Wills & Trusts Outline - Knaplund

ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 1 WILLS AND TRUSTS OUTLINE INTRODUCTION TO ESTATE PLANINING: THE POWER TO TRANSMIT PROPERTY AT DEATH 1. The Right to Inherit/The Right to Convey a. Do you have the right to transmit property at death? YES i. Decedents have a right to will away his property to anyone he wants (you can disinherit children, disabled minors, etc.). The complete abolition of an owner’s right to dispose of is a taking without just compensation (Hodel). b. Do you have the right to receive property at death? NO i. Receiving property is not a RIGHT, it is an EXPECTANCY, even if the will says so. c. Taxing Estates i. Upon death, an estate worth more than 1.5 million is taxed d. Policy arguments against taxing estates i. Kristal says don’t look at amount dead guy is giving away, but the amount each person is RECEVING and put a limit on THIS amount. ii. This will help prevent concentrated inheritances of large fortunes. 1. Ways around Kristal’s argument: a. Trusts b. $20 billion life insurance policies c. Dummy corporations 2. Concern with Kristal’s argument a. Disincentive to work hard (communistic) e. Exemption from taxing estates i. Spousal Exemption (no tax from estate) ii. Charitable Exemption (no tax from estate) 2. The Dead Hand: Controlling Right to Marry a. Full Restraint i. A court will NOT enforce restraint on right to marry, because this violates public policy. The right to marry is constitutionally protected by the 14th amendment. b. Partial Restraint i. A testator may validly impose a restraint on the religion of the spouse of a beneficiary as a condition precedent to inheriting under the will (Shapira “must marry a Jewish girl with Jewish parents, or the estate will go to the state of Israel”). c. A partial restraint IS proper and will be upheld when it is: i. Reasonable ii. Not against public policy iii. Not unconstitutional ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 2 d. A restraint is NOT proper and will NOT be upheld when: i. It forces a gay man to marry a woman ii. It forces someone to smoke iii. It forces a man to change his last name iv. Forbidding a man to talk to his sister v. Forcing someone to marry in a particular sect when there are very FEW options in that particular sect. 1. If a provision violates public policy, then the provision is omitted and the money is awarded to the designated recipient: Ex“$10K to Mrs. Williams if she takes her husband last name.” b. Gift Over i. A court will uphold gift over if it is good and sound 1. GOOD and SOUND (will be upheld): To my son if he marries a Jewish girl, if not, to the state of Israel (will not be upheld) Good because it has a good intention. 2. BAD and UNSOUND: To my daughter if she marries a white man, if not, to the KKK (will not be upheld) Bad because it has a bad intention. c. Cy Pres (literally means “as near as”) i. Doctrine says that a trust will be reformed to broaden term of trust ii. If a trust was formed to fight polio on the U.S., polio doesn’t exist any more. The court will reform this and give it to the March of Dimes, which used to fight polio, but now 1. Note: CY PRES DOCTRINE DOES NOT APPLY TO WILLS. BURNING DOWN THE HOUSE • What happens when a WILL calls for the destruction of property? • Can an executor tear down a house (and not be sued for waste)? • Who has STANDING to object? People with Standing are those with pecuniary interest: 1) Devisees under the will 2) Heirs in intensity 3) Creditors a. (Note: the Executor does NOT have standing) • If those WITH standing do not object, it will be torn down • Will the court order the house to be torn down? NO (this is waste). ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 3 CHAPTER 2 Intestacy ******When Someone Dies******* (four step process) 1) Separate Probate and Non-Probate 2) Classify all probate assets owned by decedent 3) What does the spouse get 4) Who gets separate property not given to spouse • FIRST STEP Separate Probate and Non Probate o SEPARATE NON-PROBATE FIRST (you just give it away off the top) 1) Non Probate a. Property passing under an instrument other than a will. i. TYPES1. Inter vivos trust 2. Joint Tenancy, Tenancy by the Entirety, or Community Property with right of survivorship 3. Life Insurance/Pensions 4. Payable on Death (bank accounts) or TOD (transfers on death) a. Only a minority of states will take Payable on death b. Transfer on death is essentially like a will. Decedent is trying to avoid will statute and thus it is essentially a will. 2) Probate a. Property that passes under the decedent’s will, OR by intestacy i. Decedent owns it at death, therefore it is subject to D’s WILL or intestacy b. Just because property is probate doesn’t mean that it goes THROUGH probate. Three functions of probate 1) Collect property and transfer title 2) Get a shorter SOL (for creditors) a. If you’re not sure what spouse’s debts are and you want a shorter SOL to limit creditor 3) Get court’s OK for distribution so heirs can’t complain later Exceptions to Probate1) Universal Succession for Spouse a. Heirs or the residuary devisees succeed to tile of all of decedent’s property; there is no personal representative from the court (only in Louisiana) b. Anything you give to spouse, spouse can elect NOT to go through probate. 2) Small Estate Provision a. After deducting what goes to spouse, is probate estate (real and personal property) worth $100,000 or less? b. If YES, heirs can avoid probate distribution and get property without going through probate. Real property must not exceed $20,000 in California. 3) Affidavit procedure a. Value of all decedent’ real property (just real property) is less than $20K. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 4 PROFESSIONAL RESPONSBILITY 1) Intended Beneficiaries a. Attorneys drafting wills owe a duty of care to intended beneficiaries (Simpson v. Californiavas) b. In order to recover for negligence (malpractice), P must show that a lawyer had a duty of care and breached that duty. i. PRIVITY duty arises out privity, a legal relationship (still required in 9 states) 1. Intended beneficiaries are an EXCEPTION to the privity rule ii. EXTRINSIC EVIDENCE will NOT be admitted to clarify wills 1. Parol Evidence rule of probate = extrinsic evidence is admissible to clarify ambiguities, but cannot CHANGE what is in the will. a. Ex: Evidence defining what “Homestead” actually meant, using an attorney’s notes. If the attorney does not include the actual definition when he should have, probate court will NOT admit such evidence. But he WILL be sued for malpractice (Simpson). 2) Fiduciary Relationship a. A fiduciary relationship exists when one party has a special confidence in another so that the other is bound to act in good faith. b. Lawyer in Minyard was decedent’s lawyer, as well as daughter’s lawyer. Daughter should have been able to give full confidence to him, but he committed fraud. This breached his fiduciary duty. (Minyard) 3) You CANNOT commit fraud on behalf of your client a. Lawyer in Minyard, at client’s request showed the daughter the wrong will and she relied on it to her detriment. THIS IS FRAUD! (Minyard) 4) Written Waiver of Confidentiality a. Written waiver of confidentiality is a good idea if you represent one or more member of the same family. • SECOND STEP Classify all the probate assets owned by the decedent • Community Property • All personal property wherever situated, and real property within California, that is acquired during marriage and while domiciled in CA or another Community property state, is community property. • Separate Property • All property, real or personal, that was acquired while not married • OR Property acquired during marriage by Gift, Devise, and Inheritance. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 5 • THIRD STEP What does the spouse get?? What the spouse gets: a. Community property is: i. CPC 28(a): Acquired During Marriage/Domiciled in This State 1. All property acquired in this community property state during marriage is community property. a. Except: Inheritance and gifts during marriage (this would thus be separate property). ii. CPC 28(b): CP Acquired When Domiciled In Another CP State 1. Exp: If I am domiciled in another Community Property state (there is only 10), and if one spouse acquires a house in that state but moves to California (also a Community Property state), then the property acquired in that community property state is community property in this state. iii. CPC 28(c): Exchange of CP 1. If you exchange community property for something new, then that new thing is also community property Ways to get Intestacy 1) You do not have a valid will. 2) You have a will, but it does not dispose of all your property. (badly drafted will) • Ex: If will all to dog then it is a valid will, but it does not dispose of all your property because u can’t give property to your dog, so look to intestacy rules. 3) Omitted Spouse: You have a will, but you forgot to give anything to your spouse 4) Omitted Child: You have a will, but you forgot to give anything to your child(ren). • Note: What if you have a will, but it says I intentionally leave nothing for my daughter, because she is a bum, so I leave all to my dog? • You cannot give your property to your dog! § 28. Community property "Community property" means: (a) Community property heretofore or hereafter acquired during marriage by a married person while domiciled in this state. (b) All personal property wherever situated, and all real property situated in this state, heretofore or hereafter acquired during the marriage by a married person while domiciled elsewhere, that is community property, or a substantially equivalent type of marital property, under the laws of the place where the acquiring spouse was domiciled at the time of its acquisition. (c) All personal property wherever situated, and all real property situated in this state, heretofore or hereafter acquired during the marriage by a married person in exchange for real or personal property, wherever situated, that is community property, or a substantially equivalent type of marital property, under the laws of the place where the acquiring spouse was domiciled at the time the property so exchanged was acquired. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 6 • Even though my will says don’t give anything to my daughter, the only way I can do this is to write a valid will that gives everything to someone else. So if intestacy is there then we follow intestacy rules and your kid would get something. But if you have a valid will that gives everything to someone else, then intestacy rules no apply. Ways to avoid Intestacy 1) Dispose of all property by will a. (A well drafted will does this) 2) Die not owning anything at all at death a. (this is difficult to do) Distribution of CP, and SP b. Community Property: CPC 100 and CPC 6401(a) c. CP Problem Application i. H died in California, survived by wife, W, and brother, B. H has no will (if he did, then we would just do what it says) ii. Since H died married to W, we have to classify all his assets. Are his assets: CP, QCP, or SP? iii. What happens to his CP assets? 1. CPC 100: This tells us that ½ of his community property goes to the spouse and the other ½ goes to his estate. So, we figure out if each of his property is community property, and if so, we will put ½ in his estate. 2. CPC 6401(a): This tells us where the community property in his estate goes. It says ½ of the CP goes to the surviving spouse and since the surviving spouse owns the other ½ already, the surviving spouse now owns all of the CP. a. Note: The most important word in this statute is “THE”. “..the intestate share of the surviving spouse is THE ½ of the community property…”. Note that it would be different if “THE” was excluded. § 100. Community property (a) Upon the death of a married person, one-half of the community property belongs to the surviving spouse and the other half belongs to the decedent. (b) Notwithstanding subdivision (a), a husband and wife may agree in writing to divide their community property on the basis of a non pro rata division of the aggregate value of the community property or on the basis of a division of each individual item or asset of community property, or partly on each basis. Nothing in this subdivision shall be construed to require this written agreement in order to permit or recognize a non pro rata division of community property. § 6401. Surviving spouse; intestate share; community or quasi-community property; separate property (a) As to community property, the intestate share of the surviving spouse is the onehaal of the community property that belongs to the decedent under Section 100. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 7 d. Separate Property: CPC 6401(c) e. SP Problem Application i. What happens to his SP assets? 1. CPC 6401(c)(1): This gives the conditions in which the surviving spouse will get all of the SP. a. 6401(c)(1): If decedent leaves no children/grandkids, parents, siblings, or nieces/nephews. i. App: Here H was survived by a brother, so W does not get all the SP. 2. CPC 6401(c)(2): This gives the conditions in which the surviving spouse will get ½ of SP. a. 6401(c)(2)(A): If decedent leaves just one child or the issue of one deceased child. i. App: Here H did not have any kids so this does not apply. b. 6401(c)(2)(B): If decedent leaves no children/issue, but leaves a parent or brothers/sisters or nieces/nephews. i. App: Here, H left a brother (issue of H’s parent). So we stop here and we give W ½. Thus, if it is separate property and a brother in our hypo, then the wife will be a TC w/the brother. 