? Revoked trust? 2. Trustee a. Look @the terms of trust b. Is trustee upholding his duty? c. Is there a breach of the terms of trust? 18 3. Creditor a. Can creditors come after trust? b. If so, whose creditors? When? 4. Beneficiary a. Can they alienate their interest? Can they force the trustee to pay them more money? iv. Remedies 1. After breach of interest payments, there must be a remedy which allows for the reasonable rate of return on the amount lost 2. Any amount lost must be paid (or if not purchased by BFP, property itself can be recovered) 3. Beneficiaries a. Rights i. Hold equitable title ii. Personal creditor of the trustee cannot reach the trust other than bfs. iii. If a trustee wrongfully disposed of trust assets, bfs can recover unless they property is in the hands of a BFP. iv. If trustee disposes of trust property and acquires new property, bfs can enforce trust on new property. b. Legal Life Tenant i. Legal Life Tenant has no power to sale property ii. They will be responsible for any waste on the property iii. GO OVER THIS MORE 4. Creation of a Trust a. Intent i. No particular words are used to create a trust ii. Key: Did grantor manifest an intention to create a trust relationship? 1. Keep in mind “essence” of trust conveying property to one person for benefit of another. iii. Precatory Language 1. This is non binding language such as “I hope” or “I recommend” 2. Typically these are unenforceable in court iv. Equitable Charge 1. If a testator devises property to a person subject to the payment of a certain sum of money to a third person, the testator creates an EC. a. EC creates a security interest in the transferred property b. No FD are established. i. The relationship is more in the nature of a debtor and secured creditor. 1. This is because X is burdened with the property payable to Y. Y cannot sue X personally as a FD. What rights does a creditor have against a debtor? A BF under trust has the right to go after an asset. Y can only take the amount designated for Y; not the interest. v. Trust or Gift 1. If you die before you give a gift it does not have to be given where a trust it would be devised. a. In an outright gift the legal and equitable title are merged where in a trust they are kept separate 2. Hebrew University Ass. v. Nye – focuses on the question on whether a trust has been established or a gift. Who owned the books in this case. When the husband died it was left to his widow. She went to Israel and discussed giving them to the school to establish some type of room. She could either be a settler or a donor. The W went to a banquet an announced that she was going to give the school the books. After that there was further testimony of her intention to give the books away. Then she died before delivery and 19 they were in possession of her estate. School argues that trust was created. Estate said it was a gift that was never delivered. Court did not find that a trust was created a. A gift is contrary to a declaration of trust. There was never the intent to transfer to X for the benefit of Y. Trust argument fails because there is no intent on part of Ethal to transfer to X for benefit of Y. There was showing of outright gift through symbolic delivery by list that was prepared by her. b. Necessity of Trust Property i. If there is no ascertainable res, then there is no trust 1. Ex: “I want my profits from next year’s stock trading to go to B and C’ a. PROBLEM There were NO TRUST PROPERTY (no profits yet), thus no trust b. SOLUTION Declare, specifically what you were putting into trust. c. Ex: “I want the profits from my $10 that I will trade in stock to go to A, B, and C.” i. Brainard v. Commissioner (p.511) –Oral declaration of trust. He says the trust res is the expected profits from trading stock during specific year. He says losses are not part and they are personal. This is a red flag that he is trying to avoid taxes. Q: Is there a valid trust when the trust res is the expected profit from stock and bonds? Was there a trust res? No there was not so there was not trust. B had to keep the property and take the tax bite. 1. Should have given trust out right. 2. Unthank v. Rippstein – Iva tried to probate this document as a holographic will. This means there must be a writing, intent, capacity, signature by testator. Here the court that the intent was lacking. When she tried to sue. She was saying that the writing was a trust. Who would be the settler. Who would be the trustee? There is no named trustee but probably the executor. But what property? That is the problem. What was the property in this trust? 