Trusts, Wills, Estates Outline

Trusts, Wills, & Estates Outline I. Introduction a. Definitions i. Testator - a person who has written a will ii. To die testate - to die with a will 1. The persons designated to take property under a will are known as devisees or legatees 2. Devise – to dispose of real property 3. Legacy – disposition of money 4. Bequest – disposition of personal property other than money iii. To die intestate – to die without a will 1. The property is divided among the decedent‟s heirs as determined by the jurisdiction‟s statute on intestate succession iv. Non- probate property 1. Property that passes at death under a contract, deed, or a trust 2. Won‟t be affected by the terms of a will but rather by the terms of the various forms of designation 3. Classical example: insurance policy 4. Other examples: a. JTWROS property b. Pensions c. 401Ks d. IRAs e. POD – pay on death account f. TOD – transfer on death account v. Probate property 1. Property you own at the time of your death 2. A will is a statement of what a person wants to happen to their probate property 3. Ex. $100 bill b. General Principles i. Killers can‟t keep the property they would have received through their misdeeds 1. Constructive trustee – has to pass property along to next designee ii. People thinking about a will and estate planning really need 3 pieces of paper 1. A paper to dispose of his property at death a. Will b. Living trust 2. A paper to allow another to manage his property during life a. Durable power of attorney b. Living trust 3. A paper to allow another to manage his body and his health during life 1 a. Living will b. Health care power of attorney II. Intestate Succession a. Introduction and Representative Statutes i. The intestate succession statute is the state drawn will 1. Tells you what to do with a decedent‟s probate property when there is no will 2. Often written to give effect to the probable intent of the decedent. 3. When someone dies, ordinarily there has to be probate property in order to talk about intestacy a. If there‟s no probate property, there‟s no reason to discuss intestacy ii. When does intestacy matter? 1. When there is no will 2. When there is a will but the will does not tell us what to do a. When the will doesn‟t speak to the situation iii. Intestate succession is often important for determining who has standing to contest a will 1. If the contestant would be entitled to take part of the estate by intestate succession, the contestant would have standing to contest 2. Otherwise, the contestant would have standing only if he had been the beneficiary of a prior will b. The Share of the Surviving Spouse i. Community property 1. The half that the dead husband owned would go to the surviving spouse 2. The other half was already owned by the surviving spouse so now she owns the whole thing ii. Separate property 1. If there is no issue, parents, or issue of parents, the surviving spouse will take it all 2. If there is one child, parents, or issue of parents, the spouse gets half of the separate property 3. If there is more than one child, the spouse gets a third c. The Share of the Lineal Descendants i. When an intestate decedent is not survived by a spouse, decedent‟s lineal descendants (assuming decedent has lineal descendants) generally succeed to the entire estate ii. When an intestate decedent is survived by a spouse, the lineal descendants succeed to that portion of the estate which does not pass to the surviving spouse. 2 1. Any living descendant of the decedent cuts off the right of the descendant‟s own children to inherit iii. Strict “per stirpes” distribution 1. Divide decedent‟s estate at the generation of children – the generation closest to the decedent – whether or not any children were actually living at the death 2. If decedent had 3 kids, the estate will be divided into three shares regardless of whether the three kids are still alive. iv. Modern “per stirpes” distribution 1. Divide decedent‟s property at the closest generation to the decedent in which there is at least one descendant living 2. If the kids are all dead, go down to the grandkids level and divide equally at that level d. The Share of Ancestors and Collateral Heirs i. Inner circle 1. Surviving spouse 2. Issue 3. Parents 4. Sibs 5. Nieces and nephews 6. Grandparents 7. Issue of grandparents 8. Issue of a predeceased spouse ii. Ancestors cut off descendents in the inner circle, once they are both in a category qualified to take (issue) iii. If someone dies intestate with no “inner circle” relatives, then in CA, the estate goes to the “outer circle” relatives or next of kin 1. Outer