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Trust and Estates Trust Estates R

VIEWS: 1,410 PAGES: 128

									Trust & Estates                                  R. Santalesa                                          Professor Turano



Trust and Es tates                First Cl ass                                     08.26.03
Prof. M.V. Turano - Room 4-16
Available stuff on the Lexis Webcourse.

 Leach, Perpetuities in a Nutshell.
 Problems & Answers will be posted on webcourse.
 Three writings. Three essays. No points lost, more for prep. of her final exam (and they're taken fro m
prior exams.)

Course centers on very practical materials. Fro m EPTL teaching. EPTL was set up in '66 fro m laws
scattered all over. (And SCPA). Much statute interpretation -- wills & intestacy.

1990 or 89 - M ini-Benett commission.

Final Exam - Two parts.
        - T&F 100-150 questions. Tests who inherits... is this person disqualified, etc.
        - Two essays. Closed book exam. Three hours long.

Sept. 25 - try and stay ahead on the writing.
 Written assignments. First due - Sept. 30th.

Policies Informing the Law of Trust and Es tates
         - Demographics - Changes in T&E because society has changed so much. Much older population of
         older people now (now specialized area of elder law, which implicates many decisions.)
         - Family structure - Breakdown in stable marriage structure. Serial re -marriages, and step-children,
         homosexuals, etc.
         - Public Policies (responsible for evolution in T&T)
                   Testmentary and donative freedom (should be allowed to do what you want with your
                  property - give it to who you want, how you want, and in what situations).
                   Exceptions to cultural tradit ion of free testation:
                             1. Fed. estate tax (so you can't give away all of it).
                             2. Can't exclude your spouse (unless he/she agrees to be excluded)?
                             3. Can't keep control over your property indefin itely [Ru le Against Perpetuities]
                             4. Can't ask the state to help distribute your money in a discriminatory fashion -
                                 See Matter of Wilson.
          Need for certainty (to avoid constant lit igation over every single issue)
                  (i.e. per stirpes and if you make a gift just to your issue and you forget to say what should
                  happen if one of your children d ies, it'll automat ically distribute by representation
                  according to the statutes. [There are dozens of statues that say UNLESS THE TESTATOR
                  has directed otherwise, here's what will happen.] Very little is left to arbit rary
                  determination.)
          Reduction of possibility of fraud (both wills and trusts have formality requirements - witnesses,
         signatures, certain statements - attestations -- and if all of that is done you windup with the best
         evidence... and its difficu lt to defraud someone into a will because it's so formal).

PROB ATE/ NON-PROB ATE DISTINCTION

Examples of non-probate assets:
       - Jointly o wner property
       - Totten trust bank accounts
                 (in trust for John Doe [who can't touch the money during the life of the person]
                 Called Totten trusts because that was the name of the case that allowed these accounts).
                 [Regular account says Mary Joe and John Doe, in survivor - John can take it out during
                 lifetime]
       - Life insurance (beneficiary - legal foundation is contracts)
       - Pensions (matter o f contract)



NY01/SANT RI/864207.1                                                                                         1
Trust & Estates                                   R. Santalesa                                           Professor Turano



         -Trusts (where one person who owns property gives the property to another person/bank [trustee]
         with directions for what to do with it do benefit a third party [kids, etc.]
         (Classic two generation trust) (But you can say you want the income yourself, etc.).
                            (You can even serve as your own trustee [she said -- IS this true?]).
                            (Can also make a trust in your will with probate assets - called testamentary trust).

EPTL 1-2.6 - Estate
      a) Interest which a person has in property [real or personal].
              [i.e. future interest - remainder to life estate or tenancy
              in common. Current interest - Fee simple absolute, Term of
              years - vacation timeshare to use for X years. Leasehold is
              an estate, too.]
      b) Aggregate of property which a person owns.
      c) Taxable estate is the third way of thin king about the term "estate".

 PROBATE PROPERTY - Could pass under a will [doesn't have to pass by a will, but it could]

DEFINITIONS

§ WILL: EPTL 1-2.19 (can be oral or written, ordinarily written)
        EPTL 3-2.2 (allows for o ral wills and non-formal wills during a war).

         - Co mpletely revocable
         - Directs how it shall be d istributed OR not distributed.
         - Exercise a power (e.g., power to exercise a stock option, power of appoint ment [wh ich is power to
         dispose of someone else's property],
         - Appt a fiduciary (e.g., guardian for kids, custodian of assets, executor [involved as representative
         to distribute assets, pay off creditors, pay taxes, file will in court {administrator is there was no
         will], or makes any other provision for the administration of h is estate (e.g. sell hour, or cremate my
         body, continue my business, plant trees, etc.).

         (b) TERM will includes CODICIL

§ CODICIL: EPTL 1-2.1 - Supplement to will, adds or subtracts from will. Does NOT revoke the will
totally.

          NOTE: A Codicil re-dates the will fro m the date of the codicil.

§ DISTRIB UTEE: EPTL 1 -2.5
       - A distributee gets from a person who did not have a will. Th is is a term of art.
                (descent and distribution - means intestacy; you don't make a distribution fro m a will.

§ DISPOSITION: EPTL 1 -2.4
       - Transfer during person's lifetime OR by their will.

§ SPECIFIC DISPOS ITION: EPTL 1-2.17
        DEM ONSTRATIVE d isposition: EPTL 1-2.3
        GENERA L disposition: EPTL 1-2.8
        RESIIDUA RY disposition (what's left over.)

Matters when certain items are given in the will to determine what person gets if it's not available .

§ PERSONAL REPREENTATIVE: EPTL 1-2.13 (with will - executor; without will - ad ministrator)

§ PROPERTY: EPTL 1-2.15 (real or personal that's subject of ownership; used to be enormous
distinctions between real and personal property; now laws are mostly same.)



NY01/SANT RI/864207.1                                                                                           2
Trust & Estates                                   R. Santalesa                                            Professor Turano




§ TES TAMENTARY B ENEFICIARY: EPTL 1-2.18 (counterpart to distributee in intestacy) - person who
gets by will.
          NOTE: Legacy, bequest - means disposition of personal property
                 Devise (by a will) - real property

§ ISS UE: EPTL 1-2.10
         - Descendants in any decree of common ancestor. (children, grandchild ren, great -grandchildren,
        adopted children.

DEF: Perfect will substitute- various trusts that accomplish the same result and both revocable and
ambulatory.

        Imperfect will substitute - jo int tenancies, that provide intestate transfer without will/probate but are
non-revocable and non-ambulatory. [death certificate rather than probate decree suffices to transfer title].

3 Differences to Will Substitutes [fro m wills]
         1. Most will substitutes are asset-specific.
         2. Assets avoid probate (advantage!)
         3. Avoids formal will requirements (attestation, etc.)

3 Essential Functions to Probate
         1. Tit le clearing (marketable)
         2. Creditor protection (pay off debts)
         3. Distribution of assets (donative intent).

When person makes a will usually they're very specific about who should get certain property. But
sometimes people in will just leave to "issue".

Q: What does it mean just to say "I leave to issue"? who should or does get?

§ PER STIPES - NY VERS ION                              EPTL 1-2.14
               (Doing problems)

 NOTE: p. 49 - With EPTL 1-2.14 Per St irpes and Representationn skips a generation that is totally died.
 NOTE: By representation, per EPTL 1-2.16, is now default method in NY, post 1992.

                  ---> By REP and P.S. operates the same way if only 1 child has predeceased.

LEFT OFF HERE.




NY01/SANT RI/864207.1                                                                                            3
Trust & Estates                                  R. Santalesa                                         Professor Turano



Trust &Es tates                      2nd Class                  08/28/03, Thursday


§ INTES TACY – State of your estate when you die without a valid will.

         • Without a will EPTL 4-4.1 applies as what the legislature presumes how the average NYker
         would want their estate to devise. We have "constructive knowledge" so there's no real challenge
         about -- UNLESS the testator provides otherwise in a will.

EPTL 4-4.1 determines who gets from intestate decedent. It's also important for:
                If person has a will the process is:
                         a. first, offer the will for probate, AND
                         b. then, notice has to be given to people who‟d likely be affected adversely by the
                         will
                                    • So any intestate distributees have to be cited in a probate proceeding,
                                    even with a valid. Therefore, you still have to go to EPTL 4-4.1 and see
                                    who would be affected, and serve them with process [or get them to sign
                                    waivers of process].

          NOTE: EPTL 4-4.1 only deals with estate in decedent's own name -- doesn't affect joint
         property, joint accounts, pensions, life ins., Totten trusts, and other will-substitutes.

         Purpose of i ntestate statute is to:
                "[P]rovide a distribution of real and personal property that approximates what decedents
                would have done if they had made a will. Spouses and children enjoy a favored position
                under the laws of intestate succession because, on statistical average, they are the natural
                objects of most people's benefit.”

         NOTE: ONLY PEOPLE WHO SURVIVE THE DECEDENT A RE ENTITLED TO SUCCEED
         TO THE PROPERTY -- BY EITHER TESTATE OR INTESTATE SUCCESSION.
               § RULE: One person‟s estate cannot take part of someone else's estate.)

         PEOPLE WHO DIE AT SAME TIME - Who gets? EPTL 4-4.1 says you have to survive the
         decedent. But every jurisdiction has passed a special statute dealing with simultaneous deaths.
                          In NYS we have EPTL 2-1.6 – Disposition of property where there is no
                          sufficient evidence that persons have died otherwise than simultaneously – based
                          on Uniform Simu ltaneous Death Act - which says that when it seems the people
                          died at the same time, they will each be considered to have predeceased the other,
                          and practical effect is that it cuts down on probate.

         Under UPC and some that have adopted it, if person doesn't survive the person by at least 120 ho urs,
         five days, they are considered to have died before the decedent. Rationale is to avoid process and
         such -- THIS IS NOT SO IN NY!! If you have someone who dies minutes later they still get the
         share passing through them.

         Unifo rm Determination of Death Act (1980). [p. 38].
                  • New York does not have this provision. In NY a person living on in a vegetative state is
                          considered a living person.

         § RELATIVES IN GES TATION AT DECED ENT'S DEATH - [p. 39] – Are t reated as if there
         were alive at D's death IF they (1) were in gestation at the D‟s death AND (2) are born alive. [If a D
         dies, and child is born, that child gets the share. If ch ild is born dead he is not an intestate
         distributee.]
                   • NYS is in majority position on this point.

         § SPOUS ES - Have priority over parents, siblings, collateral relations, etc.



NY01/SANT RI/864207.1                                                                                          4
Trust & Estates                                   R. Santalesa                                            Professor Turano



                  • States are split on whether parents get share. [In NYS just the spouse takes, parents do
                  not. In 1992 the parents were eliminated. Other states still allow if there are no kids.]

         p. 63 Chart - On hypos.. refer to this chart.

         • Tables of Consanguinity - Nu mbers of degrees are for historical interest. We don't count degrees .

         NOTE: NYS statute EPTL 4-4.1 does NOT go back past grandparents.
               ASIDE: But as recently as 1992, if the Decedent was a person incapable of doing a will
               [incompetent or a minor] we would actually go into the G.G.P. co lu mn and find their issue.
               This was abolished in 1992, and now the estate escheats to the state instead of going to
               G.G.P. issue – because it‟s harder to find them and such.

         BOTTOM LINE: Leg islature effectively said if the only family you have alive are great-Aunts and
         Uncles and their issue you better do a will or NYS will get your money. Reason - "Laughing heirs"
         couldn't care less if your dead or even heard of you, and yet they can a windfall.

         § PARTIALLY INTES TATE - EPTL 4-4.1 - says "property not disposed of by will" … you can
         have a valid will, but still have 4-4.1 operate on property NOT addressed by the will. • Example: If
         your will is incomp lete, but effective (i.e. it says only I give $100K....)

         EPTL 4-1.2 - Treats maternal children as legit imate to inherit fro m mother; and father has to prove
         parentage via various one of four proofs listed. Issue of proof.
                                   1. Father has signed an instrument acknowledging paternity [and is
                                   witnessed and notarized - 4-1.2 (2)(B) - i, ii, and iii requirements.
                                   2. DNA test during father's lifetime -- not after death.
                                             [Court has been using DNA taken after death to meet clear and
                                             convincing evidence test in (a)(2)(C). Also didn't want to have
                                             to start digging up all these people.]
                                   3. Order of filiati on made by father and/or others.
                                   4. Clear and convincing evidence that father has openly and
                                   notoriously acknowledged the chil d as his own.

         CALCULATING DIS TRIB UTIONS: In co mputing said distribution - debts, admin. expenses
         (lawyers' fees, executor's statutory commission, court fees, costs of selling property off and fixing
         up for sale, bond for executor [usually exempted fro m bond]), and reasonable funeral expenses shall
         be deducted [skimmed off the top]. Then the rest is distributed per EPTL 4-4.1.

                  "All estate taxes shall be disregarded..." taxes on estates -- over $1.5 million, as of Jan.
                  2004, and up to 3.5 million in 2009, and in 2010 it reverts to $675K -- is Federal excise
                  taxes on passage of property from decedent to taxes.

         See EPTL § 2-1.8 (says everyone has to bear his/her fair share of taxes -- spouses and charities are
         exempt. If your g ift gets a deduction you get it, not the whole estate.)

Q: Why this taxes stuff here - people pay different tax rates -- a spouse and a charity get 100% exemption?
The estate tax is on the entire estate, not split off into stuff.
[Estate pays the tax - in practice the executor withholds the tax and then write the checks out.]

§ CALCULATION - Taxable amount is all property the decedent owned (jointly owned property can be,
etc.) then you take away all your deductions - debts, expenses, admin. expenses, taxes the D still owed, p lus
marital and charitable deduction -- and then you apply the tax rate to that estate amount.

§ RULE: CREDITORS ALWA YS COM E FIRST.

Statute before 1992 was very differently [this is not on her exam o r b ar exam] but it's useful to think about.



NY01/SANT RI/864207.1                                                                                              5
Trust & Estates                                     R. Santalesa                                           Professor Turano



Changes made in 1992:

         1. In 1992 the $50K o ff the top was changed to the spouse [this appears in right of election also].
         Take a look at EPTL "exempt or set-off property" 5-3.1 gi ves the s pouse $56K worth of stuff and
         then intestacy or spouse election statute gives the spouse another $50K. [Leg islat ure was thinking
         for a s mall estate we'll give the spouse the whole thing.]
                   Under pre-1992 statute you would still just get 1/3 or a 1/2 for the spouse, so they up'd the
                   basic amount and it all co mes up $106K.

         2. Under prior law spouse would get 1/2 if the decedent was survived by one of his kids of no
         children, and 1/3 if D was survived by 2 or mo re children. It reduced the spouse's status depending
         on # kids. ???

         3. Now parents are eliminated if there are either a spouse OR ch ildren surviving.

         4. Defau lt method of distribution was changed from per stirpes to by representation.

                  EPLT 2-1.2 - Issue to take per capita, per stirpes or by representation. [This statute relates
                  to wills. In intestacy however it's by representation]

                            a) if whole generation has dies out you make the first cut there and start
                            distributing per capita, but if unequal generations are still alive in a p re-1992 will
                            the distribution will be per stirpes.

                            b) - After 1992... by representation is the default for all issue. So if you want to
                            distribute by per stirpes method SPECIFY IT.

         5 - Stops distribution at the level of grandparents and their issues -- not allow issues of great-grand
         parents to take in intestacy ever.

         6 - Division between 3rd colu mn [grandparents] into two -- half to maternal grandparents and half to
         paternal grandparents. [This was done so it wouldn't hold up the estate distribution, for examp le, if
         you have a clear family tree on one side they get their share, and if the other side is a hill-b illy mess
         you don't hold up the maternal share give out. If no one shows up for three years you can consider
         everyone dead, and if no one is found on one side that share reverts back to the other parental side.]

Intestacy Problems...
        1. 4-1.1(a)(1) - straightforward & EPTL 1-2.16.

         2. Just changed one item here. A gets $500K, 4-1.1.(a)(1). Two share scenario here.

         3. Again 4-1.1(a)(1) and then 1-2.16. A gets 1/3, and 1-2-3-4-5 d ivide the 2/ 3's share so each gets
         $133K.

         4. Husband gets his $1mill + $50, per 4-1.1, and then 2-16 splits up by seven ways to $142K each.
         (In per stirpes under NYS, an entirely dead generation is skipped, )

         5. 4-1.1(a)(2) - husband gets all.

         6. (a)(3) - div ide all equally, per representation.

         7. 4-1.1 - (a)(3), 4-1.2(a)(1) - 1/4 goes to A, 1/4 to B, 1/4 to C, and 1,2,3 each get 1/ 12 (1/4 * 1/ 3).
         NOTE: Children during marriage, that child is presumed to be child of both parents].
                   [What other categories of people beside __ are not in the statute? In-laws . Your daughter-
         in-law gets nothing under intestacy. Step-parent is NOT in 4-1. 1 -- so the mother gets all.]




NY01/SANT RI/864207.1                                                                                              6
Trust & Estates                                    R. Santalesa                                      Professor Turano



         8. Husband gets all - 4-1.1(a)(2).
         9. Mother gets all - 4.1.1(a)(4).
         10. M& F split equally - 4-1.1 (a)(4).
         11. 4-1.1(a)(4). Mother gets all.
         12. 4-1.1(a)(5) - Sister gets 50% and each neiece and nephew take per 1-2.16 representation to get
         25% each.

         13. 4-1.1(a)(6) - M.GP gets 50%, and P.GP gets 50%.
         14. 4-1.1(a)(6) - 50% to FC , FCY - 50%.

         15 - FCQ - 100$ (a)(6)
         4-1.2 (b) - child can inherit and child can inherit fro m the child.

LEFT OFF HERE




NY01/SANT RI/864207.1                                                                                         7
Trust & Estates                                  R. Santalesa                                           Professor Turano



Trust & Estates - Third Class (No class this past Tues.)                  09/04/03

WILLS: DUE EXEC UTION

          Finishing intestacy. Then Adopted children. Then Due Execution of wills.
          Finishing up problems 13, 14, 15, 16, 17.

Talking about people WITHOUT spouse and kids -- go to the grandparents column of EPTL 4-1.1(a)(6),
which splits distribution into maternal and paternal sides.

         13. M.G. got 50% and P.GM got 505%

         14. Grand mothers dead, leaving issue. First C. X. gets 50%; First C. Y gets 50%, per 4-1.1(a)(6).

         15. 4-1.1(a)(7). F.C.O.R.Q - gets 50%; FCORR gets 25%; FCORS gets 25%.

         16. 4-1.1(a)(7). FCORQ gets 100%.


ADOPTED CHILDREN. Domestic Relati ons Law §117

§ EPTL 4.1.1(d) - The right of an adopted child to take a distributive share and the right of succession to the
estate of an adopted child continue as provided in the domestic relations law. [DRL §117]

§ EPTL 2-1.3(a)(1) - ... includes adopted children and their issue in their adoptive relationship. The rights of
adopted children and their issue to receive a disposition under wills and lifetime instruments as a member o f
such class of persons based upon their natural [bio logical] relationship shall be governed by the provisions of
subdivision two of 117 of the do mestic re lations law.

§ DRL § 117. Effect of adoption

         NOTE: 117 is split into a testacy and intestacy section.

         1 (a) After the making of an order o f adoption the natural parents of the adoptive child shall be
         relieved of A LL parental duties toward and of all responsibilities for and shall have no rights over
         such adoptive child or to his property by descent or succession [intestacy], except as hereinafter
         stated.

                  [Ex. wo man gives child up fo r adoption -- and that child gets rich and dies, that wo man
                  cannot inherit fro m them]

         1(b) The rights of an adoptive child to inheritance and succession from and through his natural
         parents shall terminate upon the making of the order of adoption except as herinafter provided.