3. CPC 6401(c)(3): This gives the conditions in which the surviving spouse will get 1/3 of SP. a. 6401(c)(3)(A): If decedent leaves more than one child b. 6401(c)(3)(B): If decedent leaves one child and the decedent of one or more deceased children. i. App: Neither apply in our hypo. f. CP, QCP, and SP Problem Summary: i. W gets ½ CP (thus owning it all), and ½ SP (sharing it w/H’s brother). § 6401. Surviving spouse; intestate share; community or quasi-community property; separate property (c) As to separate property, the intestate share of the surviving spouse or surviving domestic partner, as defined in subdivision (b) of Section 37, is as follows: (1) The entire intestate estate if the decedent did not leave any surviving issue, parent, brother, sister, or issue of a deceased brother or sister. (2) One-half of the intestate estate in the following cases: (A) Where the decedent leaves only one child or the issue of one deceased child. (B) Where the decedent leaves no issue but leaves a parent or parents or their issue or the issue of either of them. (3) One-third of the intestate estate in the following cases: (A) Where the decedent leaves more than one child. (B) Where the decedent leaves one child and the issue of one or more deceased children. (C) Where the decedent leaves issue of two or more deceased children. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 8 g. Willing Away CP i. Hypo: House is CP. Car is SP. Will says all to my brother B. 1. What do you put in his estate? – ½ house and all car. 2. What does wife get? – TC w/B in house. a. This is because a spouse can will away his share of the CP! But W still owns her ½ of the house. II. Who is Your Spouse? a. California rule (California Putative Spouse Rule): You are a surviving spouse if you have a good faith belief that the marriage was valid. b. Divorce, not Separation: Separation does not count in wills law. Until your divorce is final, you are still married for purposes of wills law. If you are a registered domestic partner, until you dissolve the domestic partnership, you are still registered. c. Surviving Co-habiting Domestic Partner v. Surviving Spouse: California lets you register as partners. i. What is the surviving domestic partner entitled to receive? 1. 6401(a) and 6401(b) – No. 2. 6401(c) – Yes a. Under 6401(a) and 6401(b) the surviving domestic partner gets no CP because the statute says “surviving spouse”. But under 6401(c) the surviving domestic partner gets part of the SP. So the surviving domestic partner is not just like a spouse. III. What is a “Surviving” Spouse a. General Inheritance Rule: We don’t give property to dead people. In order to inherit, you always have to survive the decedent. b. Common Law – “any measurable amount of time”: At common law you just had to prove that you survived by any measurable amount of time. c. California – Common Law and 120 Hour Rule with Intestacy: We follow Common Law with everything except intestacy. (Wills, JT w/right of survivorship, Life Insurance, POD/TOD). In intestacy you must survive by 120 hours. Janus v. Tarasewicz: Stanley and Theresa died after ingesting cyanide laced Tylenol capsules. RULE: The determination of legal death must be made in accordance with the usual and customary standards of medical practice. The burden of proof is on the person trying to prove that s/he survived spouse. d. How would California resolve this case: i. CPC 224 § 224. Life or accident insurance; insured and beneficiary If the insured and a beneficiary under a policy of life or accident insurance have died and it cannot be established by clear and convincing evidence that the beneficiary survived the insured, the proceeds of the policy shall be administered or distributed, or otherwise dealt with, as if the insured had survived the beneficiary, except if the policy is community or quasi-community property of the insured and the spouse of the insured and there is no alternative beneficiary except the estate or personal representative of the insured, the proceeds shall be distributed as community property under Section 103. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 9 ii. “Clear and Convincing Evidence” -California requires clear and convincing evidence that the beneficiary survived the insured. This is higher standard than the UPC (preponderance of the evidence). So it is possible that W’s estate can prove survivorship by preponderance, but not clear and convincing. 1. If W’s estate can’t prove with clear and convincing evidence that she survived H, then it goes to H’s mom. a. CPC 224 Exception: If 1. it is a CP or QCP policy, AND 2. there is no alternative beneficiary except the estate or personal representative of the insured, the proceeds shall be distributed as CP under CPC 103. b. So if die simultaneously and have these two things then under CPC 103 -½ in her estate and ½ in his estate. c. But here there is an alternative beneficiary (H’s mom), so CPC 103 no apply (second requirement of exception in CPC 224 not satisfied). iii. CPC 6403 iv. 120 Hour Rule: CPC 6403 says that you not only have to survive, but you have to survive by 120 hours (5 days), as opposed to the common law standard of any measurable amount of time. 1. note: CPC 6403 does not apply if decedent died before 1990. v. Would not apply CPC 6403 to this case for two reasons: 1. Death was before 1990. 2. Life Insurance is non-probate: Even if this after 1990 CPC 6403 would not apply because LIFE INSURANCE IS NON-PROBATE. CPC 6403 applies to intestacy. You have to survive for 120 hours to inherit something in intestacy. 6403 does not apply to non-probate things (JT, Trusts, Life Insurance, POD/TOD). vi. Holding in California: W would get the life insurance because she survived him by two days, but W would not get any of H’s probate in intestacy because she did not survive him by 5 days with clear and convincing evidence. vii. Note: When is life insurance CP? – When you use a CP asset to purchase it. Exp: part of earnings at work package. (but she will tell us if it is CP or not). CPC 6403: Failure to survive decedent by 120 hours; deemed predeceased; application of section (A) A person who fails to survive the decedent by 120 hours is deemed to have predeceased the decedent for purposes of intestate succession, and the heirs are determined accordingly. If it cannot be established by clear and convincing evidence that a person who would otherwise be an heir has survived the decedent by 120 hours, it is deemed that the person failed to survive for the required period. The requirement of this section that a person who survives the decedent must survive by 120 hours does not apply if the application of the 120-hour requirement would result in the escheat of property to the state. (B) This section does not apply to the case where any of the persons upon whose time of death the disposition of property depends died before January 1, 1990, and such case continues to be governed by law applicable before January 1, 1990. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 10 IV. Division of Property When Both Husband and Wife Die at the Same Time a. Probate Assets i. CP: ½ in his estate, ½ in her estate. And then give his away w/o giving any to her and vice versa. (exp: his ½ of the CP would go to his mom, and her ½ of the CP would go to her dad). ii. SP: Keep his SP in his estate, and keep her SP in her estate. iii. What if there is a will where H says he wants to give L all of his property? – 1. He can give away his part of the CP, but W keeps her original ½ of the CP, Wife and husband’s mistress hold CP in JT). b. Non-Probate Assets i. Don’t have to prove survival by 120 hours. Just by “any measurable amount of time.” (with clear and convincing evidence) ii. JT CCP §223(b): If two JT’s die simultaneously, put ½ in each JT’s estate. iii. Life Insurance: Don’t give it to the beneficiary that died at the same time. You look to the next beneficiary that survived. 1. In California, if the life insurance is a CP asset, and no next beneficiary, then we just put ½ in his estate and ½ in her estate just like you do w/CP assets. c. Clear and Convincing Hypos i. NOT CLEAR AND CONVINCING: A couple, both H and W drown in a boating accident. W was a better swimmer, and struggled before death, whereas H submitted passively. This is NOT clear and convincing. ii. CLEAR AND CONVINCING: Plane burst into flames when hit ground. H died instantly. W must have been alive when the plane hit the ground because they found carbon monoxide in her lungs (because she had to have been breathing to get the carbon monoxide in lungs). ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 11 V. The Rest of the “Probate” Property (i.e. if no spouse or that which did not go to spouse) a. CPC 6402 and Table of Consanguinity b. Under 6402, as soon as we find one or more that fits a category we stop and give them the rest of the probate property. i. Exp: If decedent does not have an issue (so nothing under 6402a), but has a parent (6402b) then we stop and we don’t care if decedent has any brothers/sisters or nieces/nephews. ii. Order to look for relative to give probate property to: 1. 6402(a) – issue(s) of decedent 2. 6402(b) – parent(s) of decedent 3. 6402(c) – issue(s) of decedent’s parent(s). (i.e. brothers and sisters). 4. 6402(d) – grandparent(s) of decedent or issue(s) of grandparent(s) of decedent 5. 6402(e) – issue(s) of decedent’s predeceased spouse a. i.e. decedent’s step-kids. § 6402. Intestate estate not passing to surviving spouse Except as provided in Section 6402.5, the part of the intestate estate not passing to the surviving spouse or surviving domestic partner, as defined in subdivision (b) of Section 37, under Section 6401, or the entire intestate estate if there is no surviving spouse or domestic partner, passes as follows: (a) To the issue of the decedent, the issue taking equally if they are all of the same degree of kinship to the decedent, but if of unequal degree those of more remote degree take in the manner provided in Section 240. (b) If there is no surviving issue, to the decedent's parent or parents equally. (c) If there is no surviving issue or parent, to the issue of the parents or either of them, the issue taking equally if they are all of the same degree of kinship to the decedent, but if of unequal degree those of more remote degree take in the manner provided in Section 240. (d) If there is no surviving issue, parent or issue of a parent, but the decedent is survived by one or more grandparents or issue of grandparents, to the grandparent or grandparents equally, or to the issue of those grandparents if there is no surviving grandparent, the issue taking equally if they are all of the same degree of kinship to the decedent, but if of unequal degree those of more remote degree take in the manner provided in Section 240. (e) If there is no surviving issue, parent or issue of a parent, grandparent or issue of a grandparent, but the decedent is survived by the issue of a predeceased spouse, to that issue, the issue taking equally if they are all of the same degree of kinship to the predeceased spouse, but if of unequal degree those of more remote degree take in the manner provided in Section 240. (f) If there is no surviving issue, parent or issue of a parent, grandparent or issue of a grandparent, or issue of a predeceased spouse, but the decedent is survived by next of kin, to the next of kin in equal degree, but where there are two or more collateral kindred in equal degree who claim through different ancestors, those who claim through the nearest ancestor are preferred to those claiming through an ancestor more remote. (g) If there is no surviving next of kin of the decedent and no surviving issue of a predeceased spouse of the decedent, but the decedent is survived by the parents of a predeceased spouse or the issue of those parents, to the parent or parents equally, or to the issue of those parents if both are deceased, the issue taking equally if they are all of the same degree of kinship to the predeceased spouse, but if of unequal degree those of more remote degree take in the manner provided in Section 240. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 12 b. Note: if decedent adopted step-kid then we no longer in 6402(e) but 6402(a). 6. 6402(f) -This refers to columns 4 and 5 on the table of consanguinity. We look to see who has the smallest number. If there is nobody in the first three columns (6402a, b, c, d, or e) then we look to columns 4 and 5 and give it to the smallest number. If it is a tie, then you give it to the closest column to the deceased. 7. 6402(g) – in-laws of the decedent a. Note: If you are married and your husband has a brother who has kids and you have a sister that has kids. So they all your nieces and nephews. Under an intestate system, if wife dies, a share of the separate property will go to the issue of the sister (wife’s nieces and nephews), not to the nieces and nephews of the husband. c. Calculating Shares i. If takers are all of the same/equal generation then just split evenly. If not of same/equal generation then in CA we go to the first generation where someone is alive. Look to two kinds of people at that first generation where someone is alive: 1. Those alive, and 2. Those that leave issue. Note: If you are dead and do not leave issue then do not need to look there because nobody is getting anything; that share evaporates. d. Half-Bloods i. Pg 97: M has one child, A, by her first marriage and two children, B and C, by her second marriage. M and her second husband die. Then C dies intestate, unmarried, and without descendants. 1. What are B and A’s relationship to C? a. B and C are whole siblings b. A and C are ½ siblings. 2. How is C’s property distributed? a. C has no spouse, no kids and no parent. So look to 6402(c) “the issue of the parents or either of them” (siblings). b. So it goes to your full siblings (issue of your parents) and half siblings (issue of one of your parents). **Half siblings count the same as whole siblings. But step siblings do not count the same. (step no share a parent). Step not get stuff in this problem. ii. Step v. Half: Step is different from half. Your step sister has two different parents from you, but now one of them is married to your parent. Your half sister has one of the same parents as you. e. Negative Will i. CA: You can do this if either: 1. You don’t have any probate assets when you die (this pretty impossible to not have anything), OR 2. All your property is accounted for (exp: put everything in a trust). ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 13 a. Exp: If your will did not give everything away and you say nothing goes to your son, then your son can still get what your will did not account for. f. 6402.5 says that stuff go to you DEAD SPOUSE’S will i. applies when the 1st spouse dies, then the 2nd spouse dies within 15 YEARS + no remarriage + no issue + intestate ii. Real property: Spouse #2 dies within 15 years of spouse #1. iii. Personal Property: Spouse #2 dies within 5 years of spouse #1. Must be worth more than $10K and you need written record of title. 1) Did Spouse #2 die within 15 (or 5) years of spouse #1? 2) Did Spouse #2 die intestate? 3) Did Spouse #2 have no surviving spouse? 4) Did Spouse #2 have no issue (no kids, grandkids, etc.) a. If yes to all, THEN 6402.5 applies. VI. Transfers to Children a. Posthumous Children: Child is conceived before father’s death but born after father’s death (Nowadays it can actually happen to a mother too because eggs can be fertilized and frozen, then given to a surrogate) Children born within 9 months of decedent’s death will be treated as born alive while decedent alive for purposes of inheritance. b. Post Mortem Conception: Child is conceived after the genetic parent is dead and born after parent is dead. 1. Decent must state IN WRITING, WITH A WITNESS that a certain person can use sperm/egg post-mortem; AND that certain person must state within 4 months after death that they intend to use the sperm; AND child must be in utero within two years after death H and W have two minor kids (A and B), and a step-son (C). H is dying intestate. How is H’s property dividedNote: always split property between CP and SP (and QCP if another state is involved) and also note what the non-probate assets are. Community Property Assets Separate Property Assets Probate or Non-Probate and Disposition Tangible Personalty (all the stuff in the house -clothes, etc). Probate (all to W) Real Estate: -Residence (title is in “H. Brown and W. Brown, as JT’s with right of survivorship and not as tenants in common”) -Lot and cabin (title is in H alone) -Remainder interest in mother’s home (this probably means that his mom has a LE and he has the remainder). -Residence: Non-Probate because JT (It is a CP asset, but since it is JT it all goes to W. If no JT and just CP then she get all anyways because ½ already hers and get other ½.) -Lot and cabin: Probate (all to W) -Remainder interest in mother’s home: (W gets 1/3 – see explanation after chart) ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 14 Bank Accounts: -Checking (joint and survivor account with wife) -Certificate of deposit (“H. Brown and W. Brown, as JT’s with right of survivorship”) -IRA (’s, payable on death to W) All Non-Probate because all JT Securities: -American Growth Mutual Fund (“H. Brown and W. Brown, as JT’s with right of survivorship and not as tenants in common”) Securities: -General Corp. stock (registered in H’s name) -Varoom Mutual Fund (registered in H’s name) -American Growth Mutual Fund: Non-Probate because JT (all to W) -General Corp. stock: Probate (W gets 1/3 – see explanation after chart) -Varoom Mutual Fund: Probate (W gets 1/3 – see explanation after chart) Life Insurance (W is named primary beneficiary; H’s estate is named contingent beneficiary) Non-Probate because life insurance (all to W because she is alive) ii. Probate v. Non-Probate: Just give non-probate according to its terms. Give probate according to the CPC. iii. Separate property 1. Wife: W gets 1/3 of the SP because 2 kids. (see 6401c3A) – W gets 1/3 of the estate where the decedent leaves more than one child. So W gets 1/3 of these three assets. 2. Kids: The two kids, A and B will get some stuff. What about C? – need more for equitable adoption under 6455. 6454 talks about foster kids and step kids. For C to inherit under 6454 three things must be satisfied: 1. relationship began when C was a child and continued throughout their joint lifetimes, 2. legal barrier to adoption (i.e. lack of consent by biological parents), 3. age of C. (because if the stepson is over 18 then there is no longer a legal barrier. So refusal to consent only causes a legal barrier until the stepson is 18). If the answer to all three of these Q’s is yes, then H has 3 kids and the three of them divide up the remaining 2/3 of the property. – each gets 2/9. If C does not inherit then A and B get 1/3 each. VII. Chapter 2 Summary of Rules Only Applying to Intestacy and Rules also Applying to Other Areas: a. Intestacy Only: i. 120 hour rule (in other things it is just any time) ii. Advancement rule requiring writing (not apply in will because you can just change your will if you give something in advance). iii. Shares of Surviving Spouse (i.e. 6401, 6402). (these not apply to your will). iv. Equitable Adoption ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 15 v. Foster Child /Step Child b. Intestacy AND other areas: i. Transfers to Children (it is possible in your will that you say give the rest of my stuff to my kids. But who do you mean? Step kids? Adopted kids? Posthums kids?) ii. Janus case – Simultaneous Death (what we learned here does not apply to intestacy at all because in CA we require 120 hours). CHAPTER 4 FORMALITITES AND FORMS OF A WILL EXECUTION OF WILLS SWITCHED WILLS HOW DOES A COURT RE-WRITE CLEAR and UNAMBIGUOUS LANGUAGE? 1) Pavlinko: a. A court may not rewrite a clear and unambiguous will, even for the purposes of implementing the obvious intentions of the testator i. Ex: vasil and Helen palvinko signed each other’s will. It was OBVIOUS that it was pretty much identical, but the fact that there were different names on the wills made it NOT identical. 2) Snide a. Where the husband and wife executed identical wills at the same time, but by mistake sign the other’s will, upon death of one of the spouses, the will that the decedent spouse actually signed IS admissible to probate provided the significance of the only variance between the two instruments is fully explained, the will is genuine, and the will was executed in accordance to the law. If this comes up on a test, say if court goes with pavlinko, then _________, if court goes with Snide, then ______________. a. Conditional Wills -CPC 6105 6105. Conditional validity A will, the validity of which is made conditional by its own terms, shall be admitted to probate or rejected, or denied effect after admission to probate, in conformity with the condition. § 6111.5. Extrinsic evidence; admissibility 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. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 16 a. Conditional Willsi. For a conditional will, the WILL ITSELF must be conditional on returning from the trip. NOT the GIFT being conditional on returning from the trip. b. What if testator writes “I’m going on a journey and may not return. If I don’t return, give everything to A”? i. If he goes on journey and doesn’t return probate it. ii. If he DOES return, or doesn’t go on a journey at all, what do we do? 1. Still probate the will, because it is a CONDITION, not a CONDITIONAL WILL. c. Belly Dancer Example iii. T writes on wall for belly dancer/fiancé to take his property. He signed wall. 1. Are the material provisions in his handwriting? i. Yes (we’ll assume this here although it does not specifically say he wrote it) 2. Signed? i. Yes 3. Testamentary intent (will-like thing) i. Possible problem: it says for her to take care of all his things. Does that mean he is willing it away to her? d. Kimmel’s Estate iv. RULE: An informal document evidencing intent of a conditional gift AND an intent to execute may serve as will. 1. Ex: poor grammar“if enny thing happens” and “keep this letter lock it up it may help you out” v. If you sign something “Father,” or “C” or “Bill” that will suffice as your signature if it the normal method of signing e. In re Estate of Kuralt vi. Sometimes letter can be construed as a valid, holographic codicil vii. BUT, other times, a letter can be interpreted as instructs to an attorney to change a will, not an actual will or codicil. 1. PROBLEM is that letter doesn’t fulfill one of the three requirements of testamentary intent. II. Question 2 in Wills: Assuming we have a valid will, has it been revoked, and if it has been revoked, has it been revived? a. CPC 6120 ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 17 HOW DO YOU REVOKE A WILL? i. CPC 6120 breakdown: 2 ways to revoke a will: 1. By a subsequent will i. complies w/6110 (2 witnesses) or 6111 (holograph) ii. NOTE: This can be EXPRESS or by INCONSISTENCY 2. By physical act, that touches the words of the will, with intent to revoke i. By the testator herself, or ii. By someone i. 1) in the testator’s presence, and ii. 2) at the testator’s direction Self-Proving affidavit • The affidavit is considered part of the will. Thus, revocation of a self-proving affidavit is considered sufficient to cancel a will. • This is the one exception to “touching the words.” Here revocation is technically possible without “touching the words.” REVOKING WILL (COMMON LAW PRESUMPTION) • If you revoke your will, you revoke ALL subsequent codicils REOVKING CODICIL (COMMON LAW PRESUMPTION) • Revocation of a codicil does NOT revoke underlying will • NOTE: different from 6321(a) subsequent will revokes prior will PARTIAL REVOCATION BY PHYSICAL ACT • If T crosses out Tim’s name from the will, then that portion of the will is revoked. If testator… 1) Had will in his possession 2) Had capacity till death; and 3) Will had marks of revocation Then …. there is a presumption that the revocation is valid. • The burden is on the proponent of the will to rebut 6120. Acts constituting revocation A will or any part thereof is revoked by any of the following: (a) A subsequent will which revokes the prior will or part expressly or by inconsistency (b) Being burned, torn, canceled, obliterated, or destroyed, with the intent and for the purpose of revoking it, by either (1) the testator or (2) another person in the testator’s presence and by the testator’s direction. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 18 ii. CPC 6121 breakdown • A duplicate is not the same as a copy (Kinko’s). A duplicate original means there is two original wills, each signed by the testator and witnessed/signed by the witnesses. • So doing one of the above physical acts to a duplicate will revoke it, but not to a copy. • If one of the duplicates is revoked by physical act, by the testator, or one in his presence and direction, then all the duplicates are void. iii. Situation #1: I can prove that I saw the testator tear up her will w/intent to revoke and will can’t be found at her death. 1. So she has revoked pursuant to 6120. iv. Situation #2: I can’t find the will at death, but there is still a duplicate at the attorney’s office. 1. Under 6121 all I have to do is rip up one, even though my attorney has one. But if I am using the common law presumption then if there is a duplicate in the attorney’s office then I probate it. b. CPC 6123 – California Anti-Revival Statute i. CPC 6123 breakdown: 1. 6123(a) Two Will Scenario i. Will #1 is NOT revived when Will #2 is revoked UNLESS extrinsic evidence proves that testator’s intent was to revive i. Extrinsic evidence IS admissible to prove this. 2. 6123(b) Three Will Scenario i. NO EXTRNISIC EVIDENCE IS ALLOWED i. If 2nd will, that would have revoked a first will in whole or part, is revoked by a third will, the first will is revoked in whole or part UNLESS it is apparent from the terms of the 3rd will that the testator intended the first will to be revived. c. CPC 6124—Destruction of will with intent to revoke; presumption 6121. Duplicates A will executed in duplicate or any part thereof is revoked if one of the duplicates is burned, torn, canceled, obliterated, or destroyed, with the intent and for the purpose of revoking it, by either (1) the testator or (2) another person in the testator’s presence and by the testator’s direction. 6123. Second will revoking first will; effect of revocation of second will (a) If a second will which, had it remained effective at death, would have revoked the first will in whole or in part, is thereafter revoked by acts under Section 6120 or 6121, the first will is revoked in whole or in part unless it is evident from the circumstances of the revocation of the second will or from the testator’s contemporary or subsequent declarations that the testator intended the first will to take effect as executed. (b) If a second will which, had it remained effective at death, would have revoked the first will in whole or in part, is thereafter revoked by a third will, the first will is revoked in whole or in part, except to the extent it appears from the terms of the third will that the testator intended the first will to take effect. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 19 ii. CPC 6124 Presumption that will is revoked (weak presumption) 1. Testator’s will was in T’s possession 2. T was competent until death; AND 3. Neither the will NOR a duplicate can be found after death a. PRESUMPTION = testator destroyed will with intent to revoke. What if the whole will was a holograph? VIII. Testator can make any changes she wants in her handwriting without resigning the will if the will was a holograph to begin with Dependent Relative Revocation (DRR) 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. 2. Note: So look for a valid revocation that is made because of a mistake to trigger DRR. i. 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 i. This is the gift that T wanted to give but failed 4. T’s presumed intent i. Here we look @the alternatives of what we can give the devisee and presume which one the testator would rather had given the devisee. COMPONENTS OF A WILL 1) Integration Doctrine • All writings physically present at execution that is intended to be part of the will is considered your will. 2) Republication by Codicil • If I write my will and later I write a codicil, the codicil adds something to the will. I intend both of these to be probated. 