circle = next of kin 2. Several systems for determining degree of consanguinity a. Civil law system i. Count up to the common ancestor and down to the claimants ii. Each step is a degree iii. Those of equal degree take equally b. Modified civil law system (CA uses) i. Do the same thing ii. Eliminate those who claim through a more remote ancestor iv. If there‟s no will, no traditional inner circle relatives, no findable outer circle relatives (next of kin), then we return to the CA inner circle and property goes to the former in-laws v. If some states, if you run out of inner circle relatives, the property escheats 1. Escheat is when the decedent‟s property passes to the state because there is no will or other dispositive instrument and no intestate takers under the local statute as it is applied 3 e. Defining the Modern Family: Halfbloods, Adoptees, and Non-marital Children i. Halfbloods 1. Two people share one parent, but not the other 2. The modern trend is to treat halfbloods equally with wholebloods ii. Adoption 1. Common law did not recognize adoption 2. Created entirely by statute 3. In order to cut all ties between adoptive children and their natural families, for intestate succession purposes, adopted children were to be treated only as children of their adoptive families 4. Problem when adoption is by stepparents 5. Adoptions a. Stranger adoptions – traditional adoption b. Stepparent adoption c. Relative adoption d. Adult adoptions i. Brittin approves adult adoption in a fairly Leave It to Beaver situation ii. Adult adoptions for crass financial reasons are usually rejected e. Courts tend not to approve people adopting their gay partners iii. Equitable adoption 1. Children are raised by adults who are not their natural parents, and who have taken no formal steps to adopt them 2. Doctrine rests on the fiction that when a caretaker takes a child into her home, she impliedly agrees with the child‟s natural parents that she will adopt the child iv. Non-marital children 1. Illegitimate children can inherit through their mothers 2. In order to inherit through their fathers, they must have proven paternity before the death of the father v. Afterborn heirs 1. Typically take in intestacy f. Simultaneous Death i. In order to take by intestate succession, an heir must survive the decedent ii. Where there is a simultaneous death (or under circumstances where you can‟t tell), then the claimant is presumed to die first and then s/he loses iii. § 6403, which applies to separate property, in intestacy, in CA, says that claimants of separate property in intestacy must survive 120 hours 1. 5 days 4 g. Disclaimer (Renunciation) i. Disclaimer and renunciation 1. They mean the same thing 2. The idea is ducking and inheritance in intestacy or ducking a devise under a will a. They throw the money at you and you don‟t catch it 3. If you have anything to do with it, the law says it is yours a. If you have creditors, they would have a claim superior to any donee of yours 4. Why disclaim? a. To avoid creditors b. To make a tax free transfer or reach some other tax goal ii. An anticipatory disclaimer of an expectancy interest created in intestacy is NOT valid 1. There is no property interest h. Advancements i. An advancement is a transfer by the intestate meant as an advance against the donee‟s intestate share ii. It is a question of intent 1. Many states, including CA, assume no advancement unless the intent is expressed in a contemporaneous writing, or unless the donee acknowledges it in writing iii. However to take from the intestate estate, the advancee must account – must come into hotchpot 1. Suppose intestate made advancements of $5K to son A, $1K to son B, and nothing to son C. Assume net estate is $8K. Assume the advancements pass the test of § 6409a a. Pool the advancements and the net estate i. $5K + $1K + $8K = $14K = hotchpot ii. Artificial estate b. Divide hotchpot by takers i. $14K/3 = $4,667 each c. A will elect not to participate in the hotchpot because $5K > $4,667 i. Not required to give anything back d. Start over again i. $1K + $8K = $9K ii. $9K/2 = $4,500 each e. Each receives the hotchpot share minus the advancement i. B receives $4.5K -$1K = $3.5K ii. C receives $4.5K - $0 = $4.5K 5 III. Protection of the Family a. Introduction to the Elective Share i. Elective share is to protect the intentionally disinherited spouse ii. CA doesn‟t have an elective share 1. Instead, CA gives share of community and quasi-community property b. Traditional Elective Share Statutes i. The typical common law state gives the surviving spouse a choice between whatever the decedent spouse