         1(c) - [Adoptive parents and adoptive children inherit fro m each other]

         1(d) - [When biological or adoptive parents remarries, and gives other spouse now consent to adopt
         that child, ]

         1(e) & 1(e)(2) were in response to Matter of Best, 495 N.Y.S.2d 345 (1985). Where grand mother
         whose daughter had a baby as a teenager that was put it up for adoption & she also later had another
         child in marriage; Grandmother „s will that said "to my daughter and her issue".
                  Question was whether that adopted-out child was entitled to a share of biological mother's
         inheritance as “issue”. [Came up because of trust issue... trustee has to account for items every # or
         years, usually, 10 years].
                  Court of Appeals said this child given up for adoption was NOT within " issue". Policy was



NY01/SANT RI/864207.1                                                                                            8
Trust & Estates                                    R. Santalesa                                             Professor Turano



         that otherwise it seemed as though that kid received a windfall -- inherits fro m both families. Also,
         we don't want adopted children to search for the wills of their b iological family. So, CoA reversed
         lower court and did not allow "issue" to include a child adopted-out.

                  NOTE: Intrafamily adoptions, however, are side items. Best court used some dicta to say
                  that intrafamily adoption would be different. And Legislature responded with DRL 117
                  1(e) and (2). In 1(e) and 1(2)(b ) if adoptive parent is:
                            (1) grandparent, or
                            (2) married to child's natural parent, o r
                            (3) is descendant of such grandparent,
                                      AND
                            The testator is the child's natural grandparent OR
                             descendant of such grandparent,

                            THEN, the adopted-out child can still inherit fro m biological ancestors who die
                            intestate.

17. DRL - * C can inherit fro m his father because of DRL 117 1(e).
                * C can inherit fro m S.F because of DRL 117 (c), because C is S.F.'s adopted kid.

         [It looks as though once there's an adoption, the natural parent's rights are cut off... but applying
         1(e)(1) and 1(e)(2) says that you can still inherit fro m natural parents if one parent remarries.]

         C d ies - using 1(a) natural father F is cut off because of adoption, but SF can still inherit fro m 1(c)

18. Yes. C gets to particpates as issue even though adopted out. § 117 (2)(b)(1) & (2)(b)(2).

19. Yes. C can inherit fro m PGr. § 117 (2)(b)(1) &(2). Rat ionale is that it's probable that paternal
grandmother knew about child and probably still has contact with that child.

20. 117 (1) (e)(1) & (2) - so C can inherit fro m Pg r. and C can inherit fro m SGM through 117(c). .

In section relating to 21, 22, 23... where someone has two different relations... we should ha ve used 1(e)...
because that's intestacy section.

21. Uncle-2. He's intestate.. go his distribution go to brother and sisters and their issue. But Niece-3 enjoys
two status. Can Niece 3 inherit fro m Aunt-1 and Aunt-2?

        Niece-3 can inherit through Uncle 2 fro m natural mother Aunt-1 § 117 (1)(e); so she gets ZERO
because Aunt-1 is still alive and Aunt-1 gets the share fro m Uncle -2.
        [When you have two relationships you go through the biological relationship.]

22. Niece-3 gets 25% of Aunt-1's share. U-1 get's 50%, and N3 gets 1/4 of 1/ 2, for 1/8 total.

23. Niece-3 gets from Uncle-2 directly - 100%. 117 1(e).


EPTL 1-2.19. Will by definit ion is an (a) oral declaration or (b ) written instrument made via EPTL 2 -2.1 or
EPTL 3-2.2 . . ; "will" includes codicils.

WHO CAN MAKE A WILL?

         EPTL 3-1.1 – Require testator to be (a) over 18 and (b) co mpetent.

WHO CAN MAKE A LIFETIME TRUS T?




NY01/SANT RI/864207.1                                                                                                9
Trust & Estates                                   R. Santalesa                                            Professor Turano



         EPTL 7-14. Entities can make trusts. But only natural persons can make a will.

WHAT PROPERTY CAN B E DISPOS ED OF B Y WILL?

         EPTL 3-1.2 - " Every estate in property may be devised or bequeathed."
         - Any "estate" as defined in ___

WHO CAN REC EIVE B Y WILL?

         EPTL 3-1.3 - "any person having capacity to acquire and hold such property."

She's grouped the next four topics together because they relate logically to the probate process and are the
four grounds for contesting the will:

         1. Due Execution - Not duly executed
         2. Testamentary Capacity - person who had capacity to do wll.
         3. Fraud
         4. Undue influence

Functi ons served by will formalities: p. 167

         1. Ev identiary function - (will gives you best evidence of existence and content of D's directives.)

         2. Cautionary function - indicat ion that directions were not casually arrived at.

         3. Protective function - reason to think that directions were product of D's free choice &

         4. Testamentary capacity - mental capacity to comprehend the property owned, those it is being
         given to, and state of family relations.

NOTE: The mental capacity item is a definition of testamentary capacity.


         5. Channeling function - We want some level of uniformity and formality to channel all these
         funds. Wills channels to takers in a way that's organized.

HER DESCRIPTION OF WILL CEREM ONY                       She does it exact ly the same so nothing is left out.

         1. Person comes in a reads the will. (Staples it together AFTER they've approved -- clerks look for
         second set of staple holes.)
                           ▪ There are going to be odd-ball situations where client doesn't understand
                           something, but client does have to understand the terms of any trust, etc.
                           Somet imes a client doesn't read English, but you have to make sure you've
                           explained it all, and be satisfied that they understand it all.
                           NOTE: Wills in other languages will be accepted by the courts.

         2. TW O WITNESSES in NEW YORK
         ▪ Witnesses should come into the roo m and stay in the room during the ceremony. Don't allo w them
         to leave early or wander around.
                   ▪ Reco mmends using witnesses younger than the testator. And if you can get lawyers to be
                   witnesses, you can always find them -- part icularly if someone is being disinherited or odd.
                   She asks the testator if you mind that we talk about that to the witnesses. ▪ Then afterwards
                   you would write up a little memo that she told the witnesses she was disinheriting so and
                   so.
         INTRODUCE the witnesses; small talk.




NY01/SANT RI/864207.1                                                                                            10
Trust & Estates                                   R. Santalesa                                             Professor Turano



         3. SELF-PROVING AFFIDA VIT STAPLED INTO THE BACK OF THE WILL (SCPA § 1406)
         ▪ So that you can probate the will without testimony fro m witnesses.
         ▪ But can't use self-proving affidavit if (1) someone is contesting the will or (2) it‟s a deathbed will.

         4. TESTATOR QUESTIONS
                1. Can you tell us what this document is?
                         My last will and testament. [she was at Paul Weiss] (EPTL says that the testator
                         HAS to tell the witnesses what it is).
                2. Does this will express your wishes?
                         (Not specifically in the statute.. but it's to counter any undue influence claim.)
                3. Do you want Mrs. X and Ms. Z to serve as witnesses?
                         (testator has to ask the witnesses to be witnesses in the EPTL statute)
                4. Do you want them to sign the self-proving affidavit?

         Usually you ask the testator to initial each page of the will. [Not sure why they have folks do that,
         but do it.]

         5. TESTATOR SIGNS THE WILL
         ▪ Testator signs the will at the end of the will. And the witness should SEE the testator sign the will.

         6. WITNESSES PREPARE THEIR SIGNATURES
                ▪ Attestation clause… she has one witness read the clause aloud to know what they're
                signing (that this person signed in their presence, had sound mind, etc.)
                ▪ Witnesses sign signature and add their addresses.

         7. WITNESSES SIGN SELF-PROVING AFFIDA VIT
                ▪ SPA is then NOTA RIZED
                (An SPA must be notarized. Usually the drafting lawyer serves as the notary, and not one
                of the witnesses.)
                ▪ In special circu mstances (i.e. person is in hospital) check for requirements... "i.e. nursing
                home might require that a doctor be present when wills are sign ed." This wouldn't go
                against statute, but if a will's contested it seems better.

EXECUTE ONLY THE ORIGINA L
     ▪ Then you can make copies of it. Lawyers often offer to keep ORIGINAL will in their will vault.
             But the practical reason is also to keep the will out of the SAFETY DEPOSIT bo x, because
             then there‟s a special proceeding required to open that S.D. bo x.
     ▪ Anecdotally, 85% or mo re of clients ask the lawyer to keep the original.

          TIP: Don't execute the will in t wo counterparts... you have to produce both for probate.

         IMPORTANT: if the testator possessed her own will and kept it, and it 's missing at her death, it's
         presumed that she destroyed it with the intention of revoking it. This is not true if the will's in the
         lawyer's vault and is lost there, there is no presumption of revoked will.

SCPA ___ deals with probates of lost will. Have to prove:
       ▪ it was duly executed, ▪ its contents and ▪ that it wasn't revoked. [This is another reason to have the
       lawyer keep those wills.]

TIP: whenever someone asks you to create a will, you need four things. (All are Bloo mberg forms.)

         1. W ill
         2. Liv ing will (statement of what you would like to happen to you if you can't make your own
         decisions.) Dr.'s can be compelled to honor this.
         3. Health-care pro xy (Deputizes another person to make your med ical decisions for you. Works
         hand-in-hand with living will.)



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Trust & Estates                                  R. Santalesa                                          Professor Turano



         4. Durable power of attorney - (durable means it endures beyond a person's incapacity, BUT NOT
         beyond death. BUT it's effect ive immediately upon signature. [See Springing Power of Attorney,
         which doesn't become effective until incapacity determined by two physicians.]
                  Power of attorney means someone else is appointed your agent to handle your financial
                  matters. elderly parent could give that child a Durable power of attroney. It's a form that
                  allo ws the principal to give power over certain areas.)

IF YOU HA VE A LL OF THESE THEN TYPICA LLY A M ENTA L HYGIENCE GUA RDIAN WILL NOT
HA VE TO BE APPOINTED.

We'll starting looking at statute on Tues. NY is a fairly strict compli ance jurisdicti on.

LEFT OFF HER E.




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Trust & Estates                                   R. Santalesa                                         Professor Turano



Trust and Es tates         Fourth Class             09/09/03
- Only one class last week because of Labor day on Monday.

NOTES:
         ▪ A WILL enjoys NO presumption of valid ity, even though courts prefer to find testamentary
         method.

         ▪ If the testator executed more than one copy of the will, they must all be produced at probate o r an
         inference may arise that the testator destroyed the will with the intention to revoke it. Matter of
         Davis, 182 N.Y. 468 (1905).

Sept. 11 Conditions Assignment - ?? Check them online.
▪ Read pp 224-225, and Wilson case on 963-970. ▪ EPTL 3-3.5

Last time talking about way of executing a will to make sure it 's valid.

EPTL 3-2.1 - Executi on and attestation of wills' formal requirements

         (a) Except for H.G. and nunc wills A LL wills must be in writ ing.

EPTL 3-2.2 - Nuncupati ve and holographic wills

         NUNCUPATIVE WILL
         1) ORA L
                 and
         2) Two witnesses

         HOLOGRA PHIC WILL
              1) Handwritten
                       AND
              2) Not executed per 3-2.1 fo rmalit ies

         They can be admitted to probate IF
         1. You are member of armed forces OR acco mpanying such forces into combat (valid for one year
         after returning)
                   OR
         2. Mariner at sea (gets three years after making it for it to go invalid).

 NOTE: Has to be proven that the witnesses were there, and it‟s valid fro m the mo ment of execution.

§ EPTL 3-5.1 - Fo rmal validity of wills having relat ion to another jurisdiction
       ▪ This is a choice of law statute, because estate law is peculiarly state governed, this statute gives
       rules for acceptance into NYS of wills executed somewhere else. NY is very formal, and you can
       see in NYS probate of holographic wills created elsewhere.


§ EPTL 3-2.1 (a) WILLS HAVE TO B E SIGNED AT END B Y THE TES TATOR.
       [Talking about Bloo mberg form case she's sending to practice commentary. None of forms were
       admitted to probate.]

         (a)(1)(A) - A NYTHING fo llowing the signature does not invalidate the will, but ANY additions
         following signature on will are NOT given effect.

§ EPTL 3-2.1(B ) N OTHIN G FOLLOWING SIGNA TURE IS EFFECTIVE. NOTHING ADDED AFTER
THE EXECUTION A NYWHERE ON THE WILL IS EFFECTIVE




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Trust & Estates                                   R. Santalesa                                            Professor Turano



          NOTE: IN NYS YOU CAN INCORPORATE INTO A WILL only A PAPER THAT ITSELF
         FOLLOWS THE SAM E FORMA LITIES OF EXECUTION AS A WILL ( i.e. SIGNING IN
         PRESENCE OF WITNESSES, TWO WITNESSES, IN WRITING, etc.).

§ EPTL 3-2.1 (a)(1)(C) - So meone else can sign for the testator -- but they need to sign THEIR name [NOT
the testator‟s] AND affix their address AND they cannot be counted as a witness. BUT if the address of the
person signing for the testator is not there it doesn't affect the validity of the execution.

 NOTE: Person testator can sign with a mark, too.

§ EPTL 3-2.1 (a)(2) - SIGNATURE o f testator SHALL be affixed to the will
       a) IN THE PRESENCE o f each of the attesting witnesses
                 OR
       b) T can sign it before, and then TELL each witness “THIS IS M Y SIGNATURE [ON M Y WILL].”

          NOTE Testator can sign in front of ONE witness and then say he signed it when the 2nd witness
         arrives. This is perfectly fine [he “acknowledged” it was his signature.]

§ EPTL 3-2.1 (a)(4) - MUST BE AT LEA ST TW O ATTESTING WITNESSES who sign THE WILL
within a 30-day period.

§ EPTL 3-2.1 (b) - In theory is a witness signs FIRST that's ok, as long as the formalities are observed
DURING A PERIOD OF TIM E in wh ich the CEREM ONY o f execution and attestation CONTINUES.

 NOTE: Witnesses DON‟T have to date their signature.

 NOTE: If another person helps the decedent sign name, he must also affix h is own name or the will is
invalid. But an ancient will can be admitted to probate notwithstanding a failure to co mply strictly with this
section if the ancient will was found in a natural place of custody and is otherwise unsuspicious -looking.

 NOTE: Presumpti on - There's no requirement in the statute that an attorney be present at execution, but
there is a presumption of due execution when an attorney supervises the will's execution.

 NOTE: IF testator dies WITHOUT two witnesses having signed the will is INVA LID.


WILL VALIDITY PROB LEMS

         #1 - Item below signature is NOT EFFECTIVE per 3-2.1(a)(1)(B). W ill itself is valid.

         #2 - Will is valid, clause is NOT per 3-2.1 (a)(1)(B).

         #3 - Raises the question of testamentary mental capacity. Answer would seem to be same per 3-2.1
         (a)(1)(B), but it could raise issue of capacity.

         #4 - Will is valid under 3-2.1 (a)(4). Lack of witness' address does not INVA LIDATE the will.

         #5 - Yes. Per 3-2.1 (a)(2) - [Courts say this satisfies both requirements, by holding up the signature
         with it showing and merely saying "this is my will".]

         #6. No. Has to be within thirty-days of witnesses to sign. 3-2.1 (a)(4).

         #7. Can consider the first witnesses' signature as a continuation of the attestation ceremony.

         #8. Will is valid.




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Trust & Estates                                   R. Santalesa                                             Professor Turano



         Joe's question on time and sequence of formalit ies.

Example - WITNESSES PRINTED THEIR NAM ES (NOT SIGNED), BUT COURT ACCEPTED IT AS
SIGNATURE because there was no allegation that it was NOT the witnesses' own writing, and they intended
it to be their signature.

REFORMATION IN WILLS (Ch. 12, Part C in casebook, p. 718)

Matter of Snide, 418 N.E.2d 656 (N.Y. 1981), p. 739 - Husband signed wife's will; wife signed husband's
will -- husband died. Court of Appeals allowed the reformation of the will by the Surrogate.
          ▪ Snide is actually a formalit ies case - what's interesting NOW is that Snide is being cited in the
          larger reformation of wills question.

 NOTE: Ambiguous will - IF meaning of will is unclear, any party can ask the court to construe a will
that's ambiguous, BUT you cannot ask the court to give the will a different meaning.

         (Ex. "I give $10K to my friend Mary" and you have friend Ann, and niece Mary -- court needs to
         construe this, and the court will look to extrinsic evidence AFTER looking at the FOUR CORNERS
         of the WILL. The court will bring in witnesses on the issue question).

▪ Matter of Kronen, 67 N.Y.2d, 505 N.Y.S.2d 589 (1986) -- court refused to form the will; testator did not
provide for what should happen if the wife predeceased him.

▪ Matter of Bieley, 695 N.E.2d 1119 (N.Y. 1998) - CoA found gift by implication in a will where the testator
expressed an intention to dispose, but failed to provide for contingency if mother predeceased the DEC.
Court read gift by imp lication into residuary clause. And they were able to avoid ad mitting evidence of
writer‟s error.

▪ Matter of Reid - specifically disinherited all other relatives, but husband died before wife. Court pretended
that Kronen never happened and follo wed Bieley.

TWO OTHER NY CASES ON REFORMATION (NEW )
      ▪ Matter of Herceg, 193 Misc. 2d 201, 747 (Surrog's Court, Broo me County 2002).
               A phrase was left out rest of phrase...
               -- Court reformed the will with evidence of prior versions of the will.

         ▪ Matter of Clouses, N.Y.L.J., August 28, 2003, at 22, col. 6 (Surrogate's Court, Nassau County)
                  - First part of Art icle Sixth of the will was left off... court reformatted will to include
                  language missing.

The point of these cases is that SNIDE is being cited by all these cases, even though Snide was a case only on
formalit ies, NOT on reforming the will.

 NOTE: Same is true about reformati on of trusts -- legislation is kicking around on it. Have doctrine
[Cy-Pres doctrine, page 940] that courts can reform a charitable trust, but can not reform a private trust.

QUESTION ON BAR was along the lines of Kronen -- exact contingency set up did not occur. Question
was whether a trust was created.

▪ NYS is still strict co mpliance jurisdiction -- and other materials she gave on reformation ... we should think
we're strict.

COMPETANCY OF WTINESS ES

         1. Have to be 18 years old (don't have a statute that says this... it's just strong, strong custom)
                  AND



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Trust & Estates                                    R. Santalesa                                           Professor Turano



         2. Have to be competent
                  (Witness usually won't have to appear in court if you have a self-proving affidavit.)

Q; Does fact that you're receiving under will make you non -credible?
         In early cases it did AND the will itself as a whole would fail. Th is is no long true, in that the will
         does not fail, but merely the bequest to the witness is invalidated.
         ▪ Concept of purging statute - save the will, but invalidates the gift to the person who was an
interested witness making them disinterested witnesses retroactively.

          In some jurisdictions using UPC § 2-505, you are not disqualified by receiving a benefit... your
credibility just depends on your credibility.

§ EPTL 3-3.2 - Co mpetence of attesting witness who is a beneficiary;

Our NYS purging and saving statute is EPTL 3-3.2
       ▪ Is the will invalid?    ▪ What effect is there on person who receives a benefit?

         1) Gift is to the witness is VOID unless there are TWO OTHER witnesses (at least three total).
         2) But if WILL cannot be proved at probate without the interested witness' testimony [e.g., if one of
         the other witnesses

 NOTE: Court has discretion to dispense with witnesses, without their testimony if they're unavailab le or
dead, can admit the will to probate. [Or if there's a contest the court has to call all the witnesses in.

         1. TW O DISINTERESTED WITNESSES AT TIM E WILL WAS EXECUTE

         2. A ND EVEN IF THERE A RE THE INTERESTED WITNESSE could lose the bequest.

§ EPTL 3-3.2 (a)(3) - Interested witness CAN still recover up to the amount they would get if assets were
distributed per intestacy statute of EPTL 4-1.1. So they aren't totally cut out if they are otherwise voided
[idea is that this lowers incentive to lie and cheat is only to the extent of intestate share.]

         A) The part VOIDED is lu mped into residuary, and person who gets from intestacy gets from this
         lu mped amount.