6124. Destruction of will with intent to revoke; presumption If the testator’s will was last in the testator’s possession, the testator was competent until death, and neither the will nor a duplicate original of the will can be found after the testator’s death, it is presumed that the testator destroyed the will with intent to revoke it. This presumption is a presumption affecting the burden of producing evidence ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 20 • Republication by Codicil means the will is deemed to be republished or reexecuted with the codicil, so that the will is made to speak, or speak again, as of the date of the codicil. 3) Incorporation by Reference (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 • ELEMENTSi. Writing (can’t be oral) ii. Writing must be in existence when the will is executed iii. Will has to show intent to incorporate this document iv. Will has to sufficiently identify document (so that we know what we’re trying to be in) NOTE: Incorporation by reference is applied when there is a separate document, not present at execution, yet still in existence, AND referenced by the will CasesClark v. Greenhalge: o Woman wrote will in 1977, which said leave stuff as per “memorandum.” o Woman wrote memorandum in 1972 (Integration getting in) o Woman then created plastic covered notebook in 1979 o Woman wrote codicil in 1980 The notebook we trying to incorporate was not in existence at the time of the original will, but by using republication by codicil, we redate the entire will and could now get it in through incorporation by reference • Intent and sufficiently identify are very flexible • In existence when executed is not flexible Johnson v. Johnson (Invalid will with attached holograph) • Johnson typed a three paragraph “will” but did not sign it or have it witness. • It was thus invalid. Later, at the bottom of the page, he wrote, signed, and dated a short, testamentary passage (a holograph) RULE: A valid holographic codicil may incorporate and republish a prior will that would have been ineffective because of its failure to comply with formal requisites Case Analysis: 1) Integration? a. Invalid because you would consider the WHOLE PAGE to be his will b. The material terms are NOT in his handwriting, AND there are not two witnesses, thus this is NOT a valid will under CPC 6110 2) Republication by Codicil? a. This doesn’t work because it’s not a valid will to begin with 3) Incorporation by reference a. THIS WILL WORK b. Separate the two documents ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 21 i. Holograph is valid ii. Using incorporation by reference, typed portion comes in 1. Writing? YES 2. In existence? YES 3. Intent to incorporate writing? YES (on the SAME page as the original will and holograph says “this is my last will in testament”) 4. Sufficiently describes writing? YES Acts of Independent Significance • 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 nontestamentary motives. TRIGGERS1) “At my death” (note: NOT “I have a memo that tells you who to give my stuff to” 2) “I give away property according to YOUR will” Examplesa. “I leave $5,000 to each person who is in my employ at the time of my death.” i. 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. b. “I leave all real property to be distributed by a trust named in Barney’s will.” i. THIS WILL WORK as AIS The execution or revocation of another individual’s will IS such an event to trigger AIS. 1. Barney’s establishing the will and devising his own property is an act that is significant, apart from T’s will-making! UPC § 2-512: Acts of Independent Significance A will may dispose of property by reference to acts and events that have significance apart from their effect upon the dispositions made by the will, whether they occur before or after the execution of the will or before or after T’s death. The execution or revocation of another individual’s will is such an event. . ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 22 2. Note: if will is ALREADY in existence when testator’s will is executed, use incorporation by reference (provided Barney’s will meets IBR elements) c. “I leave to Susan everything in my bank safety deposit box at the time of my death.” i. 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. Exceptiond. “I leave to Susan everything in my right drawer at the time of my death.” i. 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! • 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) CHAPTER 6 CONSTRUCTION OF WILLS (How do you distribute property of the decedent) I. Review of Will Questions: a. Q1: Do we have a valid will? b. Q2: If so, has it been revoked. If revoked, has it been revived? c. Q3: How do we interpret the contents of a will? (CHP 6) current question II. Admission of Extrinsic Evidence a. CPC 6111.5 Plain Meaning Rule Common law rule extrinsic evidence is NOT admissible. Period. Mahoney v. Grainger • Woman gave her things in will to “heirs at law,” not “heir at law,” so 25 cousins claim she meant them, and not her aunt, who is her sole “heir at law” • ISSUE: Can we fix her mistake by bringing in extrinsic evidence? o HOLDING: No. o RULE: Extrinsic evidence is NOT admissible to prove testator said A but meant B (this is the hardest extrinsic evidence to get in) There is only ONE MEANING of “heirs at law,” and that is her aunt, so that aunt will get everything. THIS IS NOT AMBIGUOUS CPC 6111.5. Extrinsic evidence; admissibility 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. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 23 CA Analysis • Extrinsic evidence is admissible to determine the meaning of the will if the meaning is unclear. o If you can show that “heirs at law” is unclear, you can admit extrinsic evidence Ex: Wife’s will read “I leave property to “nieces and nephews” • Wife only had one nephew. Her husband had many nieces and nephews • Extrinsic evidence IS admissible to show intent (bequeath to all of husband’s nieces and nephews) because meaning was unclear. EXCEPTIONS TO PLAIN MEANING RULE 1) Personal Usage Exception: a. “If the extrinsic evidence shows that T always referred to a person in an idiosyncratic manner, the evidence is admissible to show that T meant someone other than the person with the legal name of the legatee.” Ex: T always called his wife “mother.” His will says “leave all to mother”. Who do you give this to? T’s mother? Or T’s wife who he referred to as mother? Under the personal usage exception we will allow extrinsic evidence that shows T called his wife “mother.” 2) Ambiguity a. If language is unclear/ambiguous, you can let in evidence b. CA abolishes difference between patent and latent ambiguity (common law still says there is a difference). Patent v. Latent Ambiguity • PATENT AMBIGUITY = on the face of the four corners of the document o Common Law: EXTRINSIC EVIDENCE is NOT allowed for patent ambiguities. o You don’t have to admit ANYTHING to know there is ambiguity, so the will fails. • LATENT AMBIGUITY = you have to admit extrinsic evidence to even see if there is a problem o Common Law: EXTRINSIC EVIDENCE IS allowed for latent ambiguities. o You have to let it in to know if there’s an ambiguity at all, so let it all in. • CA AMBIGUITY o CA abolishes difference between patent and latent. o If meaning is unclear, we don’t care if it’s patent or latent. 3) Equivocation a. When two or more people fit the description in the will equally, we will allow extrinsic evidence to see what T meant. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 24 i. Ex: “I leave my entire estate to the University of Southern California, known as the UCLA.” So is this UCLA or USC? a. There are TWO POSSIBLE meanings b. Extrinsic evidence IS admissible 4) False Description a. 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. i. Ex: “I leave my property at 304 Harrison street to X.” HOWEVER, testator only had property at 317 Harrison Street ii. Under doctrine of False Description, court will delete “304,” so the will reads “I leave my property at Harrison street to X.” Death of Beneficiary before death of Testator a. Lapse Defined i. To take property under a will, the devisee must survive the testator a. 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. b. 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 then? b. Steps for What to do When Lapse Occurs Step One: Determine what kind of gift it is 1. Specific a. A specific thing (my house, my car, my 100 shares of GM stock, all the money in my bank account) 2. General a. Usually is money $1,000, any good used car, 100 shares of GM stock 3. Demonstrative a. 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.” 4. Residue a. I give all the rest of my property to my kids 5. Class a. No hard-and-fast definition. b. Court looks @testator’s intent to see if he intended to create a class FACTORS: • Whether T used a class label ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 25 • Whether the shares are uncertain until the testator dies Step Two: Apply Common Law 1. Specific, General, or Demonstrative a. Lapsed gift goes into residue 2. Residue a. Lapsed residue falls into intestacy i. But note If you have MORE THAN ONE residuary beneficiary and devise fails to one residuary beneficiary, give to OTHER residuary beneficiary (not intestacy). 3. Class Gifts a. Lapsed gift goes to remaining class members (does not lapse) Step Three: Determine if California Anti-Lapse Applies (CPC 21110) 1. For anti-lapse to apply, the transferee, has to be a specific kind of person: b. T’s kindred or T’s spouse’s kin. (i.e. someone on table of consanguinity); and c. Transferee must leave issue. 2. If both of these are satisfied then the gift goes to the issue. 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) o What if B died instead? – Intestacy! (Since the residue gift lapsed) Lapsed gift in residue + Ambiguity • Estate of Russell o T left $10 and diamonds to Georgia. She left all the rest of her property to Chester and Roxy (Roxy = T’s dog). Issue # 1 ambiguity • Does this mean to CHESTER to take care of my dog, Roxy? • Or does it mean, to CHESTER and ROXY, half and half? o Is language susceptible to two or more meanings? o If yes, admit evidence to show language is ambiguous Court that that there was NO way it could mean for Chester to take care of Roxy the way it was written Issue # 2 Lapse/residue of a residue • CA: “No Residue of a Residue” Chester receives Roxy’s residue • COMMON LAW: Roxy’s portion of the residue (1/2) goes into intestacy CPC Lapse and Anti-Lapse §21105 Transfer of Property by will; after-acquired property Except as otherwise provided in §§ 641-642, a will passes all property the testator owns at death, including property acquired after execution of the will ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 26 • Lapse CPC 21109: All transferees who fail to survive don’t get the property • Anti-Lapse (certain transferees will not lapse) o Persons Applicable To -CPC 21110(c): 1) kindred of 2) the transferor, or 1) kindred of 2) a surviving, deceased, or former spouse of the transferor” • Note: this is only to T’s spouse’s kindred, not to T’s spouse!! (Shultz) • (unless T’s spouse is T’s former spouses kindred; ewww) o Class Gift Hypo: T has three kids at time executed the will, X, Y, and Z. Left stock to my kids. One of the kids, X, died, leaving issue. • CPC division of stock -Split into 1/3 for Y and 1/3 for Z, and X’s kids split X’s 1/3 and get 1/6 each. • Otherwise we back to common law and there no lapse and give to remaining class members. What if X was dead when T made will? • We will presume that T meant Y and Z if X dead when T made will. § 21109. Transferees; failure to survive (a) A transferee who fails to survive the transferor of an at-death transfer or until any future time required by the instrument does not take under the instrument. (b) If it cannot be determined by clear and convincing evidence that the transferee survived until a future time required by the instrument, it is deemed that the transferee did not survive until the required future time. § 21110. Transferee’s death; taking by representation; contrary intent in instrument (a) Subject to subdivision (b), if a transferee is dead when the instrument is executed, or fails or is treated as failing to survive the transferor or until a future time required by the instrument, the issue of the deceased transferee take in the transferee's place in the manner provided in Section 240. A transferee under a class gift shall be a transferee for the purpose of this subdivision unless the transferee's death occurred before the execution of the instrument and that fact was known to the transferor when the instrument was executed. (b) The issue of a deceased transferee do not take in the transferee's place if the instrument expresses a contrary intention or a substitute disposition. A requirement that the initial transferee survive the transferor or survive for a specified period of time after the death of the transferor constitutes a contrary intention. A requirement that the initial transferee survive until a future time that is related to the probate of the transferor's will or administration of the estate of the transferor constitutes a contrary intention. (c) As used in this section, "transferee" means a person who is kindred of the transferor or kindred of a surviving, deceased, or former spouse of the transferor. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 27 Chart Summary on Lapse 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 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) NOTE WHEN TO USE COMMON LAW 1) Wrong kind of devisee (Jackson v. Shultz) 2) Right kind of devisee, but devisee left no issue 3) Contrary Intent (below) ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 28 b. Contrary Intent: If we have contrary intent then we do not apply anti-lapse. i. What is contrary intent?: 1. Words of survivorship a. “To A if A survives me by 30 days.” Or “To my surviving children” i. So if transferee is T’s kin and does leave issue but does not survive for the specific amount of time then don’t apply antilappse Back to common law. 2. Alternative disposition i. “To A, if A survives me, and if he doesn’t survive me, then to B.” 1. Note if neither A or B survive, go to default rules 3. Language like “if she survives”, “living”, “surviving” with no alternative disposition will be viewed as words of survivorship in some courts. (Allen v. Talley) c. Allen v. Talley i. Facts: 1. T’s will left stuff to her 3 bros and 2 sisters. 2. But at death, she had only 1 bro and 1 sis, but the other siblings left issue. 3. Will said bequeath to “my living brothers and sisters.” o Note: if she just said to my brothers and sisters and did not say “living” then at common law just the two remaining class members would get it (because no lapse). o Under CA anti-lapse the devisee is T’s kindred and they left issue. So the kids would share their parents 1/5. 4. But here, since she said “living” then MAYBE it’s a contrary intent. So must analyze both ways. ii. Note that majority rule: this is a contrary intent. What is a Class? • TWO MAIN CHARACTERISTICS OF A CLASS GIFT: 1) T used a class label (children, issue, nephews, grandchildren) 2) The shares are uncertain until testator dies • CLASS BUSTER? o When you have a specified amount of people who each get a specified amount, it’s NOT a class gift • NOTE: Don’t be too mechanical: o We are trying to construe a will according to T’s intent. o So we don’t want to be too mechanical by saying yes it is or no it is not a class. o Although there is a rule, don’t apply it too mechanically. Look at other evidence to see T’s intent. • COMMON LAW: Gifts to a class do not lapse, but go to surviving class members. o Thus, it is important to know if it is a class because people be fighting over who gets what. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 29 Percentage Division Issues • What if you give a gift to an individual AND a class??? o Hypo: T leaves shit to A and children of B. o Assume A is alive at T’s death and B has 3 kids. o What percentage are you going to give A? One possibility: ½ to A no matter how many kids B has and ½ for children of B to split. Other possibility: A and children of B all have equal shares. In re Moss • In Moss, they were ALL NEICES (same distance away from the testator), it it was clear that testator’s intent was to give equal shares… • Thus, percentage division issues are fact sensitive! Time of death of devisees presumptions 1) If you use the term “sisters’ in your will and you had three sisters, but one died, then it is presumed you meant LIVING sisters 2) If you knew of a death of someone in the class BEFORE executing the will, then the dead class member is considered out of the class, and does not inherit a. If A, B, and C are the sisters, and C is dead at execution of will, then it goes to A and B. b. If A, B, and C are the sisters, and C is dead at execution of will, then after execution, B dies, it goes ½ to A, and ½ to B’s children. CHANGES IN PROPERTY AFTER EXECUTION OF A WILL Ademption COMMON LAW: • What happens when property in estate is no longer there when testator dies? • STEPS: 1) Classify devise a. Ademption only applies to specific devises b. Ademption DOES NOT apply to general devises 2) Look around to see if devise is still in the estate a. If the specific gifts are not in the estate, then they are adeemed, and the gift fails 3) Exceptions a. Classify as general i. I give A 100 shares of GM stock, vs. I give A MY 100 shares of GM stock 1. Caveat to escape ademption, item(s) must be available on open market (otherwise it cannot be devised, and thus is adeemed). b. Change in Form (not substance) i. I give A all my money in my interstate bank account 1. Did Testator take money OUT of nationwide and put it in interstate? THIS is a change of substance (adeemed); OR 2. Did Testator do nothing, and Nationwide merged and became part of interstate This is change in FORM (not adeemed) c. Construe meaning of property from time of death i. I give my house to sally (if she lived in AZ, sold the house, and them moved to CA, sally still gets the house) 1. BUT, if I give my ARIZONA house to Sally, then she sells house and moves to California and buys a house, then sally’s not getting it. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 30 d. Testator is insane/incompetent Ademption CA LAW 1) Classify Devise 2) Intent to adeem (revoke gift to this person) (CA has mild presumption AGAINST ademption) a. Ex: I give whatever car I own at the time of my death to my mother. b. T then DIES in car crash and her car is wrecked. c. At common law, all mom would get would be wrecked car. i. IN CA, there are insurance proceeds, etc. ii. Under (a)(3) of UPC, she gets any proceeds unpaid at death on fire/casualty insurance, or recovery for injury to property iii. Thus, In CA, she gets insurance proceeds AND wrecked car In CA, the devisee is entitled to1. If you have a specific devise, but it’s been wrecked, stolen, foreclosed on, etc., AND there is cash NOT PAID @time of testator’s death, you get the cash a. Any balance of the purchase price, together with any security agreement, owing from a purchaser to the testator at death by reason of sale b. Any amount of a condemnation award for the taking of the property unpaid at death c. Any proceeds unpaid at death on insurance or other recovery for injury to the property. d. Property owned by the testator at death and acquired as a result of foreclosure, or obtained in luei of foreclosure, of the security interest for a specifically devised obligation STOCK SPLIT • Testator owns stock in corporation (100 shares) • 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) o SO will says “I give 100 shares to A” CA will give 200 shares to A. o You give devisee the amount WITH the split Satisfaction (Ademption by Satisfaction) • Ademption by satisfaction applies to GENERAL devises o Will says give 10K to A, but testator gives inter vivos 10K to A. o This is like advancement in intestacy o In CA you need a writing! Otherwise, A will end up with 20K (inter vivos + will) Requirements are the same as advancement 1) A contemporaneous writing by the testator that this is a satisfaction; or 2) A writing acknowledge as such by donee (at any time) Exoneration of Liens • 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. o At common law, this means person took house WITHOUT mortgage But in many cases, this wiped out the entire estate o CA, like most states reversed common law and person takes WITH mortgage Devisee takes subject to the lien ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 31 You only pay mortgage if will SAYS pay the mortgage, then transfer the house Abatement• The problem of abatement happens wheno The estate has insufficient assets to pay debts as well as all the devises o Some devises must be abated The order of abatement is: 1) Intestate 2) Residual 3) General 4) Specific/demonstrative • This is the default rule, but testator can PUT order of abatement IN HIS WILL o This is kind of weird because, for example, if someone says I give 10K to A, my car to B, and all the rest to C –then C’s stuff is the first to go to abatement, then A’s general devise, THEN the car. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 32 CHAPTER 7 PROTECTION OF THE SPOUSE AND CHILDREN Rights of a Surviving Spouse • Non-community property states say you MUST will your spouse something • Community property states say you DON’T have to will your spouse anything. o PROBLEM = what if a couple was married in a separate property state, then moves to a community property state? QUASI COMMUNITY PROPERTY = CAVEAT acquiring spouse must die first. If you’re non acquiring spouse you don’t get quasi community property property acquired in separate property state with marital earnings. • Personal property (wherever situated) • Real property (IN CA) acquired in separate property state + die domiciled in CA Omitted Spouse Rule • INVOLVES specific sequence of events 1) Person makes will (or revocable inter vivos trust) 2) THEN person gets married 3) Person dies WITHOUT executing a new will o The underlying assumption is you FORGOT to add spouse o NOTE: Republication by codicil –if you write a CODICIL that names a new executor, then the sequence is NOT CORRECT and omitted spouse rule does not apply Surviving spouse has to prove 1) will 2) I’m not in it 3) We married 4) He died THEN burden of proof shifts to proponent of the will. NOW, proponent must show 21611 1) Intent to omit on face of will. CPC 21611: Spouse Not to Receive Share; circumstance The Spouse shall not receive a share of the estate under § 21610 if any of the following is established: (a) The decedent’ failure to provide for the spouse in the decedent’ testamentary instruments was intentional and that intention appears from the testamentary instruments (b) 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 (c) The spouse made a valid agreement waiving the right to share in the decedent’s estate. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 33 a. The WILL must say this. NO EXTRINSIC EVIDENCE is allowed i. But note Disinheritance clauses do NOT apply to future spouses 1. 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. 2. After execution, testator married new wife 3. Holding New wife WILL inherit. 2) Outside transfer to the spouse, which is intended to replace the will a. Extrinsic evidence is OK here (and it’s usually the AMOUNT of a transfer) i. Most common examples are 1. Life Insurance policy that names WIFE as beneficiary 2. Pension Plan 3) Valid written waiver, waiving right to testator’s estate (prenuptial agreement) Rights of Issue • United States o In 49 states, it’s OK to omit a child (exception = Louisiana) • Commonwealth States o Family maintenance system Anybody dependent on testator can say “I didn’t get enough in the will,” or “I don’t get enough in intestacy.” Omitted Child In CA, we protect omitted children in THREE scenarios 1) After-born child (born after execution of testamentary instrument) a. SEQUENCE is important i. You write will ii. THEN child is born/adopted iii. THEN you die 1. Note republication by codicil CHANGES the order (will is republished) 2. 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) 2) Erroneous belief in death of your child 3) Unaware of your child’s birth Exceptions 1) Intentional Omission (appears in testamentary instrument) a. “I intentionally leave nothing to children acquired before or after this will.” 2) Will devised substantial portion of estate to omitted child’s parent a. (it’s assumed that the parent will give this $$ to the child) 3) Decedent provided for kid outside of the will (extrinsic evidence is OK here) a. Ex: insurance, pension, inter vivos gift, etc. CHAPTER 8 TRUSTS • TRUSTS DEFINED: ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 34 • A device whereby a trustee manages property for one or more beneficiaries. o Essence of trust: settlor is transferring property to one person for the benefit of another. Thus, when it is unclear if a trust is being established, look to see if the essence of the trusts exists o The words “trust” is not required we look for intent to create a trust relationship Ex: “To T for the use and benefit of B during his natural life.” valid trust o Trusts are used to get around the inflexibility of wills. 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 Instead, a trust can be used, which is easily amended. o Trusts are particularly attractive if decedent owns real property in another state If this property is not put in a trust, it will be probated twice Trusts Generally • What are the benefits of having a trust (as opposed to a will)? o Trust is non-probate asset Trustee holds legal title (but does not OWN assets), and beneficiary holds equitable title (but does not manage the property themselves) • Who is a trust created for? o Trusts can be used for someone that you do not want property to go to outright: Minor Someone who lacks capacity Someone who lacks good judgment • Can a trust be oral? o YES Exceptions= • Testamentary trusts (trust created by will) • Trusts of real property Trusts Analysis (4 key questions) 1) Has a valid trust been created? a. If it’s unclear run through all the elements of a trust b. If not, what is it? 2) Has the trustee accepted the office? a. Trustee is personally liable, so we don’t want to impose onerous duties on someone unless they accept the office i. NOTE: a trust will NOT fail for want of a trustee. Someone will be appointed. b. Silence and inaction are NOT acceptance c. Silence and action IS acceptance (ex: if trustee takes $100,000 of the trustee money and puts it in the bank) 3) Look at actions of: a. Settlor i. Has settlor amended trust? Revoked trust? b. Trustee i. Look @the terms of trust ii. Is trustee upholding his duty? iii. Is there a breach of the terms of trust? ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 35 c. Creditor i. Can creditors come after trust? ii. If so, whose creditors? When? d. Beneficiary i. Can they alienate their interest? Can they force the trustee to pay them more money? 4) Remedies a. After breach of interest payments, there must be a remedy which allows for the reasonable rate of return on the amount lost b. Any amount lost must be paid (or if not purchased by BFP, property itself can be recovered) Elements of a trust 1) Deed of Trust or Declaration (if a deed of trust, you need delivery) 2) Writing Required? (No writing requirement unless real property, or testamentary trust) 3) Proper Parties (settlor trustee beneficiary)? a. Trustee must owe duties to some HUMAN other than himself b. Note: “parties” can all be the same as long as there is another beneficiary. 4) Intent 5) Res (trust property) Declaration or Deed of Trust?? 