chose to leave or a right of election 1. Take what dead spouse left you or elect to take what the law gives to unhappy surviving spouses 2. Right of election a. The traditional statutory share/fraction was 1/3rd of the probate estate c. Modern Elective Share Statutes i. 1/3 is gone from Uniform Probate Code 1. Marriage is an economic partnership 2. Protect spouse because of the partnership 3. Look to how long they were married 4. If they were married a week, 1/3 is too big 5. If they were married 50 years, 1/3 is too small ii. Accrual fraction 1. The longer the marriage, the bigger the share 2. Cap of 50% iii. Pool/Pie reform 1. Make the surviving spouse come into hotchpot a. Make the surviving spouse account for what s/he has already taken out of the marriage b. If he made a big gift to her, reconstruct finances to put it into hotchpot d. Other Protections for the Surviving Spouse i. Spousal contracts 1. Waive rights under right of election or community property 2. They are waivable rights 3. Agreements are needed because there are so many kinds of marriage 4. There has to be fair disclosure for waivers to be valid ii. Forgotten spouse 1. When there is a forgotten spouse, § 21610 gives the forgotten spouse a. The dead spouse‟s i. ½ of community property, ii. ½ of quasi community property, and iii. The lesser of a surviving spouse‟s intestate share of separate property or ½ of the separate 6 property disposed of by will or by revocable trust iii. Homestead exemption is some form of right, usually in surviving spouse, to occupy the family home 1. It is often severely limited iv. Exemption, or family allowance is a power in the probate court to set aside money or personalty to survivors e. The Community Property System i. Separate property 1. All property acquired before marriage 2. All property acquired after marriage by donative transfer 3. Income on separate property 4. Separate property is entirely subject to disposition at death a. Failing such disposition, it is disposed of under the intestate succession statute ii. Community property 1. All other property acquired during marriage and the income thereon a. Or all property acquired during marriage, except by donation 2. All property that can be traced to labor during the period of the marriage 3. Disposition at death of community property a. Half already belongs to surviving spouse b. Half is subject to disposition by deceased spouse c. Failing disposition, deceased spouse‟s half goes to surviving spouse d. In CA, the dead spouse‟s half is often confirmed to the surviving spouse in a simple proceeding that avoids probate iii. Quasi-community property 1. In the nature of, nearly community property 2. People who move to CA from common law states 3. Within the government‟s power, what would‟ve been community property if H and W were domiciled in CA is distributed as is it were community property at death 4. We‟ll treat them as if they‟ve lived here all their married lives 5. Pensions are not quasi-community property (§ 102(b)) 6. CA asserts no jurisdiction over foreign real estate 7 IV. Wills a. Execution of Wills i. Ceremony 1. In order for a will to be valid, it must pass muster under §§ 6110-6113 a. Will must be in writing b. Signed by the testator c. Witnessed by being signed by two persons who i. Were present at the same time ii. Witnessed either the signing of the will or the testator‟s acknowledgement of his signature or the will 2. Make sure witnesses actually witness the signing or the testator‟s acknowledgement of his signature or the will a. You want witnesses that disinterested technically and logic ii. Attestation clause 1. The recording of the act of bearing witness 2. Yields presumption of due execution and that the events described in the clause actually occurred 3. Ex. The foregoing instrument consisting of (four) typewritten pages was signed, published and declared by the testator to be his last will in the presence of us, who, at his request, in his presence, and in the presence of each other have hereunto subscribed our name as witnesses. a. Followed by witness signatures iii. Self-proving affidavit 1. Affidavit memorializing their testimony early 2. Won‟t have to bring the witnesses in during probate iv. Notarization 1. The notary is what gives the affidavit life v. If a will is not in the mainstream, you better do a good job 1. If all the formalities had been met the will would have been admitted to probate 2. If the will had been normal, the court might have stretched and found it valid vi. There are different types of wills which require different types of execution 1. Three types a. Formal