         B) IF VOIDED share is already part of residuary share, this person is moved up ahead of others in
         intestacy distribution.
                  ex. $80K to son, and residuary [$40K] to daughter A (who is voided because she witnesses
                  the will); that part now, $40K would go to her. [Two distributees son and A]. Void gift is
                  residuary gift. If residuary gift fails, and it then passes into intestacy. The ____ check
                  tape here.
                            In this example son would get nothing under the residuary.... A has lost her
                  bequest, but has regained it because she's an intestacy distribute who goes ahead of other
                  such distribution. Here, under intestacy the son would get $60 K and A would get $60, and
                  since she gets the lower of either share under will o r intestacy she would get $40K.

 NOTE: Court can ad mit will to probate even if BOTH witnesses are dead if court is convinced will is
good.

 TIP: NEVER let a person witness the will if they're getting something under the will.


TES TAMENTARY CAPACITY
p. 211 casebook

THESHOLD QUESTION - Whether the person intended to make a will at all.



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Trust & Estates                                    R. Santalesa                                            Professor Turano




         ▪ In NYS we p retty much always know when the person intended to make a will because our
         procedures are so formal.

Estate of Kuralt - Whether letter was future intent to make a will, or actually was a holographic will.

         - Jurisdiction does allow holographic will in Montana.
         HOLDING - The letter DID show testamentary INTENT.
         ▪ Court considered extrinsic evidence when there was an ambiguity.

FIRST QUESTION TO ASK IS WHETHER THERE WAS INTENT FOR THERE TO BE A WILL
FORM ED.

p. 222 - Foxley case. - Court eventually held that the mods indicating she didn't want the daughter's
grandson to take because he was abusive of his mother were valid . . .
          ▪ Court concerned as to whether she meant the PHOTOCOPY to be the actual will, or just notes to
          create a new will.

         ▪ Under this the grandson did get, and it would certain ly be the same thing in NYS.

p. 223 - SHAM WILL PRECEDENT,
           Wills or codicils made as shams to achieve some other goal are NOT found to have intent to
          make a will.
          p. 224 - Lister v. Smith - did codicil to force relative to get out of house. He didn't have intent to
          actually make valid codicil.

 POINT - IF THERE'S NO INTENT, THERE'S NO VA LID WILL.

CONDITIONAL WILL

§ EPTL 3-3.5
▪ If you state the reason you're making a will, if the condition doesn't occur, is the WILL actually valid?

COURTS are faced with QUESTION of W HETHER PERSON INTENDED TO make a will if the person
dies of something else.

MAJORITY - Say that "what looks like condition" is merely statement of why they're making a will.

 TIP - If you want a condition in the will, state that it IS a condit ion in the will as a condition. Otherwise
leave it out.

LEFT OFF HERE.




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Trust & Estates                                     R. Santalesa                                         Professor Turano



Trust & Estates                      Fifth Cl ass                          Thursday          09/11/03

         Pinked out this class!

Interested witness beneficiary questions in PPT on the Lexus website.

▪ e-mail her that I'd like to revoke my "pin k" for today, since I was going by the syllabus and wasn't finished
according to what was suppose to be finished on 9/11.

A Will can be contested on four grounds.

         1. Lack of Due Execution
         2. Lack of Testamentary Capacity
               - Burden of proof is on proponent.

         3. Fraud
         4. Undue influence
               - Burden of proof is on the contestant.

1. DUE EXEC UTION

p. 175, Estate of McKellar -- what would happen here in NYS?

PROBLEMS IN THIS WILL UNDER NYS WILL - She didn't sign at the end. Was handwritten, three
witnesses, but they didn't see her sign it (and she didn‟t acknowledge that it was her signature), they didn't all
know what she was witnessing. Testator didn't tell them it was her will .
▪ This state says that the will was NOT properly executed.

RS (3 d) Property § 3.1, comment j: Allow a presumption that a handwritten will raises inference of
signing.

 MAJ ORITY: Hold that testator must sign before the witnesses. (Not in NYS)

▪ HARMLESS ERROR DOCTRINE - NYS is NOT a harmless error doct. state

THE ATTES TATION REQUIREMENT

         Line-of-vision test - p. 189 - Testator must have signed in view of the witnesses. Newton v.
         Palmour. Witnesses might have seen the testator sign it (i.e. that witness was in the same roo m) but
         not necessary that they ACTUALLY saw h im sign.
                  ▪ But can't witness signing over phone.

         Conscious-Presence Test - A number of courts expand the line-of-v ision test, and as long as the
         witness knows the testator is present (i.e. can hear him, etc.) that would meet the conscious -presence
         test to uphold.

Steven v. Casdorph - p. 185 - person in wheelchair who signed the will in the bank, but the witnesses didn't
see him sign it, nor d id he acknowledge his signature to him. ▪ WILL was held invalid. (Th is would be the
result in NYS as well.)

Estate of Peters- Issue of TIME OF WITNESS SIGNATURE.
         If the answer is this is a valid will, goes to stepson. But court held it was invalid, because the
         witnesses didn't get around to signing before the testator died, and the funds escheated to the state of
         N.J.
         ▪ In NY this wouldn‟t be an issue – if the will isn‟t witnessed by the testator‟s death the will is null.




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Trust & Estates                                   R. Santalesa                                           Professor Turano



 NOTE: burden of proving the due execution of a will is on the proponent of the will.

▪ NOTE: Valid Attestation clause and signature on the will make a prima facie case that the will has been
duly executed by someone with testamentary capacity. Then if no one says anything you've meet the burden.

2. TESTAMENTARY CAPACITY - p. 226. Relates to mental ability - Consists of:
       (1) being capable and understanding in a general way the nature and extend of your property,
       (2) the natural objects of your bounty, and
       (3) the disposition that you are making of that property, and
       (4) must be capable of relating these elements to one another and forming an orderly desire
       regarding the disposition of the property.

Fletcher v. DeLoach - p. 226 - Test. capacity question.

Q: What parts of classic definition was she lacking?
                   This case doesn't seem to be only conclusion you can reach. It certainly leaves you with
        some questions. She doesn't like the fact, p. 228, that the court relied on the fact that the 1970 will
        left all to the daughter and NOTHING to other son or granddaughter (bu t we're suppose to be able to
        do whatever we want with our property right?).
                   You can be very old, feeble and depressed and still make a valid will. And the charge here
        was a lack of testamentary capacity. Cleanliness and uch seems tenuous.
                   This case strikes her as one that might have come out differently.

LUCID INTERVAL - The testamentary capacity [understand what you're doing with it, who you have and
what you got] is measured at the MOMENT that you make the will. You can be a person who has all sorts of
problems, but if you're clear of mind for ten minutes and make your will then that's valid testamentary
capacity.

Lucero v. Lucero - Conservator (guardian) has been appointed to take of care of you. Court found she had
testamentary capacity because she met the four items that define what testamentary capacity is.

          NOTE: Appointment of a conservator [10 years we abolished in 1992 in the Mental Hygiene
         Law, Art. 81, is a guardian for a person who is incapacitated. You go into the court with the
         incapacitated person, and then the court decides what your powers will be. Or if the person has to
         be put in a home, etc.
                  It replaced in 1992 a dual system, where first level a person was called a conservatee and
         fiduciary was called "conservator" mostly financial stuff]. And 2nd level, the person was called
         incompetent, and a "committee" was appointed. now we have M.H.L. Art. 81 "guardians".
                  But Legislature didn't change the word in statute where ever word "co mmittee" and
         "conservator" appeared to "guardian".

Bye v. Mattingly, p. 229 - Testator had Alzheimer's, and court upheld will. Court said person had lucid
intervals and met all the factors.

INSANE DEL US ION, p. 230 -
An insane delusion is a belief to wh ich the testator adheres against all evidence and reason. This is a
subdivision of testamentary capacity - that will invalidate T.C. if this I.D. induced the will. subdivion of
partial insanity. [She may know things, but adheres to a belief that is so out.]

         An insane dull occurs when a person pers istently and against all evidence and probability believes
         supposed facts that have no existence except in his own imagination.

p. 231 - Guy thought people were liv ing in the tree in his farm. Let's assume he knew he had a wife and kids
and knew how much he had. It's not that he has testamentary capacity, but... the court excised the clause of
the will pro mpted by the insane delusion and gave that money to his wife.




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Trust & Estates                                    R. Santalesa                                            Professor Turano



In I.D. you see if the entire will is induced by the insanity, or just part. In I.D. t here's almost always some
sort of PARANOIA. (My daughter is trying to poison him).

         ▪ NOTE: Proponent of the will has to show that the I.D. didn't induce the portion in question by
         preponderance of the evidence.

         ▪ NOTE: The I.D. has to be truly insane, and has to truly induce the provision otherwise the will [if
         there's otherwise T.C.] will be upheld.
                   Ex. - your kids aren't your own; your wife has men hidden in the closet.

         That long Ramsey case shows how incredibly d ifferent a classic undue influence case can often be.

p. 230 - Sad examples. Boney v. Boney.
Note #2 p. 231 -Nephew who was de facto caretaker of aunt, ultimately put her in a nursing home; she's
angry about that, but is disowning him as a result an insane thing to do? It's a very close question.

NOTE: almost never see an undue influence case without also claim of lack of testamentary capacity; but
you do have cases that argue lack of T.C. w/o undue influence.

p. 231, Note #3 - Estate of Koch. Suicidal testator estranged fro m wife and children. Court found that
feelings toward children will unfounded in fact. Oh? Seems to contradict the previous cases.

People can be very unusual and eccentric, but still have testamentary capacity.

▪ NOTE: Attesting wi tnesses can testify that they THOUGHT the testator HAD testamentary capacity.
Proponent of will can also bring in expert (doctor, psychiatrist) to testify to that. NO ONE ELSE CA N
TESTIFY TO their opinion as to testamentary capacity. Others can testify to what the testator did, but they
can't testify "I believed the person lacked testamentary capacity."

         PROPONENT OF WILL makes a prima facia case of T.M. simp ly by proving due execution of the
         will. [Doesn't shift the burden, and proponent still has burden.

3. UNDUE INFLUENCE p. 238 - RS -
       ▪ Duress - in NYS we tend to call both duress and U.I. under undue influence.
       If the wrongdoer threatened or do perform a wrongful action that coerces the testator to into making
       a donative transfer that they would otherwise not make.

                   ▪ Palpable undue influence - use of force.
                   ▪ More common type is the subtle kind: if the wrongdoer exerted such influence over the
                   donor that it overcame the donor's free will and caused the donor to make a transfer that the
                   donor would otherwise not have made. Influence so strong that it would have overcome
                   their will.

                            [You CAN use influence - "Hey grand ma how about leaving me money in your
                            will?" that's ok as influence, but you cann‟t use UNDUE INFLUENCE that is so
                            strong and so relentless that it takes away the testator's will and rep laces it with
                            yours.]

Reading fro m case - Matter of Arnold, 78 A.D.2d 753.

UNDUE INFLUENCE - Moral coercion, which restrained independent action and destroyed free agency, or
which by importunity which could not be resisted constrained the testator to do what he was too weak or
unable to resist. Must not be prompting of affect ion, or desire of gratifying wishes of another, of memo ry of
kind acts or friendly office.
         ▪ A coercion produced by importunity - [take someone who's already weakened and keep
hammering; that's undue influence.] So the mot ive was tantamount to force of fear. Rare that undue



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Trust & Estates                                    R. Santalesa                                            Professor Turano



influence is ever done in front of anyone else. The usual way of prov ing it is by circu mstantial evidence.

DISTILLED Ramsey v. Taylor

FOUR FACTORS THAT ARE US UALLY EVIDENT IN UNDUE INFLUENC E CAS ES : [RODS]

         1. Susceptibility - was the DEC weak? sick? old? confused? [person is considered susceptible for
         same reason T.C. is lacking].

         2. Opportunity - did influencer have plenty of access to the DEC? Did influencer have DEC's power
         of attorney [durable or non-durable]?

         3. Disposition to Influence - relates to character of person being accused of undue influence. Is this
         the sort of person who would possibly engage in this behavior. Desire to gain assets; willingness to
         do something wrong to gain assets; reasons why this person was placed in charge of finances.
         [Generally was the influencer a shifty character.]

         4. Result - Did influencer get disproportionate amount of decedent‟s estate?

The issues are question of facts that can go to a jury trial. Court will present the facts, and jury or court will
make a decision.

CONFIDENTIAL RELATIONS HIP
Next thing raised in Ramsey v. Taylor is important in question of confidential relat ionship.

Q: What exact ly is a confi dential relationshi p?
        - Fiduciary - Having power to handles finances.
        - Guard ian
        - Lawyer/client; doctor/patient; priest/penitent; financial adviser/client; husband/wife

▪ NOTE: LARGE NUMBER OF UNDUE INFLUENCE CASES NOW INVOLVE ch ildren o f first
marriage and surviving spouse OR nursing home o wner/nursing home patient.

In NYS there's a simpler analysis –
        ▪ If you are in a confi dential relationshi p and someone claims you unduly influenced the testator,
        the jury is allowed to draw the inference that there was undue influence from the relat ionship if the
        person gained a benefit [or there's another factor: i.e. you have a bad character, got something
        surprising under the will, etc.]
        ▪ This works somewhat like res ispa loquiter in torts in that it allo ws jury to draw a permissible
        inference -- but it can be rebutted.

Where lawyers fit in to this problem:
        1. If you as drafting attorney are going to get something fro m that will, you are in a confidential
        relationship, and right there the jury is allowed to draw the inference of undue influence. You need
        a Putnam affidavit.

         Advice #1 - if your parent wants you to make the will, and its perfectly normal, by all means go
         ahead and do the will, but put in the Putnam affidavit -- I thought it was ok to do this, because it was
         natural disposition and them saved money, etc.
         Advice #2 - But if you're ever going to get a gift fro m the client in a will tell them to get someone
         else to do the will.

2. Appointment of lawyer as the drafter in appointment as trustee of the trust.
        Problem started in 1960's and case of Matter of Winestock in which lawyer, father and lawyer's son
got themselves appointed as executor [who is entitled under Sec. 2307 of SCPA to commission fees.]
        If you're executor of will you're entit led to hire an attorney for the estate, adn that fee is a negoiated



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Trust & Estates                                    R. Santalesa                                           Professor Turano



fee. And it used to be that lawyers wold charge between 2 to 5% o f the value of the estate, and that was
viewed as a price-fixing scam and became illegal. No w lawyer's have to use reasonable billing. But you'll
see estates where fee is 2 to 3% and courts view that as reasonable if it justified.
         Surrogate has power to examine fees even when no one objects.

SCPA 2307-A Commissions of attorney-executor.
          When your client co mes in, if they want you to be the executor that's perfectly okay. But in SCPA
2307-A, if you DON'T tell your client ▪ what the financial imp licat ions of naming you, the attorney, as the
lawyer, trustee or executor, then YOUR co mmissions as executor are going to slashed in 1/2.
          She says it's working.
          ▪ In at least 3 courts have said you can't name your lawyer as the e xecutor IN THE W ILL itself.
                     [In Bron x, J. Ho ltzman allowed it because it was pro minently placed and exp lained in the
                     will.]   ▪ Always have to make sure to give full disclosure to clients on this.

4. FRAUD, p. 266

        Undue influence is a pattern of behavi or over ti me. Fraud is a one -ti me shot. But fraud is also
always pleaded with undue influence -- for some reasons they always drop in fraud, too [and then drop it.]

TWO TYPES OF FRAUD:

         Fraud in the execution - Occurs when testator are defrauded about the nature or contents of the
         documents they are signing. [akin to palpable undue influence.]

         Fraud in the i nducement - When testators are intentionally misled into forming a testamentary
         intention that they would not otherwise have formed.
                  (e.g. neighbor tells testator that "your daughter is poisoning you" and you know that's not
                  true, but it gets the testator to give everything to the neighbor.)

In Carson's Estate - p. 266 - person was already married, but took another wife without a divorce. Pro blem
was they lived together for decades, and wife died leaving everything to him. Court said fraud induced the
marriage, but it d idn't seem like the fraud induced the will.

ELEM ENTS OF FRAUD

         1. Intention to defraud
         2. has to actually be a fraud that worked.
         3. Fraud actually induced the will.

         If all three are present, THEN the will is invalidated.

ISSUE OF WHAT YOU DO WHEN FRAUD IS FOUND CA N BE THORNY problem as to HOW much of
the will was induced.

Antilapse statutes NEXT TIM E.

LEFT OFF HERE




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Trust & Estates                                   R. Santalesa                                           Professor Turano



Trust and Es tates                            Sixth Class                                    9/16/03

Reviewing four grounds of will contesting - For next class CONDITIONS ON WILLS
        Read Wilson case on p. 963-970; and read 3-3.5. She will report materials on JOINT WILLS.

Antil apse Statute & Residue Of A Resi due Statute

§ EPTL 3-3.3
§ EPTL 3-3.4

          Both of them are to be used in a LITIGATION posture only. She teaches it so that you will never
have to resort to it. Want to draft will so that you never have to resort to either of these statutes.
          A lawyer should never say " just say let 3-3.3 do its work."

COMMON LAW on LAPSES was that if person died before testator the gift to that predeceased party
would fail and end.

 Most jurisdictions now have anti-lapse legislation that abrogates the common law rule.

 NOTE: Our EPTL 3-3.3 antilapse statute only operates on ISSUE and BROTHERS & SISTERS.

         § EPTL 3-3.3 (a)(2)
                Applies to issue, brother or sister of testator AND that person dies before testator, that
                portion goes to surviving issue of ISSUE/ BROTHER/SIST ER per representation.

         § EPTL 3-3.3 (a)(3) - ISSUE/ BROTHER/SISTER as a class... same as if he made the disposition
         naming them. But if they died before testator, their issue does not get anything. Rat ionale is that
         the gift doesn't lapse before you still have members of the CLASS alive. Brothers or sisters are still
         alive. Last sentence - no benefit to a member of the class [and their issue] who died before Testator
         made will.

NOTE: A class gift is kept open long enogh so that all of the members of th e class can enter.

 NOTE: Don't forget that you can say otherwise in the will and undue the workings of the anti-lapse
statutes.

PROB LEMS
      Problem # 1. 3-3.3. Each takes 1/2 by representation, 50%.

         Problem # 2. Nephew gets nothing. 3-3.3(a)(2).
                  $20K to sister's issue. (only sister, brother and issue of testator -- husband is not in any of
         those classes). Husband gets left out, and his portion lapses, and becomes part of the residuary,
         which then all goes to Amer. Cancer Society.

         Problem # 3. GD gets $10K. Niece is not in the 3-3.3 statute. Niece's children get nothing.
         Residuary devise to niece lapses and T's interstate distributees get it. Which means that the
         granddaughter gets all or a portion of that.

         Problem # 4. Per 3-3.3(a)(3) and (a)(2). S's issue splits her share per representation.

         Problem #5 - S's issue get's nothing per 3-3.3(a)(3)

                  Case where T. did not know that Sister S was already dead when she made her will, the
                  court allowed S's issue to take.

         Problem #6 - Gift to brothers and sisters as a class. Not named. Should later born be included?



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Trust & Estates                                      R. Santalesa                                              Professor Turano



         Yes. they are. 3-3.3(3). T's issue will inherit.

         Problem #7 - Personal property g oes to S under anti-l apse
         And C1, C2, and S split residuary estate per representation.      The anti-lapse statute is deactivated
         initially by "if he survives me". When residuary gift lapses it is sent out per intestacy statute, and
         each gets 1/3. [Seemed that intent was to give nothing to C1 and C2, but they get under this
         residuary situation.]

         Problem #8 - S gets all of the estate. Authority is that "unless the will states otherwise". You're
         allo wed in a will to disinherit. Remember 1-2.19 definit ion of a will -- d isposes of property or says
         who property shall NOT be disposed of.
                    This will makes this an intestate estate of a person who has a will, and the property will
         pass by intestacy, but limiting it only to S as the valid intestate distributees.

         Problem #9 - GD gets entire amount. GD is entitled to her father's share, even though testator
         seemed to onl y want to gi ve her $10K. GD is issue of son.
                   If both died in this hypothetical, and grand daughter has issue... that issue takes the entire
         share [if son is the only child.]