200$ cash per month. This is what she is entitled to but not property. She was arguing that the property was the entire estate or 10% of the estate. She argued for a resulting trust. On p.510, the court held that the most that craft did was to express an intention to make monthly gifts to Rippstein accompanied by an ineffectual attempt to bind his estate. SO Iva gets nothing. ii. If there is NO ASCERTAINABLE res, but you do all that is possible to make a GIFT, then it might be a valid gift 1. Ex: “I give you the rights to 5% of my profits from “My Fair Lady” to B.” (Speelman) a. PROBLEM There were NO PROFITS yet i. BUT, unlike Brainard, he owned the license to My Fair Lady, thus there was something tangible ii. Note: He owned the license, and playwrights are sold every day b. SOLUTION Make a writing (which was done in Speelman) iii. EXCEPTION for Necessity of Trust Property (Res) 1. Future profits are not adequate property interests in order to fund a trust; a. However, present promise of future profits when coupled with other factors may be an adequate property interest which could fund a trust: b. FACTORS= i. Present ownership of the means of producing the profits creates a present interest in the profits to be produced ii. Once future profits earned, if treat the profits as though they are subject to the trust, there is a valid trust b/c intent to put them in trust and now actually put them in trust, so funds the trust. (Just temporal thing.) iii. No fraudulent intent: when settlor is also the trustee, evidence of intent needed to establish a trust goes up and the same with funding issues b/c settlor could lie about transferring the property 20 c. Necessity of Trust Beneficiaries i. Trust must have one or more beneficiaries unless: 1. trust is a charitable trust 2. Bfs of a private trust may be unborn or unascertained when created ii. Trust can name class as long as the class is ascertainable (i.e. “to my siblings”) 1. If class delineation can be shown to refer to specific group it is okay. a. Clark v. Campbell (p.519) – Decedent wrote a trust not naming any trustees. He left all his property to his “friends”. Issue: Does friends count as a ascertainable bf? Held: No. if a class is going to be named, you need to able to delineate who is in that class. Friends is too ambiguous. iii. Rule: Outright bequest to animals are void. 1. Exception: Honorary trusts iv. Honorary Trusts 1. HT may be crated for any specific purpose that is not capricious. a. HT can be created for the care of animals so long as they do not limit the duration of the trust. 2. TE must agree to act in the capacity of the trust or it fails 3. HT can also violate the rule against perpetuities. d. Necessity of a Written Instrument i. In genral trust do not need a writing requirement unless they are: 1) a testamentary trust or 2) are a trust involving real estate. 1. Must establish trust by C and C. ii. General Rule: Inter vivos trusts of land and testamentary trust created by a will need to be in writing. iii. Exceptions 1. Oral Inter vivos trust of land a. Some jurisdictions will use a constructive trust to validate oral trust of land in the following circumstances: i. Fraud or duress (i.e. A promises to convey to B on B’s promise to use for benefit of C, but B never intended to convey to C) ii. Trustee is in a Confidential Relationship with the transferor (Hieble) 1. Hieble v. Hieble (p.528) – P transferred title to real property from herself alone to herself in JT with her son the defendant, and her daughter. She and grantors orally agreed that transfer would be temporary arrangement. Under SoF, this would be unenforceable as transfer of real property. Son would not return Delivery Writing Proper Parties Intent Res Revocation TRUST Deed of Trust: Delivery required Declaration of Trust : NO DELIVERY required NOT required Unless 1.testamentary trust 2.real property Settlortrusteebeneficiary Essence: Settlor is conveying/holding property for benefit of another (can be to settlor himself) Required Exceptionp our over wills do NOT require Majority: Irrevocable (unless stated otherwise) Minority (CA): revocable unless it says otherwise) GIFT Delivery Required Not required TransferorTransferee Intent to give NOW is required Required Irrevocable 21 property. P sued to get property back. Court imposed constructive trust on the son in which he held the property in trust for the P iii. Transfer was made in anticipation of the transferor’s death 1. Exp: If on my death bed and don’t have time to write a will or get two witnesses, but give A a deed to my property and say will you use this for my disabled child (benefit of third party). We would enforce this even though not in writing iv. Conditions 1. Can’t have unclean hands to use constructive trust a. Pappas v. Pappas (p.529; compare to Heible) – On eve of divorce A conveys property to son. He knows that divorce is coming. Orally though the father says when the divocre is over, the son was to reconvey the property back. Son renigs on the property. Dad sues son. Court sides with the son. Why? Dad had to have clean hands and he was doing something fraudulent. Constructive trust is an equitable remedy so you must have clean hands 2. Oral Trust for benefit of transferor a. Court have little sympathy in using equitable relief for a situation that the transformer created. 