i. Witnessed, ordinary, attested will ii. Recognized in every jurisdiction b. Holographic i. Handwritten and unwitnessed will 1. Material provisions must be in handwriting of testator 8 2. Must be signed ii. Valid in many jurisdictions including CA c. Nuncupative i. Oral will ii. Recognized in some jurisdictions but severely limited iii. Not recognized by CA - §6110 (necessity of writing) vii. Doctrine of Substantial Compliance 1. Allowed a formally defective will into probate because a. The testator‟s intent was clear b. There was substantial compliance with the formalities of the wills act b. What Constitutes the Will? i. Physical integration 1. What papers are to be probated as physical parts of the testator‟s will 2. Were the papers present with the page signed by the testators and witnesses and were they intended to be a part of the testator‟s will? ii. Incorporation by reference 1. A doctrine which allows an instrument outside the will, and likely outside the room, to control the disposition of property at death, without that document meeting the requirement of the statute of wills 2. Requirements: a. Reference to the outside document in will b. Outside document has to be in existence at the time the will or codicil is signed iii. Doctrine of facts of independent significance 1. A will may dispose of property by reference to acts and events that have significance apart from their effect upon the disposition made by the will, regardless of whether they occur before or after the execution or the testator‟s death. 2. Relevant in two kinds of cases a. When testator‟s will makes reference to facts or events of independent significance to determine the beneficiaries of the will i. O  my oldest surviving sister b. When testator‟s will makes reference to facts or events of independent significance to determine the property that an ascertained beneficiary will receive i. I leave any car I may own to my brother, Bob c. Construction Problems Created by the Time Gap Between Will Execution and Death 9 i. Abatement 1. Talking about the testator who died with less then he thought he was going to have a. The will makes devises that the estate can‟t afford 2. Sort these problems out by classifying the devises and then going down a hierarchy a. Hierarchy i. Intestate property 1. Whatever isn‟t taken care of by the will ii. Residuary 1. What‟s left over after general and specific devises are fulfilled iii. General devises 1. Devises of money from general estate iv. Specific/demonstrative devises 1. Specific devises – devises of property (real and personal), money from a specific source) 2. Demonstrative devise a. Considered a specific devise up to the value of the specified property or fund and then a general devise for the balance ii. Exoneration – to free from liens 1. The basic rule is that mortgaged realty passes subject to the mortgage a. It is not exonerated 2. If the testator wanted the cabin to go to the devisee free and clear, she has to say so very clearly iii. Apportionment of taxes 1. Who pays the death taxes? a. Testator can direct who pays the tax among her devisees and should b. If a testator fails to direct who pays, then each state will have its own default rule i. Most say the each devisee pays her own way (pays her own share of the estate tax) c. Many wills set aside default rule and direct payment out of the residuary iv. Ademption 1. Doctrine which applies when testator has devised a particular piece of property which he disposes of after executing the will 2. Ademption by extinction a. For a specific devise, the testator got rid of the devise item (painting for example) before dying 10 i. There‟s nothing to get from the estate so the devise is adeemed by extinction 3. Ademption by satisfaction a. If the devise is the oak desk, and the testator has given the desk to the devisee, the devise is deemed to be satisfied b. What if the residue is given in equal thirds to grandchildren and a year before death, testator gives $30K to a grandchild? Ademption by satisfaction? i. No, no adjustment unless the will or a contemporaneous writing makes it clear ii. The doctrine is about equal to advancements v. Lapse 1. Common law presumed that a devise to a predeceased devisee lapsed – you have to survive to take 2. Consequence of lapse a. If a specific or general devise to an individual beneficiary lapses, the devised property generally passes into the residue of the testator‟s estate b. If the testator devises the residue of her estate to a single devisee, and if the devise lapses, the residue passes by intestate successions c. If a devise to one residuary devisee fails, that devisee‟s