         Problem #10 - Governed by EPTL 2-1.11 Renunciati on of Property Interests, and that says if
         you renounce you are treated as if you predeceased it. Co mmon device used.

         Problem #11 - NO. Issue does not get it. EPTL § 3-3.2 never says that you're treated as pre-
         deceasing if you forfeit. You just forfeit and that effects your issue

         Problem #12 - No fo rfeiture here. EPTL 3-3.2 just disqualified the witness. She squeaks out of 3-
         3.2 and falls into 3-3.3. Court agreed with this. [REM EM BER that witness statute that you get
         either lo wer amount of intestacy or ...]

§ EPTL 3-3.3 says that if person who was meant to get the gift predeceases the statue takes effect ONLY if
not otherwise handled in the will.

 RULE : RENUNCIATION IS TREATED AS HA VING PREDECEASED BY EPTL 2-1.11.

p. 374 CaseBook..
 On FINAL we'll be tested on NYS EPTL ONLY, but she does want us to see how it's done in other states.
 When we get to trust law it'll be all case law and those are not as NY-oriented.

NOTE: UPC sets up a 120-hour survival period (5-day), which we don't have in NY.

Devolution of a lapsed devise. p. 374
         If a lapsed gift was a pre-residuary gift (i.e. I give my book co llect ion to X and the residue to Z) if
        X or Y's gift lapse it goes into residue.

          Lapse in a residuary gift goes intestacy.

(See two slides she put up on this .)

Estate of Gri ffin - illustrates what all the fuss is about . . . p. 375 (Th is is minority jurisdiction holding).
          Why is this put into anti-lapse part of the book.
          Residue of her estate...
          No mention of other heirs.

ISSUE -- to step-daughter and heirs for ever, does that mean that they get it?
        Court found that she intended to give them to her S.D.'s issue, but she did specifically state that her
        friend "had to survive" her.



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Trust & Estates                                   R. Santalesa                                           Professor Turano



          Court says we're not going to cause this to lapse, and that she meant to substitute her S.D.'s heirs,
         and therefore she UNDID the LAPSE bt providing an alternate gift.

 TIP: In NY we don't have a case on this point that says "to so and so and to her heir" and just take it as a
cautionary reading to BE SURE TO STATE W HO TAKES IF DESIGNATED BENEFICIA RY DIES
FIRST.

 NY RUL E : In NY if someone says "provided that X survives me" that deactivates the anti-lapse statute
and you don't need to provide an alternate gift should X predecease.

 If the Griffin case happened in NY the court would have held that her portion to S.D. would have gone into
intestacy.

 NY TIP: In NYS if you said "to my friend per stirpes" or "my cousin by representation" the courts have
said this deactivates anti-lapse statute.

NOTE: IF residue lapses, that portion goes to intestacy for distribution per EPTL § 4-4.1

Detel v. Nieberding,- p. 380.         "provided she be living at the time of my death"
          Court in OHIO held that the child of Mary Det zel gets it. Ohio wants testators to make alternative
         provisions.
         THIS IS ANOTHER CRAZY HOLDING. Majority courts hold that is the language of the will
stating she must "be living at the time" would deactivate the anti-lapse statute and then the devise would
lapse into the residuary or intestacy.

p. 384 UPC treat ment and NYS treat ment. Problem on p. 384. (She'll put the five problems on the web as
powerpoint)


RES IDUE OF A RES IDUE STATUTE
§ EPTL 3-3.4
        View this as a lit igation problem. You again shouldn't fall into this area.

Harkens back to common law principle of "no residue of a residue", and under the common law if part of
that residue failed that portion would pass intestacy. In the modern era we have the presumption that a
person who made a will would not want any portion to pass intestacy, and the s tatutes try to avoid it.

 NOTE: 3-3.4 is not limited to a gift that occurs only when someone dies... it just says " whenever [a
residuary gift] is ineffective. . . ."

Why or when would a residuary gift be ineffective?
       1. If one renounced a gift
       2. The d isposition violates the Rule against perpetuities
       3. If they're attesting witness.
       4. If there's an illegal activity [?]
       5. If charity you left it to closed down.
       6. Person qualified killed testator.

§ EPTL 3-3.4 - Deals with two or more members of residuary beneficiaries.
       Q: When does this gift have to be ineffective?
               as of the date of the testator's death [which is very important when we get to 2-1.14]

Applying 3-3.4
         First thing you do is see if EPTL 3-3.3 (anti-lapse) applies.
         Second, if 3-3.3 does not apply, check if beneficiary other than issue or sibling OR they died
        before will was made OR they died without issue themselves.



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Trust & Estates                                  R. Santalesa                                            Professor Turano



          Third, IF one is left they get all.
          IF MORE THA N ONE IS LEFT they split

PROB LEMS
      Problem #1 - Issue of B gets 50% per 3-3.3. F gets 50%
             If B p redeceases without F gets 100%.

         Problem #2 - Friends, so 3-3.3 is left out.
          X gets 2/3 and Y gets 1/3, fro m last part of 3-3.4.
          Statute says you need to keep the proportion between the whole residue and the shares. Here X
         was suppose to get twice as much as Y & Z. And getting rid of Z's share, X should still get twice as
         much of that as Y.

         Problem #3 - Not sure if this is residuary gift. There's no definit ion. So actually when testatory
         leaves gift 1/ 2 and 1/ 2 it COULD be interpreted as a residuary gift. It would be much better to say
         "I leave my residuary gift 1/2 to X and 1/ 2 to A" or "I leave my entire estate"
         Looks like 3-3.3 applies.
                  ISSUE would take 100% here.

                           Q: Ho w does sister's issue get elevated from 3-3.3 into 3-3.4?
                                              The sister's share passes to her issue under EPTL 3-3.3, and
                                             the brother's share passes to the sister's issue under EPTL 3-3.4.
                                              Because sister's issue takes her share under 3-3.3 they become
                                             residuary beneficiaries that way.

         Problem #4 - B gets 100% under 3-3.4.

         Problem #5 - Judge thought X's share goes half to A and half to Y and Z (1/ 4 each).
                  She thinks that A should have gotten 3/5, Y and Z should have gotten 1/5.
                  [Take the 1/6 share that has lapsed and dispose of it according to same proportions. And A
         has to get 3 times as much as Y & Z of that.]

         Problem #5-2 - Matter of Hanf.
                 What's matter with will that says "survivor of one... if only one of them should survive
                me."? If both predecease, does that mean anti-lapse statute is in force? When first person
                die it deactivates the anti-lapse statute, and maybe when second person dies it reactivates
                the statute.
                Came out with A getting all.

                           Surrogate Court said "the will doesn't deactivate the anti-lapse statute, although it
                           would have if only one sister had predeceased. Therefore [the will doesn't have a
                           provision for what should happen if both die and we're back under 3-3.3] therefore
                           A's child gets the estate.
                           Appellate Division: The will deactivates the anti-lapse statue, and the estate goes
                           to T's grandchildren. Vituperative dissent. 2 to 1.

                  She doesn't know what to tell us here... if you could get drafter in to get extrinsic evidence,
                  etc.

NEXT CLASS
       Pick up with Question #6 in residuary,
       CONDITIONS ON WILLS, and that'll take 1/ 2 hour. and THEN REVOCATION OF WILLS, .

 NEED TO REA D A LL OF 3-3.3, 3-3.35, 3-3.4 NOTES.

LEFT OFF HERE



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Trust & Estates                                      R. Santalesa                                           Professor Turano



Trust & Estates                        Seventh Cl ass               09/18/03

Fin ishing up Residue of a Residue

EPTL § 2-1.14 Consequences of partly ineffective dispositions of trust principal to two or more beneficiaries
Differences from § 3-3.4:
         - Refers to trusts, not residuary remainder.
         - Does not reference 3-3.3, anti-lapse (there is no anti-lapse provision in trust remainders).

Problem #6 - Matter of Cornwith
MOD - In a trust if she were just to say remainder 1/2 to B, if he's alive when husband deceases, & 1/2 to
Red Cross. Period with nothing else.

 The rule of law is that brother's estate gets it if he doesn't survive her, there's no requirement fo r
survivorship read into a trust by § 2-1.14.
 If the Brother's pre-deceased her [if you don't say anything about survivorship then there is NO
CONDITION about survivorship.]

           In this problem the gift failed partially, because the condition that he be alive failed.

           In the Cornwith decision only § 3-3.4 1 was around [and it says that at testator's death - it didn't fail
           at testator's death]. The gift failed later, after the time of the testator's death. Therefore § 3-3.4
           wasn't applicable; nor was § 3-3.3, and the brother's share passed into intestacy.  NYS Leg islature
           wanted to overrule this Corwith decision, and enacted 2-1.14.

Here, in problem #6 we see that § 2-1.14, dealing with remainder, and is different fro m § 3-3.4.
So, the Red Cross gets brother's half in both cases.
          Reason: Nothing vested in brother since he was dead BEFORE the time that his remainder would
         have vested.

 This statute, § 2-1.14, does not, like § 3-3.4, reference § 3-3.3 (anti-lapse statute) as the first step, and goes
directly to the other residuary beneficiary.

Rationale -- Many testamentary trusts are multigenerational down to two generation -- nature of the trust in
        setting up future parties and present parties.  Leg islature believed that by time the inco me
        beneficiary d ied, the issue of the person whose part failed would likely not be someone even known
        by the testator. So therefore the public policy of FINDING the right beneficiary does not carry the
        same urgency as in the immed iate kind of gift fro m testator to an immediate donee.

 NOTE: Fo r § 2-1.14 to operate there has to be a failed gift, and if you don't specific that the residual
beneficiary survive they don't have to survive. It's NOT a failed gift then if they don't survive his estate will
get that share. Very important!!

      TRUST - A trust vests immediately unless there's a condition attached. Then, it only vests IF the
      condition is met. Unless you say specifically that the brother HAS to survive he does not have to
      survive for his issue to get his share.
BATTERY DIED RIGHT HERE.

 RULE: A remainder interest is vested unless the trust instrument contains a condition that the
remainderman survive.

EPTL § 2-1.14 handles what happens when a remainder interest DOES fail - that is when a condition

1
    § 3-3.4 Consequences of partly ineffective testamentary dispositions of property to two or more residuary
           beneficiaries




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Trust & Estates                                     R. Santalesa                                             Professor Turano



attached didn't happen.

RECORDER STA RTED UP A GA IN HERE.

CONDITIONS
         Freedo m of testation is one of the strongest themes we have. That you should be able to do what
you want with your property. [But a disposition can't violate other rules, i.e. Ru le Against Perpetuities; Can't
evade fed. estate taxes; can't disinherit spouse without consent; can't violate public policy.] Other than this
you can do whatever you want to do.

§ EPTL 3-3.5 -

         a) Condition qualifying a disposition is operative despite the failu re of testator to provide for an
         alternative gift [this reverses the common law]  You're allowed to put a condition on the will even
         though you haven't named an alternative beneficiary for that portion.

Condition Wills, p. 224,

         They give you a few examples of people going into life threatening situations, who make a will
saying "I am going on a journey and may not ever return. And if I do not this is my last request." If you
DON'T say it's a condition, it's just a will, not a conditional will.
          Just by saying WHY you are making a will doesn't make it a condition.
          General attitude of the courts is to resolve doubts in favor of validity.

          Also comes up when Testator defines relationship to devisee "my daughter-in-law"... but then they
get divorced. Did you mean she has to be my daughter-in-law, or did you mean that person regardless of her
status to spouse [your son]?

 Gifts against public policy --can't make gifts that encourage or forestall public policy.

Cy-Pres Doctrine, p. 940

Estate of Wilson, 452 N.E.2d 1228 (N.Y. 1983), p. 963 -
Consolidated cases regarding charitable trusts that were set up to give money ONLY to men.
         Wilson - trust certified by superintendent of school.
         Johnson - trust, young men selected by Board of Education of school district.

Gift to men with financial need, with high grades. Can privately d iscriminate; the inclusion of the school
board was the problem as state action.
         Remove the state actor, and then you'll have a gift that allows donative testamentary freedo m.

Q: Alternative approach? Exercise cy pres [si pray] as appellate div ision did to strike the clause requiring the

         CY PRES - We allow the format ion of charitable trusts if the purpose of the charitable trust has
         become impossible to perform [accord ing to its conditions]. "As close as possible" to testator's
         intent. Can divert the funds to get as close as possible to the testator's intent.
                  She gives examples here. [ex. that testator gave trust gift to find cure for disease X, and a
                  cure is found and court asks would testator have wanted her money to find a cure for
                  another disease?]

 Court of Appeals said here that, with removal of the state actor's , these trusts can go forward as intended.

She finds this interesting -- think's result fine -- but it's curious that a probate judge "who is a state actor"
removes the school superintendent [another state action].

§ EPTL 3-3.5 - (b) no contest clauses.



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Trust & Estates                                    R. Santalesa                                            Professor Turano




In terrorem clauses -- strike terror in those trying to contest the will. Meant to defer the possibility of a will
contest.
 NOTE: If so meone challenges they'd lose right to get under will, but if they win and the will is revoked
they would either go back to previous will OR they could get via intestacy.
         [This gives potential contest a chance of evaluating their chances of getting under different
         scenarios.]  NOTE: If pre-residuary gift the lapsed gift goes into residuary.

§ 3-3.5 addresses the problem well. Gives exemptions for when a contest will not disinherit them.
         Legislature want to protect two sets of values: (1) it's a good thing for people to contest the will
AND (2) it's a good thing to prevent people fro m contesting the will and creating problems.

Statute says it's... operative despite presence or absence of cause [meaning the four ways to contest: due
execution {wh ich isn't an issue if it's been accepted to probate}, lack of testamentary capacity, undue
influence, and fraud]
SUBJECT TO 1, 2, and 3.

1.       a. forgery of will
         b. will was revoked by later will
         [if probable cause]
         [These two situations could be established fairly clearly, co mpared to other causes. Court doesn't
         mind dealing with these.]

2.       Infant or incompetent - co ld appoint guardian ad litu m]

3.       ALL of the following and it still doesn't rise to level of prohibit will contest
                 a. jurisdiction of court
                 b. can disclose any information relating to document relat ing to probate. [i.e. they could
                 write letter saying "she didn't have testamentary capacity when she made the will"
                            Court is not supposed to admit a will until the court is certain the will is valid.
                 c. usually person nominated as executor drafts up a petition and that person could ask the in
                 terrorem person to sign it. They could say no and that doesn't amount to a contest.
                 [Citations is service of process in Surrogate's Court, and executor gets people to sign
                 waiver instead of having to "cite" or serve you.]
                 d. Preliminary examination under SCPA 1404 [we're thinking of examination of attesting
                 witnesses, generally. In pract ice, if a person comes in and says they want to contest the
                 will, a reputable lawyer will say you can retain me through the SCAP 1404 examination
                 and then I'll decide whether to take the case beyond that.
                                      The statute also includes: proponent's witnesses; person who prepared
                                     the will [the lawyer]; the nominated executor(s), AND the proponents.
                                     So you can examine in great detail in fact.

This in terrorem generally presupposes that you're giving a smaller portion to that person.

NOTE: A surviving spouse has a right of election against a decedent's estate, which no in terrorem clause
can deprive the spouse of.

NOTE: If part of residuary it would go to other residuary straight 3-3.4 situation.

REVOCATION OF WILL

 Has formalities, but here they're not as overwhelming as making of will, but designed to prevent people
fro m casually revoking or altering a will
 Policy is the avoidance of fraud -- don't' want to defraud people into revoking a will.

§ EPTL 3-4.1 -              a. IF INTENDED BY THE TESTATOR then one of these other



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Trust & Estates                                       R. Santalesa                                       Professor Turano



things has to occur.
                  If you didn't intend to revoke the will, then the will
            isn't revoked.

a) (1) discusses revocation or alteration in WHOLE or PART by
      1. Another valid will
      2. A writing indicating intent with formalities of 3-2.1 [

 Writ ing can revoke all o r part of a will.
 Revocation by ACT ONLY revokes the entire will, not a part of the will.
 Many other jurisdictions allo w parts of a will to be revoked by crossing things out.

 PRACTICE TIPS : In every will you supervise and draft, you are going to say at begin "I declare this
revokes all my prior wills and codicils". This way you start fresh. However, if you have a will that's later, it
de facto revokes that first will.
          Not to say that a person can not have more than one will. Happens where a person has residences
in a co mmon law and civil law area -- one will to dispose of law in NY, say, and one will to dispose of stuff
in France.

 NOTE: Can disinherit kids in every state in the U.S. except for Louisiana.

REVOCATION PROB LEMS

         #1 - Yes. That's what 3-4.1 (a)(1)(B). [you can call a document "revocation of my will" and sign it,
         have witnesses, etc. and that's a valid.

         #2 - Yes. Gift revokes. 3-4.1 (a) (1) (B ).

         #3 - No. Hasn't met requirements of 3-4.1 (a) (1) or (a) (2)

                  Disconnect between 1-2.1 and 3-4.1, where 1-2.1 says a codicil can't comp letely revoke a
                  will. She says this doesn't come up often, because a codicil is not how wills are usually
                  revoked.

         #4 - Yes. 3-4.1 (a) (2) (4). Obliteration.

         #5 - No. Not done by formalities 3-4. (a)(1).

         #6 - No revocati on. Not in accord with 3-4.1 (a) (1) (B). X's gift wasn't valid ly revoked, and Y
gets nothing because the bequest to him wasn't done with the formalities of EPTL 3-2.1. [Case in casebook
where the writ ing in d idn't touch the will's text.]

        #7 - No. Gift wasn't revoked. If it couldn't be proven what was there. the court would have to
decide whether to admit the will to probate without it.

          #8 - Yes. Courts view the signature as being crucial. It's not advisable, b ut some courts have said
that obliteration such a significant part of the document, the part that makes it legal.

Gilbert v. Gilbert 652 S.w.2d 663 (Ky. Ct. App. 1983), p. 296 - two wills, or one will and codicil?
         Jurisdiction allowed holographic testament.
         The court found that the 2nd holographic matter WAS a will that only related to the safe. And the
other 8-page will was a broader will. If handwritten stuff was superceding will, the 1st will would have been
revoked.
          Court found it a 2nd will because there was no revocation clause.

NOTE: If the later will does not make a co mplete disposition of the testator's estate it is presumed that the



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Trust & Estates                                   R. Santalesa                                            Professor Turano



testator intended the later will to supplement rather than replace the earlier will. p. 298.
           If this presumption is not rebutted by clear and convincing evidence, the later will revokes the
          earlier will on ly to the extent that the second will conflicts with the first will.

         Hypo - I give my book co llect ion to X, $10K to Y, and reside to Z. X dies and T decides to do new
         will.
         Will #2 - Book collection to A, $20K to Y, and residue. to Z.

         Is second will suppose to supercede the first will or supplement? Here the RS § 4.1 would find it
         disposed of entire estate and therefore would presumed to supercede.

         Change hypo - First will as above; X dies.
         Will #2 - Book collection to A, and $20K to Y.

                   Restatement view would conclude that Will #2 is meant to supplement the prior will. No
                  one is going to try and do Z out of his residue, but is Y suppose to get $20K or $30K?
                           If you make a later will that is contrary to earlier will it does revoke that section.

NOTE: Codicil that makes changes, should state the change, and then "I hereby reaffirm all the other items
in my will."
 Codicil re -dates the will, wh ich could be important in, say, a situation when beneficiary is grandfathered in
for a tax purpose.

§ EPTL 3-4.1 (2) a WILL may be revoked [not part of a will]
      - burning
      - tearing
      - cutting
      - cancellation
      - obliteration
      - or other mutilation

Q: Who can revoke the will?
        Testator can do it
                OR
        So meone else can do (1) in testator's presence at his direction AND (2) witnessed by two people.
                NOTE: Can't call your lawyer and tell him to rip p the will. It has to be in presence and
                with two witnesses.]

Crossing out every single page is considered an act of destruction contemplated by 3-4.1 (a) (2).