3. Oral Trust for Disposition at Death a. Generally need a writing but sometimes courts will use a constructive trust i. Oliffe v. Wells – Ellen assigned her estate to The preacher to distribute as he saw fit. Preacher gave it to his mission. This was oral. That was the problem. What happens if the oral declaration does not apply? Goes to hiers or distributed by will ----not to the mission. So in this case the hiers are bringing suit by claiming a failed trust. Court agreed because it was a fatal Semi-Secret trust. b. Semi Secret and Secret Trust i. Semi Secret – conveyance where you can tell it is a trust but cannot tell who the bfs are. 1. Result Split 2. Why? a. No extrinsic evidence is allowed 3. This is like Oliffe 4. Remedies a. Resulting Trust b. Likely will fail ii. Secret Trust – conveyance where you cannot tell if it is a trust or who the bfs are. 1. Result Construtive trust is imposed if necessary 2. Why? a. Extrinsic evidence is allowed and the disposition will work. i. Evidence can be used to show evidence of promise 3. Remedies a. Constructive trust iii. MAJOIRTY secret and semi secret both get EE and get constructive trust 5. Rights of the Beneficiaries to Distributions from the Trust a. After a trust is created you need to ask what types of bfs and what type of trust 22 b. Types of BFs i. Income beneficiaries – created by life estate ii. Principle beneficiaries – get the property c. Types of Trust i. Mandatory Trust --The trustee has no discretion to choose either the persons who will receive the income or the amount to be distributed 1. ii. Discretionary Trust --Trustee has discretion over payment of either the income or the principle or both 1. Beneficiary cannot get $$/property until trustee gives it to beneficiary (and thus creditors can’t get the $$ either, until trustee gives money to beneficiary) 2. Trustee determines to whom, and how much he pays and does NOT have to pay all of it a. Levels of Discretion: i. Simple Discretion (default rule) 1. Trustee must act with good faith, proper motives, and discretion must be reasonable. ii. Sole Discretion (or Absolute or Uncontrolled Discretion) (Marsman) 1. Trustee must act in good faith but does not have to be reasonable (i.e. not arbitrary). 2. Must say expressly “dispose property in trustee’s sole and absolute discretion.” iii. Duties of Trustee 1. Duty to inquire into financial status of beneficiary a. If beneficiary is ambiguous about financial report, trustee must clear it up 2. Duty to act reasonably (unless it is sole and absolute discretion, explicitly stated) 3. FD owed. a. Marsman v. Nasca –The settlor was Sara. The trustee was Farr. The bf were Sara’s husband Marsman and daughter. The trust res was the residuary estate of Sara. It appears to be a discretionary/support trust. Marsman goes to Farr and says that he is running low on funds and Far said to put it in writing and he will consider it. M never did and lived in a state of poverty. Farr never inquired as to M’s financial situation. In the meantime, M gets married but financial problems persist. He can’t make payments on this house that Sara and given him where he was currently living. Farr will not give him money. M went to the daughter and her husband to make a deal in which she pay the rest on the house and he would change his will to leave everything to the daughter, not the wife. Sally and her husband were bonafide purchasers for value with notice of the breech of the trust. M dies and Sally dies. Richard, Sally husband, told wife to get out of house. Wife sues everyone including trust. As it relates the Richard the court said he was a BFP. Why is the trust liable for not paying money to M? Because it was discretionary, when Farr continually denied M and never checked up on the house or M situation there was a breech of FD. There, however was an exoneration clause. i. If clause said “no trustee would ever be liable”? Would not be a trust because the trustee must be accountable to the bf. 4. Defualt Rules a. Exculpatory Clause i. Trustee is liable unless there is an exculpatory clause ii. Exculpatory clause excuses trustee from liability except for willful neglect or death iii. Exculpatory clauses are VALID unless you can show overreaching by trustee (to the settlor) at the time the trust was made. b. Irrevocable 23 i. Trusts are irrevocable (unless it is a gift, or unless trust explicitly states otherwise) c. Beneficiaries (Alienation) i. If a trust is silent a beneficiary CAN freely alienate property 6. Rights of the Beneficiaries Creditors a. Discretionary Trust i. Beneficiary can’t get $$ until trustee gives it to him ii. Thus creditors can’t get it either. iii. When trustee gives $$ to beneficiary, AT THIS VERY MOMENT, the creditor can seize. 