share passes to the other residuary devisees d. No intestacy results unless all of the residuary devisees die before the testator 3. Antilapse statutes a. When a testator leaves property to a sufficiently close relative, testator would want the issue of that devisee to take the property if the devisee predeceases the testator b. Preserves the devise only for the issue of the deceased devisee, not for the deceased devisee‟s will beneficiaries c. In Ca, the close relatives protected by the anti-lapse statute are i. Kindred of the testator or his or her surviving, deceased, or former spouse 1. Kin: blood or adopted d. In order to set aside the antilapse statute, you must include both survivorship language (to my children who survive me) and an alternative gift (if none, to Red Cross) 4. Void devises a. If the devise is to a person who had died before the time of will execution 11 b. Modern antilapse statutes generally apply to save both lapsed and void devises c. In CA, the void gift to a class member is void (the common law result) if testator knew about the death d. Construction Problems More Generally i. Reading the Will as a Whole 1. When a will provision creates an ambiguity obvious on the face of the provision, courts will, as a matter of course, look to the rest of the will to resolve the ambiguity ii. Extrinsic Evidence 1. Extrinsic evidence is admissible to shed light on testator‟s intent only when the will itself is ambiguous a. When there is an ambiguity, the court is merely discovering the meaning of testator‟s own, ambiguous, attested words 2. Three kinds of ambiguity situations a. Patent ambiguity i. Obvious 1. Will: $100 to UCD Law. $100 UCLA Law. Residue to the law school 2. Which law school is meant? It is obvious that there is an ambiguity 3. When there is a patent ambiguity that should be an occasion to let in extrinsic evidence but it may not be b. Latent ambiguity i. Hidden ii. Will: Residue to N.H. Law of Wentworth N.H. iii. No such place – but you wouldn‟t know that from the face of the will iv. Latent is always an occasion to let in extrinsic evidence c. Plain meaning (no apparent ambiguity) i. The words have a plain clear meaning ii. Will: “Residue to UCLA Law.” What I meant was UCD Law. iii. For every question, there is an answer that is plain, simple, and wrong iv. Plain should be occasion to let in extrinsic evidence in, but sometimes it isn‟t 3. What kind of extrinsic evidence should be admitted? a. Indirect declarations of the testator (“He‟s gonna be mad.” With regards to someone the testator is trying to disinherit) i. Doesn‟t compete with the word of the will 12 b. Testator‟s circumstances (In trying to determine which law school the residuary goes to, outside evidence that I was a UCD fundraiser is helpful) c. Direct declarations if the description in the will applies equally to 2 devisees…“equivocations” i. “$1000 to Cousin George.” I have two cousins named George. Then lawyer could testify as to testator‟s direct declarations ii. Rationale – written word has totally failed so testimony doesn‟t compete with it iii. Correcting Mistakes 1. If there‟s a mistake in description of a person or thing involving only the details and if it can be corrected without adding language, courts will make the correction 2. Mistake in the inducement a. The allegation made by the excluded beneficiaries is, in effect, if testator only knew the true facts, testator would have left us money b. Courts have been reluctant to honor mistake in the inducement claims because every testator is under some misimpressions at the time the testator executes his will 3. The mistake must appear on the face of the will and also what would have been the will but for the mistake a. The mistake and what T would do must appear on the face of the will or there is no remedy b. Courts don‟t want to guess what T would have done 4. Courts unlikely to make changes due to scrivner‟s error a. Courts will use the eraser end of the pencil but not the lead e. Revocation of Wills i. Revocation by Physical Act 1. Physical act: a. To the paper b. To the writing c. By the testator, or proxy or presumption 2. Burning the edge of the paper is sufficient for physical revocation as long as there is intent 3. If the will is missing, court will presume it is revoked by physical act 4. An act of revocation done to a copy is a non-event 5. Revocation by physical act through a proxy can only be done in the presence of the testator ii. Revocation by Subsequent Instrument 1. Express revocation a. “I hereby revoke all wills and codicils at any time heretofore made by me.” 13 2. Implied revocation by total