NOTE: NY does not allow partial revocation by act. Just crossing out part of the will does not invalidate the
whole will. The will wou ld be probated with that clause still in it.

NOTE: The act of burning, tearing, cutting, cancellation, obliteration or other mutilation has to be done to
the whole will [matter of degree, though].

NOTE: Allowed to revoke part of a will by writing -- could write in margin, as long as the testator signed
that there, and then witnesses signed under testator. (could be two different witnesses).

Next time: Finish revival of wills, finish revocation Dependant Relative Revocation -- next time we'll finish
that and into the next topic as well.

LEFT OFF HERE.




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Trust & Estates                                    R. Santalesa                                           Professor Turano



Trusts & Estates                     Eighth Class                          09/23/03

Picking up on revocati on - Revocation of wills... last time we did mechanics of it. Continuing statute of

§ EPTL 3-4.1 and going to look at some cases, with the thought that we learn:
       a. know how other jurisdictions handle things
       b. consider would be the result in NYS?

Then, we'll loo k at probating a lost will SCPA § 1407, and revival of wills -- is it possible, and how? Then
notorious Dependent Rel ati ve Revocation doctrine

Revoking - In NYS we will allow a person to revoke either part of or entire will by another writing that
meets all of 3-2.1 formalities of executing will.
 If you want to revoke by ACT (ripping, etc.) that revokes ONLY the entire will, not part.

Kronauge v. Stoecklein, 293 N.E.2d 310 (Ohio Ct. App. 1972), p. 299. -
Testator wrote in marg in, not touching other will text, that the will is void.
         Court looked at statute and upheld will, and didn't void the will or the provision - so it was as if she
hadn't written anything on there.

In a ju risdiction with unattested, holographic wills this writ ing might have been enough to void the will IF
she had signed that statement.

Q: Was there intent to revoke this will? Yes. The court did not address the intent, but merely the statutory
formalities.

 NOTE: INTENT to revoke is not enough by itself; you need INTENT AND valid A CT or WRITING.

Statement of cancellation, if properly executed [signed, witnessed and in writing] W ILL revoke the will.

NOTE: Most authority is consistent with Kronauge that words of cancellation in the margin o r on the back of
the will fail to revoke a will by cancellation.

REVOCATION B Y SOMEONE ELS E - In NYS, according to § 3-4.1, it must be in the testator's
PRESENCE and witnessed by TWO WITNESSES.

Estate of Tolin, 622 So. 2d 988 (Fla. 1993) - T. destroyed NOT orig inal of will, but COPY.
           Testator thought he was destroying original will. But court held that destroying the COPY of the
will, even though he had intent to revoke, ,and thought he was revoking the original, was NOT enough.
           Court handled this situation by a constructive trust - that's properly imposed when, as a result of a
mistake in a transaction, one party is unjustly enriched at the expense of another.
           Will could not be reinstated as the T wanted, but court allowed the estate to be held in constructive
trust for the friend [C.T. is not a trust at all, it's an equitable remedy.]

Result in NYS? Need ACT and INTENTION. Under NYS the charity and not the friend wou ld get the
estate.
         In NYS the usage of constructive trusts are growing very quickly. She'll go over many cases where
the courts are basically openly flouting the law in setting up C.T.'s to reach equitable remedies.

NOTE: p. 306 - If a will contestant proves that testator had custody of the will and the will is found
mutilated it is presumed revoked that is rebuttable.
         In NYS if the testator had the will in their possession and it's can't be found there's also a rebuttable
presumption that the testator revoked the will. In practice this is a difficu lt presumption to overcome.

Estate of May, 220 N.W.2d 388 (S.D. 1974) - Ho lographic will found in the barn, torn. House generally a
mess.



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Trust & Estates                                    R. Santalesa                                           Professor Turano



         no ext. evidence that T intended to destroy the will. Niece ad mitted it to probate and her testimony
was that he referred to his will a few days before he died, and this testimony was against her interest. Court
said they rebutted presumption.

Rule: A will produced p. 307

To prove a lost will is not revoked to admit to probate...

SCPA 1407 Proving a Lost Will
      1. Prove that the will was duly executed.
      2. Prove the provisions of the will either by two witnesses or by a
      copy of the will.
      3. Prove that the will was not revoked.

          1& 2 are fairly easy to prove, but showing Xero x copy of original version. Prove by COPY or by
         TWO WITNESSES (or questions attorney who drafted it, or typists). [Doesn't have to be the test
         witnesses who attested the will.]

         #3 is the hardest part -- if lawyer had it they could say they lost it in a move; lawyer would speak
         to person and person never stated they wanted a new will. More thorny is when person takes will
         home, and because it's missing and testator had custody it's more d ifficu lt to show it wasn't revoked.

Revocation Problem #9 - Tore it up wh ile drunk. Revoked? No. She didn't have testamentary intent. She
did the ACT, but there wasn't testamentary capacity (over 18 [yes], but sound of mind [no]).

p. 317 - Matter of Francis - what happens if you revoke a will, does it revoke the codicil [which is attached
to the will]?
          "If they [will and codicil] are necessarily interdependent or so interinvolved as to be incapable of
separate existence . . . " this is no longer valid because by EPTL statute...

EPTL § 3-4.1(c) -
       Revocation of a will automatically revokes any codicils. [Can revoke entire codicil alone b y either
       an ACT or a writing.]

 NOTE: Can revoke an entire codicil by ACT. A codicil d idn't replace the will, but just supplemented it.

Revocation Problem #10 - One answer in the statute, but we're superimposing a fraudulent act by X. Could
be admitted to probate, but this is a perfect case to impress a constructive trust for the intestate beneficiaries.


EPTL § 3-4.6 - Revocation or alteration of l ater will not to revi ve pri or will or any provision thereof.

a) A revocation of a later will does NOT upon revocation revive an earlier will or any provision or codicil.

b) Can revive a prior will by:
         • 1. Valid ly executing a CODICIL which incorporates by reference a prior will OR one or more o f
         its provisions [or codicils.]
         • 2. A WRITING declaring the revival of the earlier will with the writ ing executed and attested
         according to 3-2.1 formalities for executing a will.
         • 3. REPUBLIS HING the prio r will, by RE-EXECUTING it, with re-attesting, and re-signing it
         according to 3-2.1 [She's never seen a republication of a will.]

Revocation & Revi val Problem #11 - Is the gift to X revived? No. It will pass in intestacy.

         Devin Q - Do people in will that's used to revoke another will add clause




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Trust & Estates                                   R. Santalesa                                            Professor Turano



NOTE:p . 316, Courts have held that a decedent can validly alter a holographic will by making handwritten
changes thereon without the signing the will again. !! A mazing, eh?

Codicil matters co me up more often -- in Codicil where you say "I revoke my g ift to X in the will" and then
you tear up that codicil. It 's likely the court might not know that the gift to X was revoked and not revived.

 REMEMB ER: If you rip up a codicil the will stands. But if the codicil revoked a g ift in the will, ripping
up the codicil does not revive the gift in the will.

Hypo - Will
         Undue influence case -- and she dies intestate... that would be another case where the court would
        appoint an admin istrator and court would then impress a constructive trust.

DEPENDENT RELATIVE REVOCATION
     is totally against all the usual strictness of NY EPTL.

Restatement 3d of Property - §4.3, p. 332
Restatement wants to call it ineffective revocation.
      a. A partial or complete revocation of a will is presumptively
      ineffective if the testator made the revocation:
            1. in connection with an attempt to achieve a dispositive
            objective that fails under applicable law,
                  or
            2. because of a false assumption of law, OR because of a
            false belief about an objective fact, that is either recited
            in the revoking instrument or established by clear and
            convincing evidence.

         b) The presumption established in subsection (a) is rebutted if
         allowing the revocation to remain in effect would be more
         consistent with the testator's probable intention.

Although the development of the doctrine of dependent relative revocation is the law of second best.

DRR PROB LEM #1 - She revoked thin king it would be replaced, but will #2 wasn't properly executed.
• Revoked instru ment, will #1, would be closer to her intent. Clearly the first will #1 is closer to her intent.
        • Court said that revocation of first will #1 was conditional on the effectiveness of her second will.
And court applied DRR doctrine that revocation was dependent and relative to th e second will taking effect.
The court said, then, the first revocation would be treated as a sham.
Hypo above from La Croix v. Senecal, 99 A.2d 115 (Conn. 1953).

QUESTION COURT WILL ASK -- W ill it be mo re probably pleasing to let T's intestate distributees receive
or apply DRR to let other will operate.

         p. 336 - Giv ing effect to the testator‟s intention in other dependent RR.

Another typical situation in wh ich courts have applied DRR is where a testator revokes will by revocatory act
erroneously believing that a later will is valid ly executed.

Estate of Patten, 587 P.2d 1307 (Mot. 1978), p. 338 - T died. Two sons Don and Robert.
         • 1970 will gave bulk to Donald.
         • Robert contested that will as improperly executed, as not properly attested -- witnesses had not
seen her sign or acknowledge.
         • 1968 will - Donald then offered a copy of 1968 will. [But has that will been revoked. If there's
NO REVOCA TION somewhere, this DRR doctrine has no place.]




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Trust & Estates                                     R. Santalesa                                             Professor Turano



         Fact that he could only offer a copy is the key -- that will was in her possession and presumption
         was that she revoked it as it couldn't be found, and that presumption wasn't rebutted. So the 1968
         will IS the revoked will.

 NOTE: DRR doctrine can ONLY apply where there is a clear intent of the testator that the revocation of
the old is conditional upon the validity of the new will.
.
          • It would seem the two wills favored Donald, and so the 1970 will would seem her second best
          choice compared to intestacy.
          • Donald could not prove 1968 will's destruction was conditioned on 1970 will -- which was TWO
years later as of execution [NY cases do NOT look at time of revocation and time of new will execution,
though usually the times are close]. So here court took the time gap into account, which many courts
wouldn't..

Restatement goes against the holding in this Patton case. - p. 340. See Note, # 1, p. 340.

 NOTE: If the testator never planned to do a replacement will, the doctrine of ineffective revocation is
inapplicable.

 NOTE: In DRR you are A LWA YS probating an invalid will -- that was revoked.

Schneider v. Harrington, 71 N.E.2d 242 (Mass. 1947), p. 341 -
• Will had provisions to gi ve 1/3 to niece, sister and other sister. Original will exp ressly said nothing for
other sibling.
         • Later she got crossed out last sister, and modified 1/ 3 to 1/ 2 to niece and first sister. She changed
the numeral, but left word "third" in p lace.

Q: Ho w does DRR arise here?
        This court allows partial revocation by act, so sister's gift is revoked. That' the revoked portion, and
        then are other increased gifts valid (as a "new" will).

• Court applied DRR to hold that the revocation and modifications were ONE conditional transaction, and
that by applying the DRR [which doesn't seem to be a second best one here] the origin al will [the revoked
provisions are reinstated, as having never actually been revoked.]

Q: Was there a valid revocation? It was valid ly revoked by act. But court finds that share of other two
sisters was NOT raised to 1/2. So they revive the original [now revoked will in part].
          • Court reasoned that allowing only striking the sister, and not the other share increases, would
create a partial intestacy [that would go to her sisters that she specifically disinherited in the will] that that
would NOT be the 2nd best choice, hence the court's plucking the original will fro m the abyss.


 NOTE: DRR is a doctrine that's hardship-oriented and only invoked to prevent an injustice in equity.
[She thinks this is a heartbreak doctrine.]

         "Where the testator cancels the will with the present intention of
         making a new one immediately as a substitute and the new one is not
         made or, if made, it fails of effect for any reason, it will be
         presumed that the testator preferred the old will to intestacy and
         the old one will be admitted absent evidence overcoming the
         presumption."

DRR PROB LEM #2 - Both beneficiary are non intestate distributees. X
      A. Testator revoked Will #1
      B. Testator expected Will # 2 to substitute for it, and it did not.
      C. Will #1 is closer to testator's intent than intestacy.



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Trust & Estates                                  R. Santalesa                                           Professor Turano



          • Versus intestacy, Will #1 is more in line with T's intent. And fact that X gets nothing under Will
#2 is irrelevant to testator's intent.
          Court went back to Will # 1 [which was in fact revoked.]        NY would allow this

Next Class -- Pick up PROBLEM #2.2 under DRR. See stuff online. In the question we have, she said that
one person took under both instruments... she'll post it outline.

We still have ways to go on DRR... and Joint Will s is going to be a quick topic. No t sure if we get to
Advancements next time.

LEFT OFF HERE.




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Trust & Estates                                    R. Santalesa                                            Professor Turano



Trust & Estates                                9th Cl ass                            09/25/03

Continuing wi th Dependant Relati ve Revocation

In some courts, when someone revoked/tore up a will with the intent and thought that another will would
replace it, courts sometimes allow the prior revoked will to be probated under the doctrine of DRR.

Ended last class with p. 341 Schneider case dealing with hand-written changes to a will that (1) revoked one
portion validly, and (2) attempted to modify other sections. Court held the changes were conditional on all
the portions taking effect and so they revived the original will.

         § DRR GEN. RUL E - If you've validly revoked one will, but that revocation was done in
         anticipation of having a second will in effect, then we will treat the revocation as being ineffective if
         fro m the facts it appears that the testator would prefer the first, now revoked will, to d istribution
         pattern via intestacy.

DRR PROB LEM #3. - T. crossed out half of the provisions, writing see codicil. Ho wever, codicil was not
executed per the formalities EPTL § 3-2.1 required.
         First theory - testator didn't revoke the will because in NS we don‟t allo w revocation of part of a will
by act [only entire will by act] and her destructive acts were insufficient to revoke the entire will [and there's
not INTENT to revoke the will.]

         First Theory: Either she revoked her entire will by act, but crossing out three sections doesn't seem
         to qualify, OR the will was never revoked at all and it doesn't matter that the codicil was never
         effective.

         Second Theory: Even if the crossings-out were enough to revoke the will, she intended that the
         codicil would substitute for it, wh ich it d id not, so we can invoke the doctrine of DRR if that wou ld
         be closer to her intent than intestacy.

The revoked will is closer to her intent than intestacy, since in neither her will, nor in her codicil, did she give
any of her estate to her intestate distributee, and both left the bulk to the same legatee.

The courts DON'T ju mp to DRR unless the three elements are M ET:

Elements of DRR
            1. valid revocation
            2. revoked will thinking something new would be set in its
            place.
                   AND APPLY THE DOCTRINE IF
            3. allowing that revoked will into probate would be closer to
            the T's intent than intestacy.

Estate of Callahan, 29 N.W.2d 353 (Wis. 1947), p. 333 – DRR • T had a series of wills that cut one son out
periodically because of his drinking. Wills 1932, 1936, 1938, 1940, 1944.
          • Dr. Callahan said they revoked the 1944 will that left mo re to the drunk son. They tore it up,
thinking that would rev ive the 1940 will. But lawyer realized that would NOT revive the previous will.
• Lawyer drew up a new will... husband had a the new will in p lace, and his will was probated to pass to wife.
• Wife died however, BEFORE she had a change to replace her 1944 will and lost testamentary capacity, and
COULDN'T redo her 1940 will. On ly two weeks after husband died she lost testamentary capacity.
• essentially intestate right now.
          • Court considered that the 1944 will revocation was with the intention of reinstating the 1940.

HELD: Doctrine of DRR applied here. The 2nd will was conditioned on reinstatement of will #1 [And this
was a reversal of usual applicat ion of DRR where a LATER will was revoked – here the earlier will was
revoked] will #2 that was valid, and looked at previous will... though generrally it's will #1 that was valid and



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Trust & Estates                                   R. Santalesa                                          Professor Turano



will #2 was invalid.]

Q: Ho w does doctrine here work? What was probated?
        The 1944 will was probated. DRR is about reviving the will that was revoked... and the 1944 will
        was the will revoked. And apparently the 1944 will was closer to her intent than intestacy.

THIS case shows you that you:

         1. have to look at which will was revoked.
                     and
         2. see under what conditions [was it revoked]

Usually will #1 is revoking thinking will # 2 would be valid, but DRR applies here as well when
        - will #2 was revoking, thinking will #1 would be valid.

 RULE: It's ALWA YS the revoked will that's revived by the court. [This harkens back to Restatement's
name for this doctrine - "ineffective revocation"]

DRR PROB LEM #3 - This is Callahan essentially. Will wasn't restored.
      In this hypo she crosses out dispositive provision of will #2 [we don't know who her intes tacy
      distributees are, don't know what will #1 said]. Fro m reading case the court made no reference to
      any of the facts as to whether will #2 was closers to intention than intestacy. [In abstract this is like
      Callahan case, but we don't really know what the facts that would decide.]

DRR PROB LEM #4 - I said that DRR d id not apply her. Changed guardian provision, which is the most
important provision in the will.
         • Turano was driving with this problem that the T had wrote these changes and that crossing out all
         three of these important provisions MIGHT rise to the level of revocation in the eyes of the court.
         • IS it a revocation? Arg. that says no is that just by crossing things out you can't revoke parts of
         will. in that case will would remains as it stands.
         But IF the changes are sufficient to revoke the will, then you could invoke DRR because T thought
that handwritten materials would substitute as new will, but they don't lacking 3-2.1 formalit ies.
         And so the DRR doctrine can be invoked in that she revoked a will THINKING a new will
(modified that failed) would form a new will.

         But this is a tough problem because the first will, versus second will (failed) versus intestacy are so
         different fro m each other. She thinks a court would conclude that her estate should pass through
         intestacy then, because at least husband gets half, and children gets half.

 NOTE: All courts have rebuttable presumption that someone who made a will would rather not die
intestate.


JOINT AND MUTUAL WILLS

• Mutual or reciprocal wills are very common with husband and wives -- t wo wills -- wife gives estate
entirely to wife, husband gives entirely to wife... and to children if not alive.

EPTL § 1-2.19 - Definition of a will
       a) . . . and which is revocable during his lifetime.
       [Will is revocable at any time p rior to death -- called ambulatory.]

§ Joint Will Definiti on - p. 651, Is a single instrument executed by two persons intending by them to
operate as the will of each.

When first spouse dies they probate the will, and then when second spouse dies they go back and get it fro m



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Trust & Estates                                    R. Santalesa                                           Professor Turano



the probate file and pull it out and probate it again.

 TIP: DON'T DO A JOINT WILL!! It's a big problem with serious tax consequences, too.
         • If you're married you can give everything to your spouse without any taxes on that. Essentially it
has to be given outright to your spouse -- absolutely. If the will says I give it outright, but he gets it only if
doesn‟t remarry, THEN there's taxes taken on that.
         And in a joint will the IRS has viewed that as giving the surviving spouse all before passing to
children sounds like life use and should be taxed. Generally they've been unsuccessful at that so far, though.

EPTL 13-2.1 is basically a statute of frauds covering estates.

EPTL § 13-2.1 - Agreements involving a contract to establish a trust, to
make a testamentary provision of any kind, AND by a personal
representative to answer for the debt or default of a decedent, required
to be in writing

      a. Every agreement, promise or undertaking is unenforceable UNLESS
it or some not or memorandum thereof is in WRITING and SUBSCRIBED by the
party to be charged therewith, OR by his lawful agent, if such agreement,
promise or undertaking is:

                   1. a contract to establish a trust.
                   2 a contract to make a testamentary provision of any kind
                   [will].
                   3. a promise by a personal representative to answer for the
                   debt or default of his decedent.

      b. that a contract could ONLY be established by express statement
in the will that the instrument is a JOINT will AND that the provisions
are meant to constitute [in the will itself] a contract between the
parties.


Junot v. Estate of Gilliam, 759 S.W.2d 654 (Tenn. 1988), p. 652 - Made joint wills, leaving all to her and his
children fro m prev ious marriages.
         • H died first, W rewrote will leaving everything ONLY to her children.
         • Court held that there was NO CONTRA CT here to make a jo int will, and the wills were actually
mutual (two) wills.. As there as no clear and convincing evidence that a contract was made, and she was able
to change and leave all to her children only.