1. NOTE: Creditors can get an order to be paid by trustee before trustee pays beneficiary 2. BUT, trustee can withhold payment, and creditor will NOT get $$ (but beneficiary will not get money either) b. Support Trust i. A support trust directs the trustee to pay only so much of the income or principal as is necessary for the beneficiary’s support or education ii. Support trust is a form of discretionary trust, but not a TRUE discretionary trust because amount necessary is not in trustee’s judgment it is an objective standard 1. I.e Anyone, can figure out how much to give as opposed to saying “enough to make X comfortable”. iii. General View is that bfs cannot alienate support trusts so creditors cannot reach bfs interest iv. Exception (who can reach bfs interest): 1. Suppliers of necessities a. Always in the UTC and Restatement b. Does not apply for purely discretionary trusts for the UTC 2. Children and spouse my enforce claim for child support and alimony against bfs interest in a support trust. a. Under UTC, court can direct trustee to pay amount. b. Does not apply for purely discretionary trusts for the UTC c. Spendthrift Trusts i. A spendthrift trust precludes the beneficiary from: 1. VOLUNTARILY alienating interest (beneficiary can’t transfer) 2. INVOLUNTARILY alienating interest (creditors can’t seize) (THIS IS HUGE) ii. Spendthrift clauses are a restraint on both voluntary and involuntary alienation. 1. But for public policy reasons, if you only restrain one and not both, then you can only restrain voluntary alienation. a. Ex: Dad makes trust for son and wants son to be responsible b. Thus, he restrains voluntary transfers (he cannot alienate his property) c. BUT, he lets involuntary transfers (creditors can attach to trust property) iii. Scheffel v. Krueger --P sued D for abusing her son and she gets a 500K judgment. He has a trust and P wants to attach trust to judgment. Court found that the language created a spend thrift trust. Court found that P could not take or attach trust asset. What was the legal authority the court used. There are only two exceptions: One is if the bf is the settlor and the trust is not a special need trust established for a person with disabilities and second, for fraud. None of these exist. Even though they had a judgment they could not collect on the trust. Settlor can put a restraint of alenination iv. Shelley v. Shelley – What types of trust was this? Mandatory trust with discretionary clause. It was also a spendthrift clause. BF was married and divorced. He was supposed to pay child support and alimony which he did not do. Children and wives wanted a claim to trust funds. Trust established for bf was subject to claims by their children and former wives. Children and wives can take on income but not on corpus because it was discretionary. Can the children take under the discretionary part? Not as creditors but as bf in case of emergency. Because Grant abandoned them the court concluded there was an emergency v. Rule: Children and wives have a claim on income from spendthrift trusts (but not corpus?) vi. Rule: Tort credtors cannot reach spend thrift provision 24 vii. Pension plans may not be assigned or alienated 7. Modification and Termination of Trusts a. Revocable Trusts i. If the Stellor is alive 1. Settlor has ability to modify trust 2. when settlor dies it becomes an irrevocable trust b. Irrevocable Trust i. If the Settlor is alive 1. If the settlor and all the bfs consent an irrevocable trust may be modified or terminated ii. Is settlor dies then apply the following: 1. Caflin Doctrine --A trust CANNOT be terminated (even if all beneficiaries consent) if termination would be contrary to a material purpose of the settlor. c. Modification i. TE can alter terms because of a circumstance not known to the settlor and not anticipated by him, compliance would defeat or impair the purposes of the trust. ii. NO modification of terms of the trust merely because it would be more advantageous to the bfs. 1. In re Trust of Stuchell* – S provided for income distributions to his bfs. The problem arises later after the S passed away. One of the bfs, H, was mentally handicap and living on federal aid. If he were to survive the other bfs, then H would get all the trust funds which would result in him loosing his disability benefits. There is an effort here to modify the trust so that if H survived they wanted a supplemental needs trust that would be secondary. It would not be construed as income under the medicade law. The court will permit the TE to deviate from the term of the trust if owing to a circumstances not known to the settlor and not anticipated by him. Comment B says however that, “the court will not permit or direct the TE to deviate from the terms of the trust merely because such deviation would be more advantageous to the bfs than a compliance with such direction.” Thus, they could not modify the trust. iii. Administrative Provisions 1. Courts are more willing to allow changes in administrative terms than distributive terms. 2. UTC says you can modify admin terms if it follows purpose of trust. a. Purpose is to provide education money, but says ONLY use bank X. Then bank X goes out of business. OK to use bank Y iv. Reformation 1. Equitable remedy that changes the terms to what the settlor intended to say v. Modification by equitable deviation 1. Changes terms to what the settlor intended purposes were. vi. How can you avoid modification and termination issues? 1. Give one of the life beneficiaries special power to appoint a. Beneficiary can appoint somebody else as trustee b. A general power to appoint has tax implications because the gift can be given to one’s self. 2. Appoint a trust protector a. Trust protector is a third party who is NOT the trustee, who has the power to terminate or modify the trust d. Termination i. An active trust may not be terminated even with the consent of all the bfs if a material purpose of the settlor remains to be accomplished. 1. Note: not all bfs must agree if there interest is protected ii. Generally a trust cannot be terminated if: 1. it is a spendthrift trust if the bf is not to receive the principal until attaining a specified age; 2. if it is a discretionary trust or; 3. if it is a trust for support iii. Termination of Irrevocable Trusts 25 1. Majority: unless otherwise stated, a trust created by a written instrument is irrevocable 2. Minority: a trust is revocable unless otherwise stated. 8. Trustee Removal a. Generally, you can remove for dishonesty or serious breech of trust. b. Cannot remove for simple disagreements or dissatisfied with performance. c. UTC § 706 i. Trustee can be removed by court if: 1. because of unfitness, unwillingness or persistent failure to administer the trust effectively 2. lack of cooperation between co-trustees 3. serious breech of trust Trust Administration and the Fiduciary Obligation 1. Introduction a. Trustee and Executor of Wills owes this duty b. FD comprised of: i. Loyalty --imposes on the trustee the obligation to refrain from self dealing with trust assets and from engaging in conflict of interest transaction with the trust ii. Prudence – 1) Duty to Diversify and 2) Duty to investigate 1. This is a reasonableness norm. Comparable to the reasonable person rule in tort law iii. Duty to Delegate 1. Duty to select agent carefully 2. Duty to instruct agent what to do 3. Duty to monitor agent iv. Duty of Impartiality 1. Duty to give full and fair accounting 2. Right to equitably adjust v. Subsidiary Rules that are necessary to comply with the above two standards c. Powers of the Trustee i. Derived from the instrument creating the trust ii. Legislative (2 types) 1. Express reference to statutory powers (ethier in whole or in part) 2. Trustee powers act d. Persons Engaging in transaction with trustee i. Common Law – imposed duty to inquire to whether TE had authority to engage in transaction ii. UTC – Person dealing with TE must act in good faith 1. i.e. good faith belief that TE has authority to sale property. 2. The Duty of Loyalty a. TE must administer the trust for the sole benefit of the bfs. b. Rule: Trustee cannot purchase from himself at his own sale and his wife is subject to same limitation unless, leave to do so is allowed by court order i. Hartman v. Hartle – Settlor had property in will. She named 2 son in laws as executors. She had her 5 children as bfs. The will provides for them to sale the property and give to bfs. Part of land is sold at auction and purchased by one child (A) on behalf of another child (B). B was married to one of the executors. Later B sold it for a much greater price than what she purchased it for. Child C does not like that and sues. Rule: Trustee cannot purchase from himself at his own sale and his wife is subject to same limitation unless, leave to do so is allowed by court order.12 c. Rule: TE cannot deal in his individual capacity with trust property 12 Did the bonafide purchaser have to give property back? No. B had to give a proportion of her proceeds from the sale back to the other bfs 26 i. In Re Gleeson Wills – Land tenant was named trustee. LL died just before his lease expired. Tenant choose to bump up his rates. Court said he was self dealing. He needed to either choose trustee or tenant d. No Further Inquiry Rule i. Where trustee engages in self-dealing, an irrebuttable presumption of breach of loyalty arises. e. Exceptions and/or Defenses i. Test for bf consent – must be full disclosure, the trustee acted in good faith and the transaction must be open fair and reasonable. ii. You could also go to court to get them to approve the transaction. iii. Settlor authorizes transaction iv. If the bank is the trustee and assets are cash f. Remedies i. Get property back 1. Donee Rule: Donee Takes property subject beneficiary can go after donee to get property back in the trust 2. Trust Pursuit Rule: If the person who gets property is NOT a BFP (a donnee, or a purchaser who buys with knowledge of breach), beneficiaries can get the property back. a. Ex: trustee is NOT supposed to sell a house. He does so and buys a boat. Beneficiaries can get boat back in trust property. ii. Sue the Trustee 1. Use when property is in the hands of BFP a. Calculating damages The profit GAINED by trustee; OR if loss incurred by beneficiaries if this is more (pick whichever number is higher) 3. The Duty of Prudence a. Trustee is under a duty to the bf in administering the trust to exercise such great care and skill as a man of ordinary prudence would exercise in dealing with his own property. b. Prudent Investor Standard – includes: i. Sensitivity to Risk and Reward 1. Must invest as a prudent investor would a. Ex: Collins: 2nd mortgage is usually a bad investment because junior mortgage gets paid only after 1st mortgage is paid 2. You cannot invest in a risky investment that has little return. ii. Duty to Diversify 1. Can’t be too heavily concentrated in any investment, even a good one. a. Example = Estate of James 70% share of stock in Kodak even though it’s a good stock, this violates duty to diversify13 2. Exception a. No duty to diversity when the trust asset is settlor’s home or business iii. Ability to Delegate (previously no allowed under prudent man rule) 1. Still need to monitor what is going on c. Approach i. Step 1: Determine if investor acted prudently ii. Step 2: Did he diversify iii. Step 3: Determine date of vestature 1. This asks when, reasonably should the investment action occurred? iv. Step 4: Determine Damages 13 Estate of James – Addresses diversification. Bfs are three trust. First was his wife Cynthia. What type of benefits arise. Corpus interest and also an income interest. A substantial amount of stock was in Kodak. Took really long time to create an accounting. They filed sold the bulk of the stock when the accounting was made. The trial court looks at all of this and concludes. This involves a duty of prudence. They say that the trustee was not prudent. What did he do to get this title? The trustee did not diversify the assets. Even though it is good stock there is a duty to diversify. Trustee has to pay bf the lost profits. When should trustee have diversified according to the trial court? They said trustee should have diversified after probate and between trustee make up. Appeals court changed this outcome to an extent. What did the appeals court use? They used the same date as the date of diversification 27 1. Lost Profits v. Lost Capital a. LOST CAPITAL i. Imprudence consists of negligent retention of assets it should have sold (This violates duty of prudence) 1. Use lost capital when Trustee snoozes (“I forgot to sell, etc.”) b. LOST PROFITS i. Imprudence consists of deliberate self dealing and faithless transfers (This particular type of imprudent investment is a violation of the duty of loyalty) 1. Use Lost profits when there is self dealing or fraud (Ex: Rothko: Trustees were an art gallery, sold paintings to themselves at really low prices, then when beneficiaries came of age, 20 years later, paintings skyrocketed in value. 2. Court gave beneficiaries lost profits a. Instead of price at which paintings SHOULD have been sold, use value of paintings TODAY. d. Causation i. Common Law (Majority): Do not have to prove causation 1. i.e. that the loss was caused by the breach of duty ii. Restatement/Modern/Minority: Must prove causation 1. i.e. must SHOW that the loss was caused by the breach of duty 4. Duty of Impartiality a. Cannot act on behalf of one bf group at the expenses of another bf group. i. Denis Case (p.821) – deals with impartiality. What were the terms of the trust. There was a trust with interest in three buildings (corpus). The bfs seem to be on both sides since they are income and principle bfs. Here there were other bfs that were taking income to the detriment of other bfs. How does this work? How can income bfs take to the detriment of principle bfs? Trustee was allowing them to get extra money. Trustee must look to benefits if both bfs groups. Did district court find? Found that trustee failed to act impartially. This is different than not acting prudently 5. Powers of Appointment a. Generally: The settlor is able to transfer and postpone who should receive an interest in the trust 6. Types of Power a. General Power of Appointment i. Almost like ownership because person can transfer to anyone including the donee, the donee estate or any other person. b. Special POA i. A special POA does not create a property right in the donee. The donee is essentially held to be an agent of the donor. That way for federal estate tax purposes a holder of a special POA a donee is not deemed to be the owner. ii. If this were to fail, the property would relate back to the donor. c. Irwin Union Bank v. Long – L set us the trust. What kind of power was given to P in this case. The court said it was a general power of appointment. Because if he wanted he could receive 4%. He could have given it to himself. This is a general power of appointment. We have a general power of appointment. How did the court rule? They said unless or until donee exercises power they do not have ownership of property. You cannot make them exercise their power. So here there is a creditor trying to compel the donee to pay her what she is owed. The donee of general power of appointment has no property interest unless he exercises that power and the right to do so is personal to the donee Construction of Future Interests 1. Types of Future Interests a. Interests in the Transfeor known as: 28 i. Reversion – interest remaining in the grantor 1. Settlor has right to possess property after a finite estate ends. a. Ex: OA for life then to A’s heirs. b. O has reversion because A’s heirs have CR (unascertained) and if A does not have heirs, then property reverts back to O. ii. Possibility of Reverter – is a future interest that remains in the grantor who conveys a fee simple determinable 1. O gives BA to X so long as BA is used for Y. O has a POR. iii. Right of Entry – future interest retained by grantor who conveys a fee simple subject to condition subsequent. b. Interests in Transferee known as: i. Vested Remainder (VR) 1. A remainder is vested if: a. Given to person who is born b. Not subject to condition precedent c. VR’s CAN be transferred i. Ex: “To A for life, then to B” B has vested remainder 2. 3 Types of VR a. Indefeasible Vested Remainder (IVR) – i. Persons are born and there are no conditions. b. VR Subject to Complete Divestment (VRSCD) – i. Person is ascertained, but possessory interested can be divested by an event. ii. Always followed by an EI 1. Ex: “To Frodo for life, then to Sam, but if Frodo gives the ring to Paul, then to Paul.” (Sam has VR subject to CD, Paul has EI) c. Vested Remainder Subject to Open (VRSO) – i. VR (person is ascertained), but class is still subject to more parties 1. Ex: “To A for life, then to A’s children.” A has 3 children at the time. All kids have VR subject to open (because A can always have more kids) d. Vested Reaminder Subject to Open and Complete Divestment (VROPSCD) – i. VR, subject to open class AND can be divested by condition subsequent 1. Ex: “To A for life, then to A’s kids, but if A’s kids don’t go to law school, then to B.” ii. ii. Contingent remainder 1. A remainder is contingent if: a. It is not given to presently ascertainable person OR; b. Subject to CP iii. Executory Interest 1. Future interest in a transferee that must, in order to become possessory; a. Divest Transferor at some time in future (springing); or b. Divest, or cut short some interest in another transferee (shifting) 2. Springing EI Divest transferor in future a. Ex: “O to A when A reaches 30” 3. Shifting EIa. Ex: “O to A for life, then to A’s oldest child for life, provided that if B should join a cult for either of the life estates, then to C for life.” 1. A has LE subject to EL 2. A’s child has CR subject to SI 3. C has Shifting EI 4. O has reversion in FSA iv. Notes and Rules 29 1. Heirs are not ascertained until the death of another person THUS, they have no property interest only a CR a. An heir cannot will away his expected interest 2. Construction of Trust Instruments a. Why are VESTED remainders better than CONTINGENT remainders i. A vested remainder always accelerates into possession upon termination of the life estate 1. Contingent remainder will not always do so. 2. For a contingent remainder to vest, it must satisfy any and all conditions precedent. ii. A vested remainder is NOT subject to the rule of perpetuities 1. Contingent remainder IS subject to RAP b. Acceleration and Disclaimers i. Common Law – vested remainder accelerates whenever previous estate ends. ii. Disclaimer 1. You can disclaim interest but you cannot direct that interest to someone else. a. i.e. No thanks but give to Y. c. Transferability i. Vested remainders and executory interests are transferable. ii. SO if O to X, but if X does not survive O, then to Y. Y can transfer her interest. X cannot devise d. Requiring Survival to Time of Possession i. General Rule: A vested remainder in a trust passes to the estate of the remainderman at his death unless the instrument provides expressly otherwise. 1. First National Bank v. Anthony – H created a trust for him for life, then to his W for life, and then to his children. H had ABC and, his son B, had DE. After B died and H and W died. Issue: Did B’s interest pass to his kids. Holding: yes. ii. Multi-Generational Classes (“issue”) 1. Court imply condition of survivorship. Rule Against Perpetuities and Trust Duration 1. Rule against Perpetuities a. Future interests must vest, if at all (meaning, they must vest or fail), in time period of any life in being at the creation of the trust plus 21 years i. BIG QUESTION Can you guarantee that this interest will vest or be destroyed, the class will close, and all conditions will be satisfied, within a life in being plus 21 years? ii. KEY: Look for ways that it can fail, not ways that it can succeed. SUBJECT TO RAP NOT SUBJECT TO RAP 1) All CRs 2) VR subject to Open 3) Executory Interest 1) Reversionary interests 2) All other vested remainders 3) All present, vested interests 4) Charitable Organizations (as long as there is no other personal interest in chain entire bequest must be charitable) b. All legal and equitable interests created in a transferee are governed by the rule i. Not life estates ii. IVR end the game. They are good c. Interests retained in the transferor are NOT governed by the rule. d. Life in Being --This is the measuring stick for RAP i. Must be someone alive when interest is created ii. Must be someone who affects vesting of interest iii. Can NEVER be a person in an open class 2. The Requirement of No Possibility of Remote Vesting 30 a. The Fertile Octogenarian i. Problem ---T bequeaths a fund in trust for her sister “A (age 80) for life, then for A’s children for their lives, then to distribute the trust assets to A’s issue then living.” Assume A has two kids: B and C. 1. A LE a. Not subject to RAP. 2. A’s children for their lives LE subject to open. a. LE so not subject to RAP 3. Then to A’s issue the living CR a. Who is the validating life? A (21 years from A’s death must vest). b. So it would have to vest to A’s issue in that 21 year period. Can you gaurtunee that all of A’s kids will die within 21 years of her death? No, so there is the possibility of more kids, so it is void. b. The Unborn Widow i. Where a conveyance refers to a designated person’s widow, there is a tendency to assume that the reference to the widow must be to there person’s correct spouse. This Is NOT the case. The person could divorce and remarry (or the spouse could die and the designated person could remarry). 1. NOTE: a designated person may remarry someone who is NOT EVEN ALIVE when the future interest is created. Thus there is a good chance that this might be violative of RAP 2. i.e. Problem is that the person could become a widow after the Rap period ends. 3. Applications of the Rule to Class Gifts a. “Issue” i. Courts assume that when the word “issue is used, they are referring to a multigenerational class. ii. Courts impose survivorship requirements on multigenerational classes. b. Class Gifts i. Class gifts must follow the “All or Nothing Rule” Requires: 1. The class must close and; 2. All conditions precedent for every member must be satisfied within RAP period. ii. Classes close physiology if parents die, class closes for their kids. iii. Notes 1. There is a difference between “payable at age..” and “to such of X children who reach X age..”. iv. Rule of Convenience 1. If one member of the class is immediately entitled to possession, the class closes a. This chops off after born children. b. i.e .GP give BA to A for life, then to A’s kids who reach 25. A has B who is 26. Since B is 26, the class closes. If A has a kid later they will not get any of the property. Constructive Trusts Purpose: Prevent unjust enrichment 1. If property is acquired in such a way that the person who gets the property is unjustly enriched, the court imposes a constructive trust and give property to whomever equity demands the property to go to which is usually the intended beneficiaries. a. Requirements: i. Confidential relationship ii. A promise: express or implied iii. Transfer of property in reliance on the promise iv. Unjust enrichment of the transferee 31 2. If these requirements are set forth, property returns to intended beneficiaries 3. Can’t be used if one party comes to court w/“unclean hands” so as to avoid a duty under law such as taxes, etc