inconsistency a. Will 1 – all my property to Red Cross; Will 2 – all my property to Salvation Army i. Second will revokes will 1 by inconsistency iii. Revocation by Operation of Law 1. Due to a change in the circumstances of the testator 2. Revoked by law – society has decided you really didn‟t want that will a. Think divorce where ex-spouse forgets to change her will i. Unlikely wife wanted ex to get property 3. Safe to say – divorce revokes a will PC § 6122 a. Every divorce petition and decree has to contain a notice to that effect iv. Revival and Dependent Relative Revocation 1. Revocation of testator‟s last will does not reinstate a prior will 2. Dependant relative revocation a. The revocation was conditional (mistaken revocation) b. Conditioned on testator‟s belief that the new will was going to work f. Limits on the Power to Revoke: Joint Wills and Will Contracts i. Contracts to make a will 1. We recognize contracts to make a will or we recognize contracts to not revoke a will 2. A contract to make or not revoke a will is a limit on the ambulatory nature of a will a. We recognize them but we don‟t like them 3. Ideally, it will be clear if there is a contract to make a will a. In a perfect world, there will be a contract with standard contract terms and a standard will which refers to the contract and there‟s no question about intent 4. Sometimes there is a question about whether a contract has been made ii. Joint will 1. A single document for two or more people (usually husband and wife) 2. Probate the document when the first person dies and then reprobate it when the next person dies 3. Doesn‟t create a contract in and of itself 14 V. Contesting the Will a. CA actually bans juries from will contest cases b. Testamentary Capacity i. Testator must 1. Understand the nature of the testamentary act 2. The nature of his/her property 3. The natural objects of his/her bounty 4. The disposition s/he wishes to make of his/her property ii. Insane delusions 1. If a person persistently believes supposed facts, which have no real existence except in his perverted imagination, and against all evidence and probability 2. In order to successfully contest the will on the grounds of insane delusion, the insane delusions must affect the devise a. Ex. Marshall devises $10K to White House butler for services rendered during his presidency. Insane delusion that he was President affected the devise i. If it is contested, the devise is gone 3. An insane delusion is a belief in nonexistent facts against all evidence, followed by testamentary action based on that belief. 4. We only void devises when they are based on the insane delusion. 5. If there is a fact at the core of the testator‟s belief, then there is no insane delusion a. Rather, there is a sane delusion b. If T makes a devise under a sane delusion, we don‟t void the devise iii. Lucid interval 1. We believe that most mentally infirm testators can have a lucid interval 2. The clouds can lift 3. Hard for someone not at the will signing to deny the possibility of a lucid interval iv. Can a lawyer do a will for an incompetent testator? 1. Duty to decide for yourself if the testator is competent a. If yes, you can decide whether to do it b. If no, you must decline the representation c. Undue Influence i. Written will does not reflect testator‟s true intent but instead reflects the successful effort of a will beneficiary to substitute his own wishes for those of a testator susceptible to the beneficiary‟s influence ii. The destruction of free will (or free agency) and procurement of a will that did not represent the testator‟s desires but rather those of the influencer 15 1. Think of it as an offer the testator can‟t refuse (“I‟ll stop taking care of you and throw you out on the street if you don‟t leave me everything”) iii. Have to show 1. Confidential relationship 2. Undue benefit 3. Suspicious circumstances iv. To rebut allegation of undue influence: 1. Needs to show that testator had a meaningful consultation with an independent lawyer outside the presence of the alleged influencer d. Fraud i. Fraud which causes testator to execute a will consists of statements which are: 1. False 2. Known to be false by the party who makes them 3. Material 4. Made with the intention of deceiving testator 5. Deceive testator 6. Cause testator to act in reliance upon such statements ii. Courts won‟t reform fraudulently induced wills 1. They void them and either stop there or impose a constructive trust on the recipient a. Constructive trust: “Since you were unjustly enriched, we‟re going to pretend you‟re a trustee and order you to transfer that money where it belongs – to your „beneficiary‟.” e. Preparing for the Contest: the Lawyer‟s Role i. No contest clause 1. Clause in wills that says that if anyone contests the will, they lose their devise 2. Looking to hit the sweet spot where you leave devisees enough that they‟re not willing to risk losing it by contesting ii. If you contest and lose in CA, you‟re going to lose your devise, even if you had cause to contest 1. Exceptions a. Forgery b. Revocation c. Improper gift to lawyer iii. In a state like CA, which is so hostile to unsuccessful contestants, courts are quick to conclude that an angry heir‟s lawsuit is not a contest 1. If it‟s not a contest, then it doesn‟t trigger the no-contest clause 2. None of these actions constitute a will contest a. Right to elective share b. Pretermitted spouse claim 16 Challenge trust that violates Rule Against Perpetuities Does devise of “home” include furniture Challenged to named executor has proper qualifications Determination that property passes outside probate estate g. Claim of repayment of loan against estate f. Special Problems Affecting Gay and Lesbian Testators i. With gay and lesbian partners, the families are not likely to appreciate being left out 1. Possible solution a. Give partner life interest, remainder back to family b. Can put it in trust – income to partner, remainder back to decedent‟s family ii. The main technique for gay and lesbian estate planning where there is a risk of contest is to take property out of the probate system 1. The tradition of will contests doesn‟t exist outside of probate a. Joint tenancy with right of survivorship can be useful b. Funded revocable inter vivos trust i. To testator for life, remainder to partner 1. It is hard to successfully contest a funded revocable inter vivos trust 2. The property passes at the moment of death to the survivor and there‟s no clean way to start a lawsuit VI. Trusts a. Creation of Trusts i. What are the requisites for a valid trust? 1. Property a. No property, no trust b. Expectancy is not property c. Exception to no property, no trust rule i. An unfunded revocable inter vivos trust is valid in all jurisdictions without regard to the rule “no property, no trust” ii. Accomplished by statute 2. Beneficiary a. Have equitable title b. Benefit from the trust c. If there are no identifiable beneficiaries, the trust will fail in most jurisdictions i. The requirement that trusts have identifiable beneficiaries is designed, in part, to assure that someone has power to enforce the trust d. In CA, a trust for one‟s friends is good (§15205(b)1) c. d. e. f. 17 i. If it is ascertainable with reasonable certainty or sufficiently described so that some person would fit the bill e. Unless forbidden by trust, equitable interests are assignable 3. Trustee a. Has legal title b. Manages the property c. A trust will not fail for want of a trustee d. Reasons trustee position might be vacant i. Trust instrument doesn‟t name trustee ii. Trustee named may fail to qualify 1. Refusal to accept position 2. Death of trustee before effective date of trust 3. Refusal of the court to confirm the appointment because of incompetence iii. Trustee might lack legal capacity to hold in trust 1. Ex. Unincorporated association in some states iv. After trust is created, trustee might 1. Die 2. Be removed 3. Resign e. A trust settlor may i. Name one of the beneficiaries as the sole trustee ii. Name one of the trustees as the sole beneficiaries iii. Name the same two or more parties as both trustees and beneficiaries of the trust iv. NOT: the same person as sole beneficiary and trustee 1. If it happens, the legal and equitable titles merge and the trust terminates 4. Trust duties (intent) a. Intent to create a trust b. To create a private express trust, a settlor must express an intent to impost an enforceable duty on the trustee c. Precatory words – words of request or entreaty i. Creates doubt as to whether the settlor meant to create a trust with mandatory duties b. Using Trusts as an Estate Planning Tool i. Why create a trust? 1. For the beneficiary who can‟t manage money (kid) 2. To avoid probate 18 ii. iii. iv. v. vi. 3. To provide for different beneficiaries over time (to A for life, remainder to B) Questions to consider: 1. Whether alleged trustee was a natural object of bounty? 2. Whether the alleged donee was a natural object of bounty? 