 NOTE #2, p. 657 - Majority courts hold that contracts not to revoke must be proven by clear and
convincing evidence and that the existence of mutual wills does not create a presumption of a contract.

NOTE: Courts split on whether a joint will with reciprocal provisions is sufficient evidence of a contract. In
a few decisions a joint and mutual will has been conclusively presumed contractual.

JOINT WILL PROB LEM #1 -
      p. 652, - "We declare this to be our will" one will. Th is behavior is terrible, but we have a policy for
      free testation.

         COURT HELD:
         • Court noted "WE" is first person plural pronoun, and
         • "declare" is a present tense verb coupled with first person plural pronoun, leads t o
         • Conclusion that testators intended to make a contract not to revoke their wills, once one spouse
         had died.




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Trust & Estates                                   R. Santalesa                                           Professor Turano



         On moral ground we can agree, but on estate laws the result is no that it doesn't comport because
         ALL wills are in present tense and such. • The court read into the will an i mplied contract not to
         revoke. The case in the problem above WAS the rule until §13-2.1 was amended.

The legislature in 13-2.1 (b) the legislature in 1983 added:
         "that a contract could ONLY be established by express statement in the will that the instrument is a
         JOINT will AND that the provisions are meant to constitute [in the will itself] a contract between
         the parties.

EPTL 13-2.1 is satisfied by this language:
       " We declare this to be our joint will and we have agreed upon the foregoing disposition of our
       property which shall be forever binding on us and shall not be revoked by either of us or the
       survivor."

BOTTOM-LINE: if you don't say it's a JOINT WILL and that it will be a CONTRACT between the parties
it will not be held to be irrevocable.

Court have discovered a way to get around 13-2.1 however.

         NOTE #4, p. 666 - Schwartz v. Horn as under old law approach, but survivor tried to get around
         the joint will by giving large gifts during her lifetime. Court said NOT, can't do that. And that's
         true under 1983 amend ment, too.

In a NYS case, however, about a year ago or so in Surrogates court, partners had joint will that said we give
everything to each other and when we both die 1/2 goes to H's relatives and 1/2 to W 's relat ives. First died
and second one changed will, and first spouse relatives contested it.
          • Judge looked at will that will said "we declare this to be our joint will", but the will didn't say
anything a contract or binding. Surrogate said it didn't satisfy 13-2.1 to establish a irrevocable will contract.
          • So 2nd spouse's will was admitted to probate, but court said it wasn't right and they impressed a
constructive trust on 1/2 of the property and gave that the first spouse's decedents. [She says this is the most
dramat ic case so far, but there have been other cases, i.e. denying summary judgment on this issue where 13-
2.1 clearly would have refused;]
          It's hard to live with such a dishonorable conduct in the face of an agreement. And the survivor
goes back on the agreement -- the courts have a hard time living with that.

 TIP: Easier way to "lock-in" assets to give to another party without surviving spouse giving it away
elsewhere is to set up a trust in one spouse's will.
        • Turano‟s objections to the joint will are more fro m the tax perspective.

One of her sample essay last year had joint will prob lem... talking about part performance by first partner
(that might be in some review outline so mewhere -- there are jurisdictions that look at this joint will as purely
contractual, but NYS is not one of them. We don't look at other contractual princip les of reliance, part
performance, etc., we purely look at EPTL § 13-2.1.

JOINT WILL PROB LEM #2 - Coffed case. They specifically made a will to be bound because it was a
second marriage.
        • Under 5-1.4 all g ifts to your spouse are revoked if you're d ivorced. And before their d ivorce they
        signed a separation agreement.
        • H.'s didn't change his will, wh ich said "all to surviving spouse", but she's considered dead because
        they're divorced and he hadn't changed his will. And he had a right to revoke his will. His property
        went to his kids and his ex-wife's kids in equal shares.

         ANS: When a couple divorces, all bequest in their wills to each other become void. So the wife
         does not get her bequest. The husband's children and her child ren share the husband's estate
         • Their separation agreement exonerated each other fro m all contracts, including their contract to
         keep the wills irrevocable.



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Trust & Estates                                   R. Santalesa                                         Professor Turano



         • Therefore she was entitled to revoke her will and write another will leaving her estate to her
         children only.
         On wife's death she had left all money to her kids, and his kids contested that.


ADVANCEMENTS

        At common law this was called the doctrine of satisfaction. • If you had made a will assuming that
you gave $50K to your son. And he says while you're alive that he wants to go to law school, and you give
him money saying here son. Our statute makes a rule that it's a gift UNLESS there's a writing signed by the
decedent.

EPTL § 2-1.5
       An irrevocable life-time gift that's INTENDED by the donor as an
       anticipatory distribution in complete or partial satisfaction of
       the donee in the donor's estate.

         2-1.5 (b) No advancement shall affect the distribution.. UNLESS
         proved by a WRITING CONTEMPORANEOUS signed by the DONOR (showing
         intention)
               OR
         by the DONEE acknowledging that was the intention.

         2-1.5 (c) really just says how to figure and calcu late the advancement.

• Advancement is added back into the estate for purposes of computing the total distributions. If
advancement is more than person's share under will or intestacy he gets nothing.

• Advancement means a gift that does satisfy an intention under the will or intestate distribution.

• An advance is an IRREVOCA BLE GIFT – person never has to give it back. It's a valid gift for all purposes
- tax purposes, substantive law, etc.

• Calling it an advancement is solely for purposes of using the gift to make adjustments to distributions under
will or intestacy.


ADVANCEMENTS PROBLEMS #1 - E gets $120K everyone gets $270K because the share of each kid is
figured as:

         $1,200,000 + $150,000 = $,1350,000 /5 = $270,000

PROB LEM #2 - Said the kids, two, each take $60K, per anti-lapse statute. But why should they take less?
2.15 (c) says "successor in interest"

PROB LEM #3 - Estate is only $300K, but add $150K to that to get $450K / 5 - $90. E gets nothing, and A-
D get $75K (because will says equal share to his children. In this problem it's not the statute that gives A-D
$75K, it's the will that says... "equal shares.")

PROB LEM #4 - W ife gets $450K, leaving $750K.
      A-D get $180K
      E gets $30K.

Will is still the primary vehicle for distributing gift. We'll repeat this question on Tuesday.

LEFT OFF .. we‟ll pick up with Advancements Problem #4.



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Trust & Estates                                  R. Santalesa                                           Professor Turano



Trust & Estates                               10th Cl ass                          09/30/03

Promised us writing assignments -- First one is posted up now under syllabus & sample essays (Fall 2003
first essay) - hand this in two weeks, 10/12 - can e-mail or b ring in hard copy. Required assignments.
           Essay was taken from Dec. '02 T&E final exam and was worth 25%. After returning them she'll
post a sample answer. It's a meaty question oy!! She might give us only two essays


This class: Finish advancements, Simultane ous Deaths, and then Categories of Dis positions , Defining
what they are [how EPTL defines and Restatement, and then material in casebook - adempt ion & abatement.

ADVANCEMENTS - Leg islature created a rule that sets forth the answer to the rule did testator intend a gift
given during lifetime to satisfy a distribution that's set out in the will.

         LIFETIM E gift irrevocable and intended to satisfy the donee gift in the will. Pretend the
         advancement is part of the estate still for calculating the beneficiary's testamentary gift.

PROB LEM ADVANCEMENT #4 -
      Go ing to add the $150K advanced to E to the estate. Winds up with estate of $900K... E only winds
      up with $180K - $150K = $30K, and A-D get $180K

PROB LEM #5 - T g ave $10K (wi th writing) to brother. Will gave $100K to mother, $100 to Brother,
and residuary to Red Cross.
         N (daughter of B) gets $90K per 3-3.3 anti-lapse statute, because she gets her father's share, which
        is decreased by the $10K [successors in interest language in EPTL § 2-1.5 (c).]
         Mother's share lapses and daughter S of her (sister) gets nothing [as 3-3.3 applies to issue &
        siblings] Red Cross gets her share.

         NOTE: Add advancement back in, but in this case adding it back in fo r calcu lation purposes only
         when you have a division to make.

PROB LEM #6 - Advancement made to son, who died, leaving grandchil d. Issue per rep. Seven
grandchil dren & all parents dead.
         GC 2 through 7 each get $150/ 6 =
                 and GC1 gets $150k/ 7)-$10K

Look at EPTL § 1-2.16. Can make our cut at the first generation where there are survivors... that supports the
idea that G1 is NOT a successor in interest.
           Answer is that GC1 W OULD NOT BE CHA RGED WITH HER FATHER'S
          ADVANCEDM ENT, and each GC will get $140/7 = $20K.
                    If one of the previous generations was alive, that person would get 1/4, and the remaining
                   children of S, D2, and D3 get 3/16 under representation - which shows that S is not taking
                   as a successor.
           Under a per stirpes... G1 is clearly a successor in interest to S and share would be decreased by the
          $10K advancement made to S.
          NOTE: She sees advancement more as a certainty issue rather than a fairness issue. Note.

 RULE: You have to offset if your successor in interest gets something.

PROB LEM ADVANCEMENT #7 - Advancement applies in both testate and i ntestate situations.
       Add $200K advancement to $300K estate to get $500K, and divide by 5 so each is suppose to get
      $100K. But C1 already got $200 and so gets nothing, and the other 4 get $300K /4 = $75K.
       C1 screwed the other four out of $25K each.

          EPTL § 2-1.5 (d) (1) an advancement may be adjusted out of the
         property of the donor in such manner as may be equitable.



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Trust & Estates                                   R. Santalesa                                             Professor Turano



         EPTL § 2-1.5 (d) (2) - advancement has value at which it would have
         been appraised for estate tax purposes OR the value it would have
         had.
          Value of property for estate tax purposes is fair market value at
         date of death. But you are also allowed to value it at a period
         six months after death.

         [This factors into problems, for examp le, testator says I'll advance you a do wn payment for house of
         AOL stock, and sells it fo r house money... this statute says that for advancement purpose the value
         of AOL stock at the date of death [worth 1/5 at death, it's included at the lower value at death for the
         calculation purposes... ]. But usually advancements are given in cash;

Talking about various values of items given...

          EPTL § 2-1.5 (e)- spouse elective share section. EPTL 5-1.1 (A) [current statute]. Allows a
         surviving spouse to take 1/3 of the estate if her dead spouse didn't leave her that much.
                  EPTL 5-1.1(A) says she gets her third, and (B) says that 1/3 is computed against ____ and
         ten things [transfers the decedent made during lifetime (Totem t rusts, pensions, etc.)

         So THIS paragraph (e) means that someone could make an advancement to a child with a Totten
         Trust that's listed in paragraph (b) of 5-1.1, and here's $50K in the T.T that's meant to lessen your
         amount in the will.
                  So spouse COULD elect to get part of that $50K advancement as one item listed in the
         Right of Elect ion statute -- but things given outright, that are beyond the control, are not in (b) items
         and can't be elected against.

 NOTE: Right of Elect ion is over property owned now --- but then if other spouse gives everything away,
the election is against what's owned at death + 10 other things [which don't contain an outright lifet ime g ift,
however.]

SIMULTANEOUS DEATHS
       Virtually every state has the same thing; it comes fro m a Uniform Simultaneous Death Act (1940).
       What else depends on person surviving someone else?
               All intestacy statutes [per rep, per stirpes], any will item, anti-lapse statute (3-3.3), issue
               have to survive, residuary (3-3.4).

          What about non-probate property?
                 Trusts, life-insurance [if beneficiary doesn't survive there's usually an alternative
                 beneficiary], joint property or bank account,

Survival is the trigger for a lot of items in estates laws. Very frequently people who name each other as
beneficiaries travel together, and of all the people who die simultaneously most of them remember each other
in their wills.

EPTL § 2-1.6 - Is a little different fro m Un iform Simu lt. Death Act in other places.
       One difference in (a) .. "AND there is no sufficient evidence that the person have died otherwise
       than simultaneously...."
       NOTE: NYS is NOT a jurisdiction that have a 5-day survival rule... in NY if one dies ten minutes
       later... then there's no simultaneous death.]

In re Bucci's Will, 293 N.Y.S.2d 994 (1968)- Both died in plane accident. Conclude husband died instantly,
while wife court concluded died shortly after, and so 2-1.6 didn't apply.

EPTL § 2-1.6 - Simu ltaneous Deaths.
       (a) General Rule - Your presumed to have been alive and the other person dead first. [Reason is to
       avoid inefficient double probate costs (executor's commission and lawyer fees & filing fees in



NY01/SANT RI/864207.1                                                                                           43
Trust & Estates                                   R. Santalesa                                           Professor Turano



         surrogate's court) and less in keeping with testators intent, because in IRS there's a code that gives
         credit for property that passes to another person briefly [sliding scale out to 10 years]]

SIMULT DEATH PROB LEM #1 -
      Everything goes to children per 2-1.6(a). More specifically whatever the husband had in his name
      goes to children because wife is said to have died first, and conversely everything in the wife's name
      goes to children because husband is thought to have died before per statute.

PROB LEM #2 -
      2-1.6(a) uncrosses the estates. B's $200K goes to Red Cross, and S's $200K goes to Friend X.

EPTL § 2-1.6 (c) - treat the person who owns the property as if they survived the person. -
        Paragraph c - property of joint tenants [real or other property - each has right to the whole in
       usage] or tenants by entirety [married couple] (two property interests where there's right of
       survivorship).
        This paragraph SPLITs the property in half and each half passes through each's wills. It's
       consistent with the legislat ive intent.

PROB LEM #3 -
      H's parent's get 1/2 interest, and W's parents get other 1/2, relying on 4-1.1 (intestacy) and 2-16(c).
       The two sets of parents take as tenants in common - they don't have right of survivorship related to
      each other. (Article 6 - each pair of parents hold as to each other as joint tenants with rights of
      survivorship).

EPTL § 2-16(d) - Insurance - insurance policy.

PROB LEM #4 -
      Children get all per 2-1.6(d).

 TIP: in dealing with clients, if your client's kids are minors the will generally sets up trustee, etc. But the
insurance policy with kids as beneficiary [are non-probate assets] would go straight to them. Kids would get
it at 18 auto matically.
          So THINK A BOUT NON-PROBATE ASSETS. Here you would change the life ins. policy to have
alternate beneficiary of "Trust set up for kids."

         Two kinds of guardians - for person of child, and for person of the child. Most people make a trust
         for kid, setting up trustee to direct spending for beneficiary [kids].

EPTL 2-1.6 (b) - alternates. Depends on what order each alternate dies.

PROB LEM #5 -
       One third to the issue of each of the three brothers [each brother had 3 daughters] so each daughter
      got $100/9 = $11K.

PROB LEM #6 -
      § Unlimited mart ial deduction in U.S. - can give as much to spouse as possible w/o tax.
      $1 million unified credit - every A merican right now there's $1.0 million [Jan. $1.5 million] that
      passes without taxes. [In 2009 it drops to $675K es tate & gift total.]
       Woman here was hoping to work it so both their estates would pass tax free. W ife would die with
      $2m estate that $1m to spouse w/o tax, and $1 m to kids w/o tax. So her will is a good plan for a
      person to reduce a $2 mill estate to zero taxes.

Q: Would you advise W to have a clause in her will if they die simultaneously?
       If she says nothing then 2-1.6 would apply and the entire $2m would go to kids and be taxed on the
       second million). If you put in a clause in her will that she says if we d ie together "I want my
       husband to be treated as though he survived me", so $1 million will go to his estate, and 1 million to



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Trust & Estates                                   R. Santalesa                                           Professor Turano



         kids direct ly without any tax on any of it because of §2-1.6(e) that says this DOESN'T apply in the
         case of wills, deeds, insurance contracts, trusts IF YOU SA Y DIFFERENTLY IN THE WILL.

LEFT OFF HER E.. Little more on this next time, and then into other topics.

 If you look at appro ximate syllabus - categories of disposition. Kind of disposition matters for ademption
and abatement (she gave us readings from casebook on ademption, and struck her it'd be easier if we have
ademption hypos... powerpoint presentation on ademption, which is not UP online yet

ORDER:
      Wills categories of disposition

         1. Four statutes 1-2.3, etc,
         2. Ademption first [cases & new problems going up we'll do first.]
         3. M ingle cases on ademption and hypos she's giving us.
         4. Abatement [hypos we have already]
         5. Incorporation by reference. [no problems on this.. it'll take about 5 minutes]

         Categories of dispositions is very heavily statutory. it's a catch-all topic, where we deal with all
         these items of d ifferent reasons for how to deal with items.




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Trust & Estates                                   R. Santalesa                                            Professor Turano



Trust & Estates                                11th Cl ass                           10/02/03

• Picking up with last class's tax/simultaneous deaths problem..
• Later we‟ll do one full class on tax. [She‟ll gives us the info we'd need on transfer taxes.] [and practice tips
to put the fear of God into us, and gives us basic min imu m in overview to know what questions to ask.]

EPTL § 2-1.6 - we're studying is to create an orders of death; and you can go around it.

SIMULTANEOUS DEATH. PROB LEM #6 re-run (tax type question)
      Usually advise clients to s plit the money between husband and wife when it's a big amount. Will
      says $1m to husband, $1 to kids to pass it tax free. And $1 million is exactly the amount that the
      unified cred it protects from taxes [that's a lifet ime or death transfer - give that much during lifet ime
      or at death.]
      • But if her husband dies first she's stuck with an estate of $2.
      • Everyone can give away $11,000 to as many people as you want, tax free -- don't have to pay taxes
      on it, and don't have to report it. And if you're married you can double that -- $11,000 fro m each.
      And you can also pay doctor's hospital bills, and tuitions directly to the providers [in addit ion to the
      $11K /year] and none of these items count toward the $1 million unified credit.

         • Perhaps W's will should say, "In case of simu ltaneous death, my husband is deemed to survive me
         if the order of our deaths cannot be determined."

         • By deactivating EPTL § 2-1.6, and having H deemed the survivor, W's tax estate is $1 million
         (after the $1 marital deduction), and her unified credit of $1 mill entirely wipes out all taxes.
         • When H d ies an instant later, he has a tax estate of $1 mill (the money he inherited fro m W). His
         estate is therefore also tax-free, because of the $1 mill un ified credit.

 TIP: Setting up wills - Going to have clients with small kids who are wealthy people it would seem. (Life
insurance, etc. that comes up to $1.3 million) But when you look at actual lifestyle, i.e. kids 6 & 8, you
anticipate that they will be wealthy when they retire, but you can't do tax planning at that stage.
         • People want a simp le will at that stage, without tax p lan. But many years later they are o lder and
         wealthy and haven't changed their will, and the will doesn't not take into effect the tax imp licat ions.
         • Do - make a simp le will that says everything to my spouse, and then you add after that say:
                   “First, if my spouse disclaims properties, I take that property and put it into a trust, and I
                   direct that my spouse receives all the income from that trust for the rest of her life.
                   Secondly, I give the trustee (not spouse) the right to invade principal to the spouse.
                   Third, the spouse has the right to take out 5% of the principal each year.”

         In 2009 he d ies and she looks at the books and she disclaims $675,000, so that they still can take
         advantage of full unified credit etc. But fact that it's in the trust doesn't make it her property, and so
         it remains tax free, and it's preserved as taxable property fro m her husband's estate through his
         unified cred it at the time o f death If she's in a high tax bracket that saves the estate tax.
         • Trust is NOT taxed either when it goes to the kids, because it was covered by the husband's unified
         credit amount. This called a 505 power - 5% or $5000 whichever is greater.
         A disclaimer clause like this could be one or two paragraphs.

TYPES OF DISPOS ITIONS

Important to determine the impact of ademption [by ext inction], abatement and such because:

         1. First reason - Executors get commission as percentage of estate, BUT specific bequests,
         regardless of how much, are not counted towards the executor‟s commission.

         2. Second reason - if property is subject to a specific bequest, even if the executor needs money to
         pay expenses, he's going to need to look elsewhere to get it. Specific legatees get the rights first,
         and if there's not enough money, the specific legatee can "purchase" the item first fro m the estate for



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Trust & Estates                                  R. Santalesa                                          Professor Turano



         the difference. (Clean this up.)