1) Deed of Trust a. Settlor is NOT the trustee b. Delivery is required 2) Declaration of trust a. Settlor IS the trustee b. Delivery not required (note: different from a GIFT, which requires delivery) Writing Requirements No writing requirement for trusts is needed unless: 1) Testamentary Trusts 2) Trust involves real property a. Exceptions for writing requirement = 1. PMRT (see below in resulting trust) 2. Oral Trust for benefit of 3rd party 3. Oral Trust for benefit of Transferor 4. Secret or Semi Secret Trust • Oral Trust for benefit of 3rd party o Situations where transferor CAN VARY terms of a deed (real property) 1. Transfer was wrongfully obtained by fraud or duress ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 36 i. 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. 2. Trustee is in a Confidential Relationship with the transferor a. More like a gift (Hieble) 3. Transfer was made in anticipation of the transferor’s death. ii. 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. o Look for “unclean hands?” o If transferor has unclean hands, there can be NO remedy (Pappas) The transferor may have certain motives to transferring property• avoid probate OK • avoid future creditor, OK • avoid current creditorNOT OK (unclean hands) o Transfer can benefit 3rd party o Transfer can benefit transferor himself • Oral trust for benefit of transferor o Courts have LESS sympathy for transfer for benefit of transferor because they are seeking equitable relief for a situation they created. OA, conditioned on A’s promise to re-convey back to O. • SECRET/SEMI-SECRET TRUST a. Common lawi. Semi Secret Trust = 1. On its face, you can tell it is a trust, but you can’t tell who the beneficiary is a. Ex: “To reverend wells in trust.” (Period, does NOT say for WHOM). i. Extrinsic evidence is NOT allowed (because you can tell from face of the trust who the trustee is) 1. Remedy: a. Resulting Trusts and Lapse rules apply b. (i.e., the attempted disposition will FAIL) ii. Secret Trust = 1. On its face, you can’t even tell it is a trust (AND you can’t tell who the beneficiaries are) a. “To reverend wells” (period. You can’t tell it’s a trust) i. Extrinsic evidence IS allowed 1. Remedy: a. Constructive trust for beneficiaries. b. (i.e. the disposition will WORK) b. Majority i. Treat both semi secret AND secret like SEMI-SECRET trusts ii. (extrinsic evidence is always allowed) (constructive trust is always the remedy) Proper Parties Needed!! Trustee Cardinal Rule “A trust will NOT fail for want of a trustee” ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 37 Duties of the trustee 1. Duty to inform and account to beneficiaries (i.e. accurate accounting) (Jimenez) 2. Duty of prudent investment (pay income and make property productive) 3. Duty to keep trust property separate from trustee’s own property 4. Duty to follow trust terms and administer trust according to terms a. THESE terms follow OBJECTIVE STANDARD (can’t say “well, *I* thought that what I was doing was reasonable.” Must actually BE reasonable) b. Ex: Jimienez v. Lee 1) P’s grandma gave her dad a trust for her “Education.” 2) P’s dad used trust money to buy ballet tickets for P, but also for HIM, and his friends, cohorts, etc. 1. In using P’s trust money, D must account for every transaction 2. In using P’s trust money, D must act as TRUSTEE, and not as DAD ii. Thus, if it’s for EDUCATION, must be for educational purposes FOR the daughter, (not entertainment purposes for the family) Additional Duties of trustee under discretionary trust 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) Can Trustee Resign? 1) COMMON LAW: NO! b. Only court order or with consent from beneficiaries. 2) UPC: YES! c. Trustee can resign with 30 days notice to all interested parties d. But this will not let trustee off the hook from previous breaches Can you REMOVE trustees? 1) COMMON LAW: ABSOLUTELY NOT! (unless trustee commits fraud or breaches duties) 2) MODERN LAW: Trust protector has power to change trustee Beneficiaries 2. Rule: Beneficiaries must be definite and/or ascertainable when trust becomes effective 1) The beneficiaries may be unborn or unascertained when the trust is created, but if at the time the trust becomes effective the beneficiaries are too indefinite to be ascertained, the attempted trust may fail for want of ascertainable beneficiaries. 3. Majority: “My friends” is TOO INDEFINITE to be considered a class (Clark v. Campbell) 1) Ex: “Sisters, children, nieces, nephews,” are all SUFFICIENTLY ASCERTAINABLE 2) But be careful about this!! “nieces” and “nephews” raises the classic problem on if you means your spouses nieces and nephews too NOTE: There are ways to get around indefiniteness for a class 1. Name who your friends are ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 38 2. Give power of appointment to an individual person to dispose of your property (“I give Power of appointment to Barry Wilson.”) 4. Minority: Trustees have a power of appointment to exercise as individuals within reasonable time. What do you do with trust assets if beneficiaries are too vague? 5. Unless there is a clause that specifies how to distribute failed devises, you normally use resulting trust to get trust property back to the estate EXCEPTION to Proper Trust Beneficiary Needed Honorary Trust1) The court has allowed honorary trust when there is no beneficiary to enforce the trust. 2) ONLY occurs when there is no ascertainable beneficiaries. Requirements(Searight) 1) Proper Purpose a. To care for a pet b. To care for headstones/gravestones 2) Trustee must voluntarily agree to carry out trust MAJORITY NO HONORARY TRUSTSbecause there is no beneficiary who can enforce trust (can’t leave trust property for your pet) MINORITY (CA) HONORARY TRUSTS allowed (you can leave trust property to your pet) Intent • Rule: settlor must intend to create a TRUST. • Keep in mind “essence” of trust conveying property to one person for benefit of another. Capacity 1. It takes less capacity to create a will than it does a trust a. BUT, courts are reluctant to find lack of capacity for trusts because they have to go back and un-do all the transactions leading up to that trust from time lack of capacity is proven (including prior contracts, etc.) Res is needed!!! • If there is NO ASCERTAINABLE res, then there can be NO TRUST (Brainard) ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 39 o Ex: “I want my profits from next year’s stock trading to go to B and C’ i. PROBLEM There were NO TRUST PROPERTY (no profits yet), thus no trust ii. SOLUTION Declare, specifically what you were putting into trust. iii. Ex: “I want the profits from my $10 that I will trade in stock to go to A, B, and C.” • If there is NO ASCERTAINABLE res, but you do all that is possible to make a GIFT, then it might be a valid gift o Ex: “I give you the rights to 5% of my profits from “My Fair Lady” to B.” (Speelman) iv. PROBLEM There were NO PROFITS yet 1. BUT, unlike Brainard, he owned the license to My Fair Lady, thus there was something tangible 2. Note: He owned the license, and playwrights are sold every day v. SOLUTION Make a writing (which was done in Speelman) EXCEPTION for Necessity of Trust Property (Res) 6. Future profits are not adequate property interests in order to fund a trust; 1) However, present promise of future profits when coupled with other factors may be an adequate property interest which could fund a trust: 2) 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 Speelman/Brainard problems Problem 2(a): O orally declares to A: “I give you 5 percent of the profits of a musical play based upon Shaw’s Pygmalion, if I produce it and if there are any profits.” 4. No valid transfer because no delivery Problem 2(b): O orally declares himself trustee for one year of all stocks he owns, with any profits from stock trading to go to A. 5. Valid, assuming he owns some stocks. It sounds like he owns them so probably valid. Problem 2(c): In a notarized writing O declares himself trustee for the benefit of A of any profits O makes from stock trading during the next calendar year. 6. This is exactly like Brainard, but with a writing. Even though the intent is clear, the problem in Brainard is no trust property, and that is still not solved here. 7. Note: however, there is less of a fraud concern here as in Brainard because of the notorized writing. Problem 2(d): O orally declares himself trustee for the benefit of A of five percent of the profits, if there are any, of a musical play that O is writing, based upon Shaw’s Pygmalion. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 40 8. This is Speelman facts, but with a writing and not in a trust. 9. If there IS property, you can hold it in trust 10. If it’s valid as a gift, it’s valid as a trust Pour Over Will • A pour over will is a will that contains an express clause giving some or all of deceden’t probate property to the trustee of decedent’s inter vivos trust, to hold and distribute pursuant to the terms of trust o Ex: “I give the rest, residue, and remainder of my estate to the trustee of my inter vivos trust, to hold and distribute pursuant to its terms. Differences between wills and inter vivos trusts 1) Writing requirements a. Will = YES b. Trust = ONLY for real property or testamentary will 2) Formalities a. Will = 2 witnesses or holograph b. Trust = NOT as detailed 3) Parol Evidence Rule a. Will = problems allowing extrinsic evidence b. Trust = NOT a problem we don’t worry about parol evidence rule with trusts 4) Oral amendments a. Will = NO! b. Trust = YES TRUSTS v. GIFTS TRUSTS v. DEBTS 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 Exception pour 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 ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 41 RIGHTS OF THE BENEFICIARES DISTRIBUTIONS FROM THE TRUST Mandatory v. Discretionary Trust NOTE: AFTER a valid trust is created, we need to interpret its provisions (both express and implied). Trusts are set up with Income Beneficiaries and Principal Beneficiaries. • Income Beneficiaries = Life Estate • Principal Beneficiaries = Remainder For both income and principal beneficiaries, we must ask are payments mandatory or discretionary. Mandatory Trust: o “Pay the income to X” “The” means trustee must distribute all the income. o The trustee has no discretion to choose either the persons who will receive the income or the amount to be distributed. Discretionary Trust: o Trustee has discretion over payment of either the income or the principle or both. o Beneficiary cannot get $$/property until trustee gives it to beneficiary (and thus creditors can’t get the $$ either, until trustee gives money to beneficiary) o Trustee determines to whom, and how much he pays and does NOT have to pay all of it o Ex: “Pay income for the support and maintenance to X.” o Ex: “Pay income to X.” Levels of Discretion: • Simple Discretion (default rule) o Trustee must act with good faith, proper motives, and discretion must be reasonable. • Sole Discretion (or Absolute or Uncontrolled Discretion) (Marsman) o Trustee must act in good faith but does not have to be reasonable (i.e. not arbitrary). o Must say expressly “dispose property in trustee’s sole and absolute discretion.” Additional Duties of trustee under discretionary trust Amount Commingling SOL TRUST Principal amount in a trust can appreciate In a trust, you must pay beneficiary from the trust itself (Unthank) Starts to run once there is full and accurate accounting DEBT Principal amount of debt never changes! In a debt situation, beneficiaries can pay debt from whatever asset they want (i.e. from the trust fund, or from their own funds) 2-4 years from when debt is established ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 42 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) Spray Trust o Hybrid of Mandatory and Discretionary Trust Trustee has to distribute all income currently but has discretion to determine: • Who gets it; and • How much each beneficiary gets. Default Rules 1) Exculpatory Clause a. Trustee is liable unless there is an exculpatory clause b. Exculpatory clause excuses trustee from liability except for willful neglect or death c. Exculpatory clauses are VALID unless you can show overreaching by trustee (to the settlor) at the time the trust was made. 2) Irrevocable a. Trusts are irrevocable (unless it is a gift, or unless trust explicitly states otherwise) 3) Creditors a. If a trust is silent a creditor CAN reach beneficiary’s assets 4) Beneficiaries (Alienation) a. If a trust is silent a beneficiary CAN freely alienate property ANALYSIS Beneficiaries of valid trust want to know what they get, and HOW MUCH 1) Default rules apply, unless settlor explicitly states otherwise 2) Look to language of the trust settlor’s intent controls (and can override default rules) a. Do beneficiaries have rights to income? Principal? Both? b. Are interests mandatory, discretionary? (Both? spray trust)? CREDITOR’S RIGHTS: SPENDTHRIFT TRUSTS WAYS TO PROTECT TRUSTS FROM CREDITORS (AND ALIENATION) 1. Create discretionary trust a. Beneficiary can’t get $$ until trustee gives it to him b. Thus creditors can’t get it either. c. When trustee gives $$ to beneficiary, AT THIS VERY MOMENT, the creditor can seize. i. NOTE: Creditors can get an order to be paid by trustee before trustee pays beneficiary ii. BUT, trustee can withhold payment, and creditor will NOT get $$ (but beneficiary will not get money either). 2. Create support trust a. 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 i. “support” = maintenance of current style of living beneficiary is accustomed to b. 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 ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 43 c. How do you show element of discretion? “So much of the income and principal to X for support” i. Support trust Anybody, including the court, can figure out how much money you need for support = OBJECTIVE ii. Discretionary trust Whereas, discretionary trust, the trustees have sole discretion on how much to pay out = SUBJECTIVE iii. Mandatory trust cannot be support trusts • NOTE: Just including the words “for support” does NOT automatically make it a support trust. You must look to see if trust is adequate to live on for support o If it is CLEAR that trust is a support trust, but there is not enough income to provide support, trustee is obligated to invade the principal and provide the necessary support. d. Spendthrift clause is IMPLIED in every support trust i. Otherwise, we can’t carry out purpose of the trust 3. Create spendthrift trust • A spendthrift trust precludes the beneficiary from: o VOLUNTARILY alienating interest (beneficiary can’t transfer) o INVOLUNTARILY alienating interest (creditors can’t seize) (THIS IS HUGE) • A spendthrift trust must have express language o “X may not transfer life estate, and it may not be reached by X’s creditors." In general, a spendthrift trust cannot be set up for one’s self because it is against public policy to put their assets in a trust for themselves so that creditors cannot reach it (majority) Some states allow spendthrift clause for yourself if there is NO EXISTING creditors (minority) • Spendthrift clauses are a restraint on both voluntary and involuntary alienation. o But for public policy reasons, if you only restrain one and not both, then you can only restrain voluntary alienation. Ex: Dad makes trust for son and wants son to be responsible Thus, he restrains voluntary transfers (he cannot alienate his property) BUT, he lets involuntary transfers (creditors can attach to trust property) Exceptions Some creditors are not subject to a spendthrift clause for public policy reasons and therefore can step into beneficiaries shoes to reach property Suppliers of necessity CAN reach support trust i. Suppliers of necessity are those who provide food and housing; but noteii. “Station in life test” if you’re the Duke of Windsor, top shelf caviar is a necessity b. Child support c. Alimony d. Taxes (IRS) Spendthrift Illustrated Ex: Shelley v. Shelley • Income goes to Grant (G) for life (mandatory “pay the income to Grant”) • Principal goes to Grant AND to Grant’s kids = principal beneficiary o Grant’s kids fall under hard times and need money ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 44 • Can Grant’s kids reach the INCOME for child support? o YES, kids, as creditors to income, can reach this money for public policy reasons • Can prior wives reach INCOME for alimony? o YES, wives, as creditors to income, can reach this money for public policy reasons • Can Creditor reach principal? o NO (there’s nothing to reach!)! Creditors can’t reach principal until trustee exercises discretion. FOR EACH PERSON ask HOW you are soing. For income mandatory for grant, so suing as CREDITORS for the income. THUS, no discretion problems. Only barrier is the spenthirft clause, thus for Public Policy reasons, kids and wives can get it as creditors Principal = discretionary. Ex-Wives, suing as creditors, but nobody can get ANYTHING until discretion is asserted MODIFICATION AND TERMINATION STUTCEHLL MODIFICATIONS CLAFLIN = TERMATIONS REVOCABLE TRUST: • If settlor is aliveo Generally, a settlor has the ability to modify or revoke trust. o The power to modify or revoke dies when settlor dies (or if he revokes his own power to revoke) • If settlor is deado Trust becomes irrevocable and is treated as so. IRREVOCABLE TRUST: • If settlor is aliveo All parties (settlor and beneficiaries) must consent to termination or modification • If settlor is dead/does not consent1. Apply Claflin doctrine a. Defined: A trust CANNOT be terminated (even if all beneficiaries consent) if termination would be contrary to a material purpose of the settlor. i. Per se material purposes = 1) Discretionary Trusts 2) Spendthrift Trust 3) Support Trust 4) Trusts where property is not to be disbursed until beneficiary reaches a specific age o NOTE: If court finds that provisions of trust have no material purpose, premature termination WILL be ordered if all beneficiaries agree. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 45 Modification in Restatement 1) Circumstances not known to/anticipated by settlor 2) Compliance would defeat/substantially impair accomplishment of the trust purpose 3) Modification of trust is necessary to carry out its purpose a. Ex: Stuchell: Trust was set up for benefit of T’s issue b. (income to grandkids, principal to great grandkids). c. One of the four great grandchildren was retarded and received money/care from state facility. If he were to receive $$ from the trust, his funding would be cut. d. THUS, it would make sense to modify in favor of the other three grandchildren. e. However, court said that modification was NOT necessary to carry out its purpose i. Court said this didn’t pass the restatement test (but be sure to argue both ways) Modification of Administrative terms (NOT distributive provisions) 4) CA says: a. You can only modify if compliance would defeat or substantially impair purposes of the trust Ex: Trust says ONLY use bank X. Then bank X goes out of business. OK to use bank Y) 5) UTC says: a. You can modify if it follows the purpose of the trust: Ex: Purpose is to provide education money, but says ONLY use bank X. Then bank X goes out of business. OK to use bank Y. 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 ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 46 If it’s not a trust, WHAT IS IT? 1. UGMA/UTMA a. Uniform Gifts to Minors Act b. Uniform Transfer to Minors Act i. “I give under the UTMA/UGMA” explicit ii. SOL = 2 years after child turns 18 1. Compare to trust SOL begins when trustee has made full and fair accounting to the beneficiary iii. Custodian handles money/no accounting requirement 2. Precatory Language a. NON BINDING LANGUGE thus no intent to follow testator’s desires. b. “I wish,” “I recommend,” “I desire” etc. (“To A with the hope that A will care for B.”) i. But note: if devise is VERY specific, but language is precatory courts MAY construe this as an equitable charge 3. Equitable Charge a. Will says that devisees take property on express condition that they pay certain amount to another person i. The relationship between holder of the charge and beneficiary is more like a debtor and secured creditor relationship (Thus, beneficiary can ONLY go after the $$ listed in the equitable charge (not entire estate) ii. Ex: “I devise to A money to give $238 per month to B.” iii. You CAN commingle funds in equitable charge 4. Gift a. Requires intent to make a gift NOW b. Delivery i. Actual ii. Constructive: means of access a key, or a map showing how to get to gift iii. Symbolic: a writing stock certificates, etc. c. Acceptance (presumed when the thing is valuable) i. NOTE: Gifts are irrevocable. 5. Debt (See Chart) ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 47 REMEDIES Resulting Trusts 1) Resulting trust is NOT a trust 2) It is a remedy to get property AWAY from A and TO B (in FSA) 3) You can’t use resulting trust if you have “unclean hands” Types: 1) Express trust fails, or is incomplete a. Ex: Marital Deduction problem b. W sets up irrevocable trust for H with a marital deduction c. THEN there is a divorce d. W’s express trust fails and the trust property becomes resulting trust for W 2) Purchase Money Resulting Trust (PMRT) a. Buyer (B) supplies all the money to buy real property b. B takes title in C’s name c. B and C are NOT related i. Presumption = PMRT EXCEPTIONS: e. NO PMRT when the parties are closely related (gift is presumed) i. If it was a PMRT, it must be proven f. NO PMRT when done for an unlawful purpose 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. b. 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 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 ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 48 CHAPTER 10 CONSTRUCTION OF TRUSTS (FUTURE INTERESTS) CLASSIFICATION OF FUTURE INTERESTS When does interest begin? • ON CREATION o Irrevocable Trust Default rule is that trusts are irrevocable, and interest begins on creation • AT DEATH o Wills Interest begins AT death Words of art that signal wills are “I give,” “I bequeath,” “I devise” o Revocable Interest begins AT death Reason: Trust is revocable until death, then becomes irrevocable • NOTE Classifying when interest begins becomes VERY important for RAP (next chapter) Present Possessory Interest Future Interest in 3rd Party Future Interest in Grantor Example FSA: “To A,” “To A and her heirs.” X X “To A in FSA” FSD (“so long as” “during,” “until,” “while”) X Possibility of Reverter FSCS (“but if, ” “on condition that,” “provided that,” “however, if…, then…” “O may re-enter and reclaim,” ) X Right of Entry FS subject to Executory Limitation Executory Interest “To A, so long as …..” But then gives future interest to a 3rd party LE Remainder types… • CR • VR in FSA • VR subject to complete divestment + executory interest • VR subject to open Reversion ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 49 Rule of Reversion • O, owner of a fee simple, will not have a reversion in fee simple if O transfers o a possessory fee simple; or o a vested remainder in fee simple; • In all other cases where O transfers a present possessory interest O will have a reversion in fee simple. Interests Definitions as they pertain to TRUST PROPERTY • Life Estate (LE) = Income • Remainder in Life Estate (VR in LE) = Income • Remainder (VR, CR, etc) = Principal o A remainder is a future interest in a transferee that will become possessory, if at all, upon the expiration of all prior interests simultaneously created Present Possessory Interest • Fee Simple Absolute (FSA) o Grantor gets it all! Ex: “To A,” “To A and her heirs.” • Fee Simple Determinable (FSD) o Fee simple that is limited by durational language. o Automatic termination when some specified event occurs o No third party interest Ex: “To A, so long as the factory is used to make milk.” • Fee Simple Subject to Condition Subsequent (FSCS) o Fee simple limited by a specific condition that occurs subsequent to transfer (can be cut short at grantor’s request if condition does not occur) o O retains right of entry Ex: “To A, but if C goes to law school, then to C” Future Interest in Transferee • Vested Remainder o Born, and o ascertainable, and o no express condition precedent o VR’s CAN be transferred Ex: “To A for life, then to B” B has vested remainder • Vested Remainder subject to open o VR (person is ascertained), but class is still subject to more parties 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) • Vested Remainder subject to complete divestment o Person is ascertained, but possessory interested can be divested by an event. o Always followed by an EI 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) • Vested Remainder subject to open and subject to complete divestment o VR, subject to open class AND can be divested by condition subsequent ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 50 Ex: “To A for life, then to A’s kids, but if A’s kids don’t go to law school, then to B.” • Contingent Remainder o Express condition precedent; or o Not yet born, or o Not ascertainable CR in LE can be followed by any type of remainder CR in FSA can only be followed by CR in FSA • Executory Interest o Future interest in a transferee that must, in order to become possessory; Divest Transferor at some time in future (springing); or Divest, or cut short some interest in another transferee (shifting) o Springing EI Divest transferor in future Ex: “O to A when A reaches 30” o Shifting EIEx: “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.” o A has LE subject to EL o A’s child has CR subject to SI o C has Shifting EI o O has reversion in FSA Future Interest in Transferor • Reversion o Settlor has right to possess property after a finite estate ends. Ex: OA for life then to A’s heirs. O has reversion because A’s heirs have CR (unascertained) and if A does not have heirs, then property reverts back to O. • Possibility of Reverter o Future interest that remains in grantor when settlor conveys FSD Ex: “To A, so long as A uses the property as a school.” • A has FSD, but there is a possibility that A will NOT use it as school. If he stops using property as school, property reverts back to O. • Right of Entry o Future interest that remains in grantor when settlor conveys FSCS Ex: “To A, but if A stops mowing the lawn, the O has right of reentry.” ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 51 PROBLEMS 1) Pg. 625: T’s will devises Blackacre to A for life, and the residue of T’s property to B. What interest does B have in Blackacre? a. A = LE b. B = reversion 2) Pg. 627, #1: O conveys a fund in trust “for A for life, and on A’s death to A’s children in equal shares.” At the time of the conveyance A has two children, B and C. a. A = LE b. A’s kids (B and C) = VR subject to open c. (No reversion because everything is given away) • Two years later, D is born to A. o He D shares in the VR with B and C. • A year after that B dies intestate. o When B dies, his interest will go to his estate because his interest was vested. • Then A dies o B’s estate, C and D now have a FSA 3) Pg. 627, #2: In 1999 O conveys property in trust “for A for life, and on A’s death to the heirs of B.” At the time of the conveyance A and B are both alive and B has two children, C and D. a. A = LE b. B’s heirs = CR i. NOTE: Heirs are not ascertained until after B dies: ii. We do not determine who your heirs are until after you die. iii. So until you die your potential heirs have no property interest because they are just “potential” heirs and not heirs yet. iv. Thus, we say B’s heirs have a CR and not that C and D have this because we do not know that they will be alive when B dies. c. O = Reversion (because he has not given everything away) • In 2000 D dies, leaving a minor son, E, and a will devising all his property to his wife, W. o D cannot will away his expected interest, because it has not yet vested o Thus, this is irrelevant: Since B’s heirs have the CR above, not D, this is irrelevant. • B dies in 2004 o C and E now have VR in FSA (because B’s heirs are now determined to be C and E). • What would be the result if B died before D, and B left a will that devises B's estate to the Red Cross, then D dies, leaving a son E, and a will devising all his property to W, then A dies, survived by C, E and W. Who gets the principal? o C and W. (Before it was C and E, but now D is an heir and gets the principal which he willed to W. B’s will is irrelevant here because O’s trust said for B’s heirs to get the principal, not B). ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 52 4) Pg. 628 #1: O conveys Blackacre “to A for life, then to B if B survives A, and if B does not survive A, to C.” Does O have a reversion? – yes. a. A = LE b. B = CR (B is ascertained, but his interest is subject to an express condition precedent – he only gets it if he survives A). c. C = CR (a.k.a. Alternate CR) (note: C has to have a CR if B has a CR in FSA) d. O = Reversion (see rule of reversions) 5) Pg. 628 #2: O conveys property in trust “for A for life, then to B, but if B dies before A without issue surviving B, then to C at A’s death.” Does O have a reversion? – No. a. A = LE b. B = VR subject to CD (VR instead of a CR cuz it says “then to B” followed by a comma). c. C = EI (shifting) d. O = Glass of milk (no reversion, O gets nothing) • B dies and leaves child, D; B’s will devises all property to husband, H. D dies. Then A dies. To whom should trust property be distributed? o A = LE o H = VR in FSA 6) In class Example: O conveys property in trust “to A for life, then to B for life, then to C if C survives D.” a. A = LE b. B = VR in LE c. C = CR in FSA d. O = Reversion 7) In class Example: O conveys property in trust “To A for life, then to B or her heirs.” a. A = LE b. B = CR c. B’s heirs = CR i. B CANNOT will it away 8) Pg. 629, #1: O conveys a fund in trust “for A for life, then to A’s children, but if at A’s death A is not survived by any children, then to B.” At the time the trust is created, A has no children. a. A = LE b. A’s kids = CR (unascertained since A has NO children at this time!!) c. B = CR (CR is the only interest that can follow a CR in fee simple if it is in a third party) d. O = Reversion i. QUESTION If B dies, then A dies without kids, why wouldn’t it go to B’s estate? Does B’s interest VEST, or is it DESTROYED when B dies? • Suppose A has kids C and D. o A = LE o C and D = VR subject to CD (cuz if A is not survived by any kids then take this away), AND subject to open (cuz another kid can be born) o B = EI (No reversion because this is a VR in FSA.) ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 53 • C dies, devising his property to his wife, W. Then A dies. o D and W = FSA You’ve been paying A the income, but not the principle. When A dies, you pay the principle to D and W. 9) Pg. 629, #2: O conveys a fund in trust “for A for life, then to such of A’s children as survive A, but if none of A’s children survive A, then to B.” At the time the trust is created, A has two children, C and D. a. A = LE b. A’s kids = CR (must survive A) c. B = CR d. O = Reversion (under the rule of reversions) • Then C dies, devising his property to his wife, W. A dies. o C can’t devise because he did not survive, not because it is a CR!!! o So it all goes to D. o Notice the difference between this problem and the prior problem where C devised to W. CONSTRUCTION OF TRUST INSTRUMENTS Why are VESTED remainders better than CONTINGENT remainders 1. A vested remainder always accelerates into possession upon termination of the life estate a. Contingent remainder will not always do so. b. For a contingent remainder to vest, it must satisfy any and all conditions precedent. 2. A vested remainder is NOT subject to the rule of perpetuities a. Contingent remainder IS subject to RAP DISCLAIMERS/ACCELERATION • The above distinction is important in disclaimers • Beneficiary can always disclaim his interest o Beneficiary rejects the interest in the trust PROPER DISCLAIMER: • “No thanks!” (then IRS can’t tax you) IMPROPER DISCLAIMER: • “No thanks! Give it to Lindsay Lohan!” If you direct it where to go, you are accepting it an making a gift (then IRS CAN tax you!!). Disclaimer has two effects 1) Beneficiary no longer has an interest 2) Beneficiary is treated as predeceased, so if the next interest is a remainder in his kids, that class is now CLOSED (even to future children) a. Ex: To A for life, then to B for life, then to B’s kids. b. If B says “No thanks,” he loses his life estate, and future classes are CLOSED i. Thus, if B had kids, their interest is now vested and closed (no future kids can have any interest) ii. If B did NOT have kids, they now lose any future interest. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 54 In Re Estate of Gilbert To MOM for life, then to L for life, then to L’s kids M = LE L = VR in LE L’s kids = CR O = Reversion • If L says NO THANKS, then you strike through L’s interest, and L’s kids interest o And it reverts to O when M dies. M = LE L = VR in LE L’s kids = CR O = Reversion Problem: SEPARATE TRUSTS (in testamentary trust, revocable trust or Will) 10) Pg. 636, #2: “To A for life, then to the issue of A and B.” And, simultaneously, “To B for life, then to the issue of A and B” A’s LIFE ESTATEA = LE A and B’s Kids = CR • A has kids, C and D • A disclaims, so STRIKE OUT A’s interest, thus, kids alive have FSA interesto C and D = FSA B’s LIFE ESTATE B = LE A and B’s Kids = CR • B has no kids • B does NOT disclaim, so his issue still have CR. Problem: Taxation/Transferability 11) Pg. 637, #1: T’s testamentary trust “To A for life, then to B, and if B does not survive A, to C.” a. A = LE b. B = VR (subject to CD) c. C = EI i. If B dies in A’s lifetime 1. He has nothing to transmit 2. Bequeath is NOT taxed (he never got it) ii. If C dies in A’s lifetime 1. He still gets his interest, and he can transfer it, etc. 2. C does not have to survive anybody 3. His interest WILL be taxed. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 55 SURVIVAL REQUIREMENTS: When does beneficiary have to survive transferor????? 1) Interest created in will, testamentary trust, or revocable inter vivos trust a. If you don’t survive the transferor, you have NOTHING. b. In CA, you apply lapse/anti-lapse to these instruments i. Anti lapse may give bequest/interest at T’s death to your issue Implied Survival until time of POSSESSION 2) Multigenerational class (If settlor uses multigenerational terms, “issue,” “descendents” or “bodily heirs” you must survive until the time of possession) a. Decedents b. Issue c. Bodily Heirs (issue or decedents people that are the spawn of your seed) i. Franklin’s CHILDREN is one generation (DON’T apply survival) ii. Franklin’s Children and their ISSUE is multigenerational, so survival applies!! HEIRS = Express requirement of survival or WIDOW survive a particular PERSON, but not necessarily until time of possession 3) B’s heirs a. You don’t have to survive until time of possession, but you must survive B!!!! i. Thus, you have a vested remainder the minute you survive B 1. And in CA, you must survive by 120 hours (5 days) Bar Harbor • Revocable inter vivos trust “To F for life, then to E for life, to E’s kids P, D, and J.” o F = LE o E = VR in LE o Kids (P, D, and J) = CR This is contingent • F dies and E has property in LE • Then J dies o Issue: What happens to J’s interest? In CA, under CPC 21109, J cannot will away his interest because he has no interest (must survive transferor as per survival requirement) BUT under CPC 2110 John’s devise lapses. J is: • Transferor’s kindred • He left issue o THUS, his kids will get 1/3 o P will get 1/3 o D will get 1/3 If J did NOT have issue, under CPC 2111 • The devise goes completely to P and D. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 56 CHAPTER 11 RULE AGAINST PERPETUITIES & TRUST DURATION • RULE AGAINST PERPETUTITIES: o 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 CA does NOT use RAP: • CA uses USRAP (Uniform Statutory Rule against Perpetuities), which says interests are good for 90 years from interest • ANALYZING RAP ON EXAM o On essay, analyze under RAP interest will probably fail If one interest of many fails, X-OUT that interest and proceed THEN, come back an analyze under USRAP What’s subject to RAP? 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) 4-step analysis for RAP 1. When is interest created? a. Immediately upon execution i. Inter Vivos Conveyance (IV deed, IV irrevocable trust) b. Apply when T dies i. Will, Testamentary trust c. Apply when power to revoke ends i. Revocable IV trust (99% of the time, this is when settlor dies) 2. Characterize interest and say which ones are subject to the rule a. Subject to RAP i. All CRs ii. VR subject to Open iii. Executory Interest b. Not subject to RAP i. Reversion ii. VR subject to CD (class gifts, conditions, etc.) iii. VR subject to EI iv. VR in LE v. VR in FSA vi. PPI (LE, FSA, FSD, FSCS) 3. Pick life in being a. Must be someone alive when interest is created b. Must be someone who affects vesting of interest c. Can NEVER be a person in an open class 4. Guarantee a. 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? Problems ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 57 1. Pg. 677, #1: T bequeaths a fund in trust “for A for life, then to the first child of A to be admitted to the bar.” (Assume that at the time the interest is created that no child of A has been admitted to the bar) 1. Step One: When are these interests created? a. The interests are created on T’s death. i. Bequeaths = in a will ii. The minute T dies – who has what? 2. Step Two: What are the interests and which are subject to RAP (assuming they have not been admitted to the bar) a. A = LE i. Not subject to RAP b. A’s 1st kid admitted to bar = CR (must be admitted to bar very unascertainable) i. Subject to RAP c. T = reversion i. Not subject to RAP 3. Step Three: Who is my validating life? a. A (can’t pick A’s kid because he is in an open class). 4. Step Four: Can you guarantee me that within A’s life plus 21 years A’s child will either have passed the bar or all of A’s children will be dead? a. No. A’s kid can pass the bar more than 21 years after A’s death. Thus, the interest in the first kid is invalidated. b. So if A dies – it would go back to Testator’s estate (this is why CA gives an extra 90 yrs) • Under common law, the CR is STUCK DOWN • Under USRAP, we bring back CR back to life and it’s valid for 90 years from T’s death o This means a child of A has 90 years to be admitted to the bar • If A dies, it reverts to T. Interests are: o T = FSEL o A’s kids = Springing EI (interest will SPRING to first kid to pass the bar) 2. Pg. 679, CASE 5: 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. Step One: When is this trust created? a. When T dies. 2. Step Two: What are the interests and which are subject to RAP? a. A = LE i. Not subject to RAP b. A’s kids (B and C) = VR subject to open in a LE i. Subject to RAP (because open class) c. A’s issue then living = CR (expressly conditional on surviving i. Subject to RAP d. T’s estate = reversion (since ending with a CR) i. Not subject to RAP 3. Step Three: Who is my measuring life? a. A (B and C can’t be measuring life because they are in an open class). 4. Step Four: The Guarantees ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 58 a. A’s Kids: Can you guarantee me that w/in 21 years of A’s death she’ll have all the kids she is going to have? i. Yes, because the minute A dies I will be able to close the class of A’s kids. Thus, B and C’s interests are valid the minute A dies because class is closed and A’s life estate ends. b. A’s Issue Then Living: Can you guarantee me that all of A’s kids will die w/in 21 years of A’s death? i. NO, so that interest is invalid under RAP. 3. Pg. 679, #1: T bequeaths fund in trust “For A for life, then to such of A’s nephews and nieces as live to attain the age of 21.” At the time of T’s death, A is living and has a sister, B, and four nephews and nieces (the children of B), all of whom are under age 21. Is the interest given to A’s nephews and nieces valid under RAP? (clue: the answer is, “it depends.”) 1. Step One: When is this trust created? a. Will – testamentary trust. Effective @T’s death 2. Step Two: what are the interests and which are subject to RAP a. A = LE i. Not subject to RAP c. Nieces/Nephews = CR (contingent on turning 21) i. Subject to RAP d. T = Reversion i. NOT subject to RAP 3. Step Three: Who is my validating life? a. (Are the nieces and nephews in an open or closed class?) i. Here they are in a OPEN CLASS, so nieces/nephews cannot be validating life. If it were a CLOSED class, they could be the validating life. e. So, it must be A/B or A/B’s parents!! Depends on if there are parents (of A and B) i. If B’s parents are dead, then B’s class is closed and B or A can be measuring life. ii. If A’s/B’s parents are alive then we presume that they can have another kid (fertile octogenarian), thus making B in an open class. iii. Mom and dad could have another kid, C and there could be more nieces and nephews. If they are alive, you must use mom and dad. 5. Step Four: Guarantee? a. If A’s/B’s parents are measuring life: Can you guarantee me that w/in 21 years of the deaths of mom and dad, the nieces/nephews will all be 21 or all dead? i. No, because can have another one born at any time and take too long for him/her to reach 21. b. If B is measuring life (i.e. parents dead): Can you guarantee me that w/in 21 years of B’s death, all of B’s kids will either reach 21 or die? i. YES. ZHL WILLS AND TRUSTS KNAPLUND (FALL ’05) 59 4. Pg. 679, #3(a): T devises Blackacre to M, but if the Brooklyn Bridge ever falls: to the children of E now living 1. Step One: When are the interests created? a. When T dies (Devise = in will) 2. Step Two: Characterize the interests and which are subject to RAP a. M = FSEL b. E’s kids = EI i. RAP Secret: The only way an EI can be valid is if it vests in possession in a life in being within 2