3. How specific the language allegedly creating the trust was 4. Whether the alleged trustee can afford to give up the money 5. Whether the alleged beneficiary needs the money A transfer to someone who has no business getting the gift – the court is going to say it is a trust 1. Ex. I bequeath $10K to my accountant who is instructed as to my charitable wishes A transfer to a natural bounty with specific language will also be considered a trust 1. I bequeath $10K to my beloved brother, John, but I ask him to pay $50/month toward Adam‟s care 2. NOT: I bequeath $10K to my beloved brother, John, but I ask him to use part of the money to care for our ailing cousin, Adam Inter vivos trusts 1. Totten trusts a. Deposit in a bank account – says A in trust for B b. Settlor still has full control over the money in the accounts c. Beneficiaries just have to show a death certificate to get the money 2. Funded revocable inter vivos trust a. Trust that someone creates during their life that they can revoke and they‟ve put some property in it b. During the creator‟s lifetime, most of the time the grantor gets the benefit of the trust c. In Ca, a silent trust is revocable 3. Two basic ways to establish a trust a. By transfer i. Transfer is when A transfers property to B and “tells” B to hold the property in trust for someone (C) b. By declaration i. Declaration is when A says/writes “I declare myself to be trustee for the benefit of C.” Types of trusts 1. Discretionary trust a. The settlor gives the trustee discretion to pay income (and/or to invade principal) for the benefit of one or more described beneficiaries 19 2. Support trust a. Settlor gives the trustee power to pay income for the support of a named beneficiary b. Imposes a mandatory duty on the trustee c. It is the trustee‟s responsibility to ascertain what the beneficiary needs for support and then pay that amount to the beneficiary 3. Trust pursuant to a standard a. Ex. education 4. Spendthrift trusts a. The interests of my trust beneficiary, whether in trust income or trust principal, shall not be capable of assignment, anticipation, or seizure by legal process b. Prevents voluntary assignments and prevents the beneficiary‟s creditors from garnishing the beneficiary‟s trust interest i. In general, a provider of necessary services may enforce her claim against the beneficiary‟s interest in a spendthrift trust c. Designed to thwart the spendthrift and his creditors d. Designed to make beneficiary‟s equitable interests nonassignable e. Language for spendthrift i. “Not capable of assignment, anticipation” – cannot voluntarily assign ii. “Or seizure by legal process” – can not involuntarily assign f. Equitable interest is protected, not the money c. Trust Modification and Termination i. Divorce revokes provisions for a spouse in a will, a revocable inter vivos trust, a pay on death (pod) account, employee benefit plans, IRAs, and joint tenancies ii. A will cannot revoke an inter vivos trust unless the trust specifically says so iii. When a trust specifically states how the settlor can revoke the trust, the settlor must follow those instructions in order to revoke the trust iv. Beneficiaries can terminate, if there‟s no material purpose, and if all the beneficiaries are at the table 1. Material purpose – a purpose so substantial that it would go against the settlor‟s intent to terminate the trust a. Providing an income stream measured by a beneficiary‟s life is not a material purpose v. There is universal agreement that the beneficiaries may not compel termination of a spendthrift trust, because termination would interfere with a material purpose of the settlor. 20 vi. If the settlor and all the beneficiaries of a trust consent and none of them is under an incapacity, they can compel the termination or modification of the trust, although the purposes of the trust have not been accomplished vii. A guardian ad litum may give consent to termination of the trust 1. May look at general family benefit in making determination 2. If the trust is small, will probably rubberstamp 3. If the trust is big, will want to get something for his wards viii. An irrevocable trust cannot be reformed because the settlor has changed his mind ix. When is a court going to be most comfortable reforming the trust on the basis of mistake? 1. Taxes x. Impracticability of accomplishing trust purposes 1. If the purposes for which a trust is created become impossible of accomplishment or illegal, the trust will be terminated 2. Another way to terminate trust in CA (PC § 15408) a. Trust with uneconomically low principal (cost of administration higher that income or impairs trust purposes) can be terminated, modified, or new trustee appointment b. If trust principal does not exceed $20K, trustee has power to terminate trust c. Would apply to spendthrift trusts as well d. CA is wise but unusual in this respect 21