SPECIFIC DISPOS ITION - EPTL § 1-2.17, p. 350 & 351
Restatement (is the same defin ition as our statute, but with different wording.)

         1. Specific is a testamentary disposition of a specifically
         identified [ours says specified or identified] item of the
         testator's property.

{Courts use to say that – if testator gave black horse to so & so, but that horse died, even though person has a
different black horse at death, the person gets nothing. In the older cases they would NOT get that horse
because it wasn't the same one. Now, under new rule, the person gets that “new” horse as an "identified"
item. Example of cars -- red versus blue – don’t get the blue one; but will get a different red car.}

                  Examples of specific bequests -
                         - my dog Fido,
                         - my bank account #8712,
                         - land located in new York,
                         - painting,
                         - all jewelry,
                         - my 225 shares or AOL stock (easiest example).
                         - All my AOL stock
                         - 1/ 2 interest in my house (this is specific too)
                         - sales proceeds of my house [identified]
                          - all my stock in Exxon,
                         - 1/ 2 sales proceeds of my house.
                         - my d iamond ring.

 TIP: ASK to determine between dispositions: is this a specific or
identified piece of property or assets?

DEMONSTRATIVE DEPOSITION – EPTL § 1-2.3 p. 351

         Usually of a specific amount of money or quantity that is primarily
         payable from a designated source, but is secondarily payable from
         the general assets of the estate to the extent that the primary
         source is insufficient.

                  Examples of demonstrative bequests -
                         - $10,000 out of my North Fork account.
                         - $19K t0 be paid out of the proceeds of the sale of my diamond ring (amount +
                         source of assets = demonstrative.)
                         - 300 shares of AOL out of my Merrill Lunch brokerage account. {asset amount +
                         source)

NOTE: Demonstrative is favored - because bad thing under abatement can't happen, and ademption by
extinction can't happen as with specific depositions.

GEN ERAL DISPOS ITION, EPTL § 1-2.8 p. 350

         Testamentary disposition usually of a specific amount of money or
         quantity of property, that is payable from the general assets of
         the estate.

A general disposition is usually a pecuniary amount.




NY01/SANT RI/864207.1                                                                                        47
Trust & Estates                                   R. Santalesa                                              Professor Turano



                  Example of general bequests -
                          - $10,000
                          - 300 shares of AOL to X. (general bequest because any old 300 shares will do...
                          and if there aren't 300 shares in the estate at death and its a general bequest the
                          executor would go out and buy them. For example, if the testator put that in, and
                          didn't own any shares of AOL. On ly time judge my think it 's a specific bequest is
                          that he owned exactly 300 shares at the time of the will.

RES IDUARY DISPOS ITION, p 351
Disp. of property of property of the testator‟s net probate estate not disposed by a specific, general or
demonstrative devise

         Examples of residuary bequests -

                  "I give the rest, residue and remainder of my estate... both
                  real and personal wherever situation."

         OR
                  "I give my entire estate... [give everything that’s left]."

DOCTRINE OF ADEMPTION., p. 352 (Ademption by extinction is what we have in NYS).

         Under doctrine of Ademption by Extinction a specific devise is adeemed if the testator no longer
         owns the specifically devised property at death.

ADEMPTION PROB LEMS #1 - Rare book collection. Gift is gone. The bequest adeems and X gets
nothing. Ademption my ext inction.

         1. IDENTIFY THEORY, p. 353 -

         Estate of Hume , 984 S.W.2d 602 (Tenn. 1999), p. 353 - Whether gift of house adeemed, when it was
         foreclosed and sold [and adeemd NOT by testator, but by other party] -- d id devisee get proceeds
         remain ing? No.
                  • Court correctly said YOU DON‟T LOOK TO HIS INTENT TO SEE IT IF A DEEMS,
                  you merely use INTENT to determine what type of disposition it is.

The rule of ademption by extinction prevails without regard to the intention of the testator of the hardship of
the case, and is predicated upon the principle that the subject of the gift is annihilated or its condition so
altered that nothing remain to which the terms of the bequest can apply.

                  NOTE: Ademption by satisfaction is what we call ADVA NCEM ENTS in New York.

Other ju risdiction‟s look at INTENT THEORY to determine whether something adeemed. We use merely
the IDENTIFY THEORY of ademption by ext inction. fo llowed by Hume.

Three ways of avoiding ademption by extinction - p. 359
        1. Reclassification of the devise - Since Ademption by extinction only refers to specific bequests,
        NOT general or other bequests.

         2. Change in form - 3-4.2 of our EPTL courts something avoid ademption of a specific devise by
         holding that, although the subject matter of the devise is not in the estate in its original form, it is in
         the estate in a changed form. Lavender v. Cooper, 285 S.E.2d 528 (Ga. 1982) -- classified bequest as
         demonstrative [based on fact that source listed] rather than specific to avoid ademption. If you say I
         give 5 shares of AOL out of M L account that's not going to adeem because it's a demonstrative
         bequest.




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Trust & Estates                                     R. Santalesa                                               Professor Turano



           3. Time-of-death construction technique - under both the identity and intention theories of
           ademption, property that matches the testator's description normally will pass to the devisee whether
           or not it was the identical property that the testator owned at time of execution. This is where our
           word "identified" comes in you can either specified OR identified.. so if you say "my shares of the
           Putnam fund" is identified and would ... ??

 NOTE: The doctrine of ademption ONLY APPLIES to specific and not demonstrative bequests.

Q: If you put "my” in front of “300 shares of AOL to Joe out of M L brokerage account”, when the word M Y
is used with stock it sounds like a specific bequest. But assume you have only 300 shares in the account, that
would convince every court it was specific. But conversely assume that all of the specific items listed as
examples above are in one will, and in the middle of the list it is "my 300 shares of AOL stock to X". That
would convince a judge it was specific because it was surrounded by specific bequests.
         However, suppose you had "I give 224 shares of AOL stock..." leaving out word my , and he owns
224 shares at time of will -- court would probably conclude it was specific anyway because he's saying what
he owned, and its in a list of specific items.

NOTE: With shares of stock and assets you have to determine carefu lly the testator's intent. To categorize
something as Specific/ General/Demonstrative depends first and foremost on testators intent. Then, once you
figure out intent sufficiently to categorize, adempt ion can then just swoop down on specific disposition
regardless of testator's intent. Testator 's intent, as gleaned from the will, determines what a disposition
includes.

p. 360 -

EPTL § 3-3.1 - Unless the will provides otherwise, a disposition by the
testator of all his property passes all of the property he was entitled
to dispose of at the time of his death.
                Example - if I give “all of my Putnam shares to X...” this would pass "all" shares per this
                statute‟s authority to dispose of all o f the property he was able to do so.


ADEMPTION PROB LEM #2 - Woman bequested books in will, but then became incompetent. Guard ian
sold off books.
          ANS: X has claim to $95 under EPTL § 3-4.4. It says that if testator was competent when they
          made the will ... and it's sold off later by someone else... the “beneficiary of such specific disposition
          becomes entitled to receive any remaining money or other property into which the proceeds from
          such sale or transfer may be traced.”

           So, if part of the property is still left and able to be found, then by giving that amount to the
           beneficiary we try preserving the testamentary intent.

3-4.4 has become much worse since the law changed -- there's no longer a conservator or committee, merely
guardians, no longer incompetents or conservative.

NOTE: EPTL § 3-4.4 APPLIES ONLY W HEN THE GUA RDIAN SELLS THE PROPERTY -- IF THE
      TESTATOR SELLS THE PROPERTY THEN THE SPECIFIC BEQUEST ADEEM S.

           Aside: Interesting case she wrote up in practice co mmentaries (remember 4 documents when
           preparing will --- will, living will, healthcare proxy, and durable power of attorney) - included a
           durable power of attorney, wh ich deputizes someone else to carry on your matters, and the main
           reason they're given is exactly to A VOID guardianship, and to avoid EPTL § 3-4.4 as a side issue.
                     But if durable power of attorney person, not a guardian, makes a sale IT A DEEMS, the
           same as if the testator had sold it. A durable power of attorney does not indicate a person who
           lacks testamentary capacity, it's given to avoid the problems WHEN and IF they lose testamentary
           capacity. The "durable" part is that it outlasts the competency of the person.



NY01/SANT RI/864207.1                                                                                               49
Trust & Estates                                   R. Santalesa                                             Professor Turano




ADEMPTION PROB LEM #3 - EPTL § 3-4.5.
     • X can get the insurance proceeds tied to that specific d isposition item.
     • What does "retains the character of a specific disposition" mean? Means it, like regular specific
     disposition, is last abated. So if you need an abatement to satisfy deposition, specific bequest
     receiver is going to get funds traced to specific bequest before general and demonstrative legatees.

 NOTE: EPTL § 3-4.4 does not contain this language preserving qualify as specific bequest; but Turano
doesn't see why it wouldn't retain it's specific bequest character -- it's never come up in the case law, though.

ADEMPTION PROB LEM #4 - EPTL 3-4.5 says that "insurance proceeds from p roperty . .. paid after the
testator's death" • Here the testator collected the insurance moneys while she was still alive. Books destroyed
two years before her death, and she puts insurance money in envelope. And so

         ANS: No. EPTL § 3-4.5 says "after death". Note "Pay to X" fails because it wasn't duly executed
         to turn into a codicil or something else.

HISTORY ASIDE - Anything passed in 1967 was the work of the Bennet co mmission, where they took laws
fro m about six d ifferent places collecting statutes dealing with dead people. In 1961 they amended the
statutes and left them where they were, and hen in 1966 they enacted EPTL and SCPA. So those revision
were careful and thought out sequentially. The things appearing in 1967 worked well, and later add-on are
choppy.

ADEMPTION PROB LEM #5 - Demonstrative gift -- Yes.
     • Demonstrative dispositions don't adeem and become general gifts if the fund source fro m which it
     was suppose to be paid was closed.

 RULE: Demonstrative dispositions do not adeem.

NOTE: 13-1.3 -- You'll say that the NORTH FORK account "adeemed", but that doesn't mean that the actual
demonstrative disposition has adeemed.

ADEMPTION PROB LEM #6 - EPTL § 5-1.4 - Former spouses. Treated as having immediately
predeceased the testator. Treated as being dead and going to alternate beneficiary.

         See EPTL § 5-1.2 - disqualificat ion of a spouse - husband and wife are not elig ible to receive
         property in any of these ways

                            (a)(1) - final decree of divorce - 4-1.1 stuff (intestacy), 5-1.1 & 1.1 A (right of
                            election, 5-3. 1 (personal property), 5-1.4 - (wrongful death proceeds), 5-1.2
                            (statutory rights disqualified).

                  BUT JOINT PROPERTY /TOTTEN TRUST / PENSION plan (subject to federal ERISA) -
                  divorce does NOT disconnect.

EPTL § 5-1.4 - if a provision is revoked solely by this section it shall be revived by the remarriage to the
former spouse. (But if testator has done any revocation or other act to remove gift to ex-spouse the ex-
spouse does not get anything.)

Revocatory effect -- it 's really ademption in following two statutes.

         EPTL § 3-4.3 - If you have committed some act on some property previous disposed in a will that‟s
         subsequently been "altered but not wholly divested" will still pass whatever‟s left to specific
         dispositions.

         EPTL § 3-4.2 - Talks about an "agreement" made by the testator regarding some specific property



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Trust & Estates                                    R. Santalesa                                       Professor Turano



         does not revoke the testamentary bequest, but makes the bequest subject to the testator‟s prior
         agreement.

These two statues factor in determining whether the gift has been adeemed/ext inguished or not.

EPTL § 3-4.2 – “property passes under the will to the beneficiaries, subject to whatever rights were created
by such agreement.
         Example - X gets house, but is subject to, say, contract to sell that T had previously entered into.
[but wouldn't get deposit which would have adeemed.]

In 3-42 and 3-4.3 quite a b it of overlap, but they do different things to.

LEFT OFF HERE. Pick up with ademption and other items.
• NOTE: Can audit any class for free after graduation. NOTE.




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Trust & Estates                                   R. Santalesa                                            Professor Turano



Trust & Estates                               12th Cl ass                           10/07/03

• Written assignment due Thurs. next week - 10/16/03

Ademption continued -- looked at insurance proceeds [prop. subject of specific bequest but destroyed such
that funds received AFTER T's death -- it retained specific bequest characteristics.

Divorce and ademption – EPTL § 5-1.2 -- all the gifts and appointment of you as trustee/executor is
automatically revoked.

EPTL § 5-1.4 -- Exception that if the will is only revoked

EPTL § 3-4.2 & § 3-4.3

EPTL § 3-4.2 - Agreement to convey property previously disposed of by
will not a revocation.

                   • Th is covers situation where testator has made a specific g ift to someone, and THEN has
         entered into a contract to convey that property.
                   • EPTL § 3-4.2 - says that will's bequest is valid and person getting that specific gift gets
         it, but subject to the conveyance contract terms.
                   • Classic scenario is "I give my house to X", and then enter into contract, and T dies. X is
         going to get the money PER the contract T entered into.

         IN PRACTICE:
         • Get an executor's deed -- and you can get an executor appointed very fast for such a purpose.
         • One of only variations she's seen with this is where T was involved in a business and T wanted to
         retire and have partners buy him out. He was in negotiations with them, when he died. After his
         death the company paid the sum they agreed upon, and court said this was a classic 3-4.2 situation,
         not an ademption. It was very important distinction to make, whether it adeemed or not.

         NOTE: (Specific beneficiary gets whatever is in the contract -- if a down payment was put down by
         the buyer, however, that adeems and does not go to the beneficiary.)

EPTL 3-4.3 - Revocatory effect of a conveyance, settlement or other act
affecting property previously disposed of by will.
      • Altered, but not wholly divested.
      • Th is provision deals primarily with tangible items. (I.e. examp le of min k coat cut into a jacket).
      • Diamond ring turned into ear rings, etc.

One area where it has come up in a context that made some law is in separation agreements -- statute's
sentence notes that CONTEXT of bequest can matter " which is wholly inconsistent with such previous
testamentary disposition revokes it."

         If guy dies after getting separation agreement fro m wife, and will has "I give W 1/ 2 house" and then
         make agreement that W relinquishes all claims to property. Then EPTL § 3-4.3 will make the gift
         adeem.

         Matter of Maruccia, 54 N.Y.2d 196 (1981) - sep. agreement had each giving up rights. "Each party
         waives and releases all claims to property... specifically waives and releases... to share in the estate."
                   Court found that WAS NOT co mp letely inconsistent with the will's bequest to wife.
         Amazing!! Need to know this case for drafting purposes -- if you make a separation for people with
         wills that left stuff, the agreement has to say "I relinquish all claims to items in the will."

         • Other than Maruccia, 3-4.3 is used most for tangible materials.




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Trust & Estates                                   R. Santalesa                                            Professor Turano



Accessions and Accretions - p. 362

General rule:
        If testator has left to specific beneficiary bonds that add interest after his death. The specific devisee
        gets those interest payments, but not any paid before T's death. Same thing with stock dividends.

         • Courts have held that specific devise transfers that specific asset together with accessions and
         accretions occurring AFTER THE testator's death. Specific devise of debts or obligations usually
         carry with them interest accrued but unpaid at the testator's death.

STOCK SPLITS - Have to determine if it's a specific or general bequest first.
      • If specific, the beneficiary gets the original + accrual of splits.
      • If it's a general g ift the beneficiary only gets the original number of shares given.

Fitch's Will, 118 N.Y.S.2d 234 (3d Dept. 1952 ) - wrongly decided case. Court found that it was a general
bequest, and found that beneficiary was entitled to benefit of stock split too, but then they applied specific
disposition application to give splits rather than merely nu mber of share indicated in will. Whew!! VER Y
IMPORTA NT TO DETERM INE WHETHER IT'S SPECIFIC OR GENERA L.

Watson v. Santalucia, 427 S.E.2d 466 (W. Va. 1993) - Court abandoned the specific-general d istinction to
determine who receives the benefits of stock splits.
        p. 365 - Court here said "A will shall be construed….”

p. 368 - Watson approach has been codified in the UPC.
         • Restatement 3d of Property, also adopts the Watson approach –

§ 5.3. Effect of Stock Splits, Stock Dividends, and Other Distributions
on Devises of a Specified Number of Securities.
      “A devise of a specified number of securities carries with it any
      additional securities acquired by the testator after executing the
      will to the extent that the post-execution acquisitions resulted
      from the testator's ownership of the described securities."

STOCK DIVIDENDS, p. 368 - Should courts treat it as cash?
      • Cash dividends earned during T's lifet ime do NOT go to the specific legatee.
      • Stock dividends are problem as well. UPC §2-605(a) (1) treats stock dividends the same as stock
      splits, giving the benefit to the stock devisee.
                 Majority, however, treat stock dividends the same as cash dividends -- denying that
                benefit to the specific beneficiary.

ACCRETIONS - Depends on type. Growth to orig inal g ift.
      • Easy rule is that cash or dividends earned BEFORE death are not part of the bequest.
      • Those after DEATH are part of the bequest.

          TIP: With stock splits or stock dividends ask:
                “Does this split/dividend represent the same asset [as the original bequest item]?”
                ANS.: If it does, then that would pass as part of the specific g ift, but if it's more the nature
                of a dividend it would be considered as income and not part of the gift.

         If I say my book collection to X and books are worth $100, and it's worth $1million when you die,
         X is still going to get that.

         NOTE: But don't forget that EPTL § 3-1.2 says a will bequest gives all you're capable of g iving
         away at death.

EPTL § 3-3.6 - Encumbrances on property of decedent.



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Trust & Estates                                    R. Santalesa                                            Professor Turano



         • Basically gifts come with the strings attached UNLESS " in the case of a will, the testator has
         expressly or by necessary implication indicated otherwise." 3-3.6(a).
          NOTE: GEN RULE is that person who gets a gift by will gets it with the encumbrances.

         (a) "A general provision in the will for the payments of debts is
         not such an indication" -- this addresses the clause that "I direct my executor to pay my
         debts as soon as possible, etc." That clause would not address the mortgage left on the house.

Example - person who gets $100K house with $105K mortgage still on it. EPTL § 3-3.6(b) says the
   beneficiary does get stock with any person liability. It's satisfied out of the house. Bank, in this
   example, could foreclose and sell the house for $100K, and executor would be responsible for the $5000
   left, accord ing to "any such encumbrance is chargeable against the property of the decent ".

Insurance policy - Could pledge policy for loan, say, and this is what EPTL § 3-3.6 (b) is talking about. X
would take the proceeds, but would have to make good on the loan left. [You could also designate per will
that someone else pay off the loan amount, etc.]

Liabilities can take four basic types -
          1. Money debts.
          2. Estate expenses - executor co mmissions, brokerage fees of house, court filing costs.
          3. Taxes – state and federal estate.
          4. Funeral expenses.

ABATEMENT - EPTL § 13-1.3
     Gives order of abatements

Example, p. 369 - A gets antiques desk. And apply § 13-1.3 to remain ing people B & C.
        • D gets nothing from residuary.
        • General bequest abate ratably. So B & C share in 2:1 ration ($6.6K & $3.3K, rather than the $10K
and $5K bequeathed per will.)

 NOTE: Ademption is not the same thing as Abatement. [When a bequest adeems it's GONE, and only
specific gifts adeem], when something abates it may get chipped away, or co mpletely go away.

         § RULE 1. Debts, Ad min expense, Funeral expenses, Taxes are all paid first. [DAFT]

THEN ABATEM ENT (where property is not given to devisee) OCCURS IN ORDER OF [ IRGS M]
      1. Intestacy
      2. Residuary
      3. General dispositions
      4. Specific dispositions
      5. Gifts to surviving spouse qualifying as estate tax martial
      deduction.

13-1.3 - general abates ratably just like specific. They say it in (c)(3), but it's habit and custom to abate
general gifts ratably, too.

EPTL § 12-1.2 - Order of liability and preferences.
         • Makes beneficiaries liable for debtors' debts in same way that 13 -1.3 does. This does exactly the
same things with debts that 13-1.3 does with assets.

 PRACTICE TIP - You have regular statue of limitat ions that credit can come forth, but no one wants an
estate to remain open for all that time. In SCPA Article 18 somewhere, it says that if executor is acting in
good faith and doesn't know of debtor, the executor can distribute the estate after seven months. It puts
creditors on notice that they have to act within 7 months after executor is appointed. OR the executor will not
be liab le for that debt, and then creditor has to go run after people who got the money. 12-1.2 is what allows



NY01/SANT RI/864207.1                                                                                           54
Trust & Estates                                   R. Santalesa                                           Professor Turano



you to go after the beneficiary and in what order you can go after those people.

Ryan question - ratably general question - 13-1.3 (e) to keep intent in place is how (c)(3) gets the ratably into
general bequest.

Review statute order of abatement again:
      1. Distributive shares not disposed of by will.
      2. Residuary dispositions.
      3. General dispositions (and demonstratives that have adeemed).
      4. Specific dispositions (and demonstrative that haven't adeemed.)
      5. Bequests subject to marital deduction [presumption that you
      wouldn't want to lose the tax deduction.]

• That will be in the PowerPoint stuff she'll put up.

 NOTE: IN YOUR WILL YOU CA N CHANGE THE ORDER OF A BATEM ENT. Otherwise EPTL 13-
1.3 is applied.

ABATEMENT HYPOTHETICALS
     1. X gets diamond. Y gets $500K for partial satisfaction of his $88K general legacy, and Z gets
     nothing as there's no residuary, which abated entirely, or instate share.
     [Didn't know how much to abate general until the specifics were figured out.

ABATEMENT PROB LEM #2 - T has rare book co llection. She put in "he intends that" as a red herring.
     E & F abate first; they get nothing as the residual gift abates.
     - A gets books worth $200K
     - B gets $100k as demonstrative deposition treated as specific gift for abatement purposes.
     - C & D - get $400K and $800K ratably per will's $500K and $1 million bequest per the will. 1:2
     ratios.
               NOTE: She uses the sum of the two as a denominator.
     NOTE: A residuary bequest does not typically fall within 13-1.3 (e)'s "express or imp lied intention".
     But a residuary can fall into (e)'s guidance when the residuary goes to a spouse.

ABATEMENT PROB LEM #3 -
     A - Gets books $200K (specific)
     B - Gets $100K (demon. treated as specific)
     C - Gets $200K
     D - Gets $400K

Same as problem # 2 but with different amount of money

ABATEMENT PROB LEM #4 - (lost this answer when Pal m crashed.. have it right on sheet)

ABATEMENT PROB LEM #5 - Again 1:5:10 rat io for B, C, and D.
     A - $200K books
     B - $100K fro m NF (specific) + $50K (general ademption of demon)
     C - Gets $250K
     D - $500K
     E &F - get nothing

ABATEMENT PROB LEM #6 -
     • Sell diamond and rare books and distribute proceeds from assets to X & Y in 1:2 ratios.
     • The residuary bequest to Z abates entirely. The X & Y specific bequests abate ratably in a 1:2
     ratio. That means X gets $33K and Y gets $66K.
               OR beneficiaries could "buy" their bequests - X could say they want the diamond and give
               in $66.6K or Y could say the same thing for books.



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Trust & Estates                                    R. Santalesa                                               Professor Turano




ABATEMENT PROB LEM #7 – GOT WRONG - Total estate is $310K
     - Wife gets $200K first per marital deduction priority.
     - Son gets ring $90K
     - D gets $20K fro m K
              Mother and Red Cross get nothing.

ABATEMENT PROB LEM #8 - GOT WRONG
     - Wife gets $300K, ring is sold, daughter does not get $20K fro m NF. So son and daughter have to
     split remaining $10 in a 2:9 ration.
     - Daughter gets 2/11 of remain ing $10K, and Son gets 9/11

ABATEMENT PROB LEM #9 - Residue to wife.
     • Here g ift to wife is residuary gift, so under 13-1.3 language it will abate first, despite the fact that
     it‟s to a wife.
     ANS:
                - Son gets ring
                - Daughter gets the $200K in the NF account
                - Wife gets nothing. Therefore, she can elect against the will (as we shall see).

         Only thing spouse has is right of elect ion (wh ich would entit le her to get 1/ 3 of the estate).

         NOTE: The reason the comes out this way is that there is technically no gift to the spouse -- there's
         just residue. EPTL 13-1.3 means "gifts" eligib le for mart ial deduction get top priority. [Th is estate
         was written when marital deduction was 50% of your estate].

 NOTE: EPTL § 13-1.3 statute never intended to create a residuary where there isn't one [for spouse].

INCORPORATION B Y REFER ENCE                             Read pp 275

         NYS has a very strict doctrine on incorporation by reference. If you look at general ru le on
         incorporation by reference by reference, p. 275.

RULE: [not in NYS] In most jurisdiction, unattested papers - papers that weren't present when the will was
executed - can be regarded as part of the will by incorporation.

Simon v. Grayson, 102 P.2d 1081 (Cal. 1940), p. 276 – 284 -
         Letter was in existence at later date of codicil.

NOTE: p. 278 - "A few states - notably Conn., Louisiana and New York refuse to recognize the doctrine of
incorporation by reference.
         • NYS doesn't allow incorporation of non-attested documents.

See EPTL § 3-3.7 - Testamentary disposition to trustee under, or in accordance with terms of existing inter
vivos trust.    • Th is statute contains an exception to NYS incorporation approach.

          (b) Testamentary disposition or appointment is valid, even though
         (1) trust instrument is amendable or revocable...

Q: What if you forget to move something into the trust, though?
        Good thing to have in the will, here's how I dispose of everything else, and it's going into the trust.
        Logical to pour your estate assets into a trust.
        But a trust is much less formal than a will. Why are we allowed to pour stuff into a trust

Ruth v. Baptist Church. (See about NYS incorporation case from 1800's).




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Trust & Estates                                   R. Santalesa                                           Professor Turano



         Lifet ime trusts are also popular for rich because trusts are NOT part of the pu blic record. So the
         will would simply say I pour over everything into my trust.

This EPTL 3-3.7 exception allows...
        • testator to dispose of his estate to a trustee using written instrument executed by testator, OR by
some other person [you can pour your trust over into someone else's trust]
        • THIS is a big exception to the doctrine of incorporation by reference.

          When I die, my estate property is going to be administered under the terms of the trust as it THEN
is. If you pour over.               SHE LOST M E HERE...

When we get to Article 7 we'll see there are formalities now for trusts, which were only enacted a few years
ago. Before that there were no formalit ies required, except those in 3-3.7.

Formalities required by EPTL § 3.7:
        (a) trust has to be executed BEFORE or WITH the execution of the will,
                  and
                  will identifies the trust. 7-1.17

POUR OVER TRUST - has to be done with formalit ies that 7-1.17 requires.

BASICA LLY - A lifetime trust can be revocable and you can pour your estate over into that trust as long as
it's done with those formalit ies of 7-1.17 - signed and acknowledged, and then it doesn't violate the
incorporation by reference ru le.

Acts of independent significance -- p. 281, read that... don't worry about Simon.. Thin k about Baptist Church
case.

READ pp. 275 - 284 - statute 3-3.7 for incorporation by reference.

LEFT OFF HERE.




NY01/SANT RI/864207.1                                                                                           57
Trust & Estates                                    R. Santalesa                                           Professor Turano



Trust &Es tates                                13th Cl ass                           10/09/03

INCORP. B Y REFERENCE (print out these notes).

§ RULE: NYS has rule that we can only incorporate documents that was itself done per formalities of will.
Booth v. Baptist Church doctrine

POUR-OVER TRUS T - EPTL § 3-3.7 - -- Allows you to incorporate provisions of lifet ime trust into your
will, with the only formalit ies of 7-1.17.
          ▪ Acknowledgement is notary + text that “this person came before me.”

          ▪ While trusts use to be popular only with wealthy, because lifet ime t russ are not in the public record
- now it's popular with everyone to make life-time trusts. Provides continuity.

If you go into estate practice you will do lifetime t rusts -- she's not a big advocate of lifetime trusts. Every
client will ask you "should I do a lifet ime t rust?" The hype about L.T. trust is that they save you a lot of
money, but they honestly don't, because: revocable living trust is completely taxable.
          ▪ Even an irrevocable living trust that's a transfer of money and a taxable event. [Consider effect of
marital deduction and unified credit.]
          ▪ One advantage of living trust is it doesn't go through probate.

NOTE: Reco mmends these lifetime trusts when the closest relatives are first cousins. [Before 1992 you
couldn't dispose of estate on one half if other 1/ 2 hadn't been ascertained.]

        ▪ Good thing about revocable trusts is that they provide for continuity -- avoids the need to appoint a
guardian (because you can say in the trust that if I beco me incompetent, then X or Y can be the trustee).
        ▪ Another thing, if you‟re married and you've been taking care of all finances and inv estments, this
could appoint someone else to manage money and dole it out.

EPTL § 3-3.7 - authorizes pour over even if the trust is revocable, and does require some formalities

AMENDABLE TRUST -- if you do pour your own stuff into the liv ing trust, it will be ad ministered under
the terms of the trust as of the date of your death [unless you say I pour this AND I want stuff to be
administered under the provisions of someone else's will, then ...]

To pour over, in the will you say "I hereby give all my property on such and such date to the trustee."
[Liv ing trust has to be done first before the will -- signature and acknowledgment co me fro m separate
document, will is done with EPTL § 3-2.1 formalities [trust is done first].]

EPTL § 7-1.17 -
        (a) Every lifetime trust shall be in writing and shall be executed and acknowledged by the original
            creator... in lue therefore it could be executed in the presence of two witnesses who shall affix
            their signatures to the trust instrument.

              3-3.7 does is that it allows us to incorporate these trusts made under 7-1.17 into the will.

4 pack - will, liv ing will, durable power of attorney, health-care pro xy


         § 1st tenet - strict incorporation rule in NYS.

         § 2nd tenet of incorporation - exception for lifetime trusts

         § 3rd tenet - insane doctrine of "independent significance”, p. 281.
         Theory - Courts don‟t want a testator to casually cross things out without formalit ies.




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Trust & Estates                                  R. Santalesa                                          Professor Turano



ACTS HAVING INDEPENDENT SIGNIFICANCE
      p 282.
      The mean ing of an independent act - the testator is asking you to look OUTSIDE the will to
      determine who gets under the will. It s eems to courts you should be able to do that, but THAT
      person is being rewarded for doing something "independent" of the will.

"Product which I may leave at on hand" -- this has independent significance.

Q to ask: Does it have significance independent of making a bequest to someone?
         [Remember a class gift can include all members of a class, even though born later. This is kind of
         the same thing -- by having another child you've altered testamentary disposition, but you didn't
         have a third child to lower the shares of the other children's shares.]

Examples:
       "Party who may be farming my farm and taking care of me at death" you wouldn't hire so meone to
       run a farm because he wasn't good at farming.

         "Contents of any of a drawer in said safe" -- in NY that would probably be a valid bequest, but you
         could go into that drawer and take out or put in depending how pleased you are with the person. But
         the thought is there's another reason for putting things in a safe -- keep it safe.

         "Give to Sadie Harris desk with contents of " -- the courts would never challenge that on their own.
         But if someone else said she took and added stuff to the desk depending on how much she liked
         someone the courts would listen up.

 NOTE: If decedents in their wills devise their property in a manner that directs that property be
distributed in accordance with wills executed by other designated persons, courts will g ive effect to those
devises as acts having independent significance.

NOTE: Nearly 1/ 2 of states have enacted a provisions similar to UPC § 2-513, which allo ws testator's to
dispose of their tangible personal property without having to meet the requirements of the doctrines of
incorporation by reference or acts having independent significance.

RENUNCIATION - EPTL § 2-1.11

Allows people to do some post-mortem estate planning. Starting point is that you shouldn't have a gift forced
on you and can refuse to accept it.
The heavy influence in enacting EPTL § 2-1.11 statute is a tax concept. If you don't want to accept property,
if could be v iewed [without a federal tax statute] that you're making a taxable gift to the person who gets it
when you renounce. Fed's passed statute IRC §§ 2518, p. 69,

▪ A "disclaimant" [NYS term fo r it is to renounce] incurs no federal transfer tax consequences if person
meets the IRC's definit ion of a "qualified d isclaimer."

Qualified disclaimer: [IW9BD]
      1. Irrevocable and unqualified;
      2. In writing;
      3. Filed within nine month of the time of transfer [or within nine
      months of their 21st birthday -- NYS doesn't have this part.
                  In NYS you can get the court to extend the renunciation period (for good cause).
                  If you get an extension, though -- you have to keep both Fed. and State statutes in
                  mind [you don't get an extension under Fed. statute, so you would get protection
                  fro m creditors per extension under NYS statue, but not Fed.]. Assumption under
                  Fed. Rule is that you renounce AFTER that nine month period the transfer is
                  considered a gift.




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Trust & Estates                                   R. Santalesa                                         Professor Turano



         4. No interest or benefits accepted;
         5. Interest must pass, without direction by the diclaimant, to
         either the transferor's spouse or a person other than the
         disclaimant.

If it passes to someone other than your spouse or ___ it's a qualified disclaimer -- you won't get any taxes and
it'll pass directly fro m testator to person who gets when you renounce.

CREDITORS -- Creditors can't get anything you renounce/disclaim. It's surprising given you can avoid
creditors that way [aside - considering bankruptcy exclusions under Ch.7, 11, 13]

 NOTE: Can disclaim part, fraction or all of a property. (Ex. in will you get book and art collection -- you
disclaim the book collection and can take the art collection). Like freedom of testation in reverse.

NYS EPTL § 2-1.11 - Effect of renunciati on

         EPTL § 2-1.11 (d ) - treated as if you died BEFORE the testator UNLESS the creator of the
         disposition has otherwise provided"

RENUNCIATION PROB LEMS
     1. B gets all per 2-11(d)

         2. Per 2-11(d) $10K goes to B's kids by EPTL 3-3.3 anti-lapse statute, per representation.

         3. 2-11(d) B‟s share lapses and falls into reside

         4. C's share goes to husband. Anti-lapse 3-3.3 not applicable.

         5. No will, so 4-1.1 applies. Because B is alive the share of D are split into 1/2 -- B gets 1/2. And
         A renounces and his share [1/2] go to 1 & 2, which each get 1/4.
                 EPTL § 2-1.11 (d ) says "unless the creator of the disposition" - and in EPTL § 2-1.11 (a)
                 (1) says that disposition includes
                                    "a distributive share under 4-1.1" [read intestate share] which is outside
                                    the usual EPTL definit ion of disposition in § 1-2.4

EPTL § 2-1.11 (a) (1) -- includes
                ▪ Power o f appointment [is the right to dispose of another person's property.]
                                  Generally person makes a will/trust and in it the person creates a trust,
                                  saying, "I want my husband to get the income fro m this trust for life” and
                                  then it says "I want my hus band to determine who gets the remainder" so
                                  no he has the power to dispose of the testator's property. But per 2 -1.11
                                  he could renounce that power of appointment.

Power of appointment examples:
       A person creates a trust to “pay income to x for life and the remainder as X appoints by deed or will,
       or if X fails to appoint, to Y."
                 -- So if X exercise the power of appt in favor of her daughter, the daughter can renounce it.
                 -- If X fails to appoint, Y can renounce.

Other dispositions handled by EPTL § 2-1.11 that can be renounced:
          Distribute share [intestate 4-1.1]
          Transfer in trust account defined in 7-5.1 [Totten trust]
          Life ins or annuity [usually non-probate]
          Employee benefit p lan [pension, retirement, death benefit, stock bonus, etc.)
          Any other disposition/transfer created by any testamentary, nontestatmentary or operation of law.
          Joint tenancy & tenancy by entirety [right of survivorship] - says you can renounce the transfer to



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                  you, but you can't renounce (b)(1) portion allocable to the dollar amount they paid [say you
                  paid 100%, spouse paid none. Your spouse dies. You can't renounce her 1/2 ownership --
                  could give it away, but that would be taxab le and your creditors could get it. (Suppose you
                  and spouse put in $50K each, and when your spouse dies it's worth $200. You can
                  disclaim the portion of the share you paid for -- 50%, so now it's worth $100K for that
                  share. You can renounce $100K of it, not just $50K.)
                  [NYS conflicts on this with Federal law, which says you can disclaim the whole thing]

 Power to renounce flows down.

GENERA LLY - You are allo wed to renounce to thwart your creditors. Now she's hesitating – as cases have
been decided in a last few years related to Medicaid transfer of assets.

NOTE: If you die own ing property the basis gets raised to time of death -- but only if house is included in
estate for purpose of gross estate -- so transfer house to kids, but keep a life estate - it's 100% included in
gross estate. [$1 million exempt ion credit] Have to be careful on keeping current on this stuff. If you
transfer it, but keep life-estate, it's out of eligib ility pool, but counted in gross estate.

 NOTE: Un ified $1million "gift" cred it and estate tax is same th ing. B UT the $11K/ year gift tax is
different and completely separate – can make unlimited amount of those.

                  Example - If you have $2 million you can either give away $1 million at during lifetime,
                  OR give away $ 1million at death tax free. [Th is is in addit ion to marital deduction credit.]

NOTE: Now courts don't allow you to renounce gifts if you are facing a Medicaid elig ibility level. It's a
different tack of cases dealing with these Medicaid items.
----------
EPTL § 2-1.11 (b) (2) – [renounciati on must be] in writing, and signed and acknowledged by person AND
filed within 9 months of the date of transfer. [SAWFA]
           - Person renouncing needs to file a ffidavit, too, saying that there isn't some hanky-panky deal going
           on between people renouncing and people who would get upon renunciation.]

WHEN DOES NINE MONTH PERIOD FOR B ENEFICIARY TO RENOUNCE START TO RUN?

                              EPTL § 2-1.11 (a) (2)
WILL                                              Date of testator‟s death (a) (2) (A)
INTEREST UNDER A TESTAM ENTARY TRUST (TRUST Date of testator‟s death. (a)(2)(A)
CREATED BY WILL)
JOINT PROPERTY                                    Date of testator‟s death (a) (2) (A).
LIFE INSURANCE                                    Date of death of the insured.
PENSION/ Retirement plan                          Date of death of the employee.
INTEREST IN TOTTEN TRUST                          Date of death of the creator of the trust
                                                  account.
INTEREST IN A LIFETIM E TRUST                     Date of the trust agreement (a) (2) (B)
                                                  [date the trust became irrevocable or date of
                                                  creation if it was irrevocable when made,
                                                  however.]

INTEREST CREATED BY POW ER OF APPOINTM ENT                          Date of exercise of the power of
                                                                    appointment [nine months from this to
                                                                    renounce]
INTEREST OBTAINED IN DEFA ULT OF SOM EONE'S                         Date of previous holder's renunciation [nine
EXERCISE OF A POW ER OF APPOINTM ENT                                months fro m then]
INTEREST OBTAINED IN DEFA ULT OF SOM EONE'S                         Date of death of the power-holder (or upon
EXERCISE OF A POW ER OF APPOINTM ENT                                the exp iration of the power, if that's the



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Trust & Estates                                  R. Santalesa                                         Professor Turano



                                                                  case.) "or non-exercise of a power of
                                                                  appointment" - (a)(2)(A) per (a)(2)(B) --
                                                                  [date 9 months begins to run is date of the
                                                                  exercise of the power of appoint ment]




EPTL § 2-1.11 (a) (2) (c) - Effective date of a d isposition of a future estate shall be the date on which it
becomes than estate in possession. [This language makes the effect ive date of when 9 -month countdown for
renunciation starts to run the point when the interest becomes present.]

NEXT CLASS PICK UP with (a) (D) -

LEFT OFF HER E




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Trust & Estates                                    R. Santalesa                                            Professor Turano



Trust & Estates                      14th Cl ass                            10/14/03

Picking up REN UNCIATION... enormous breadth of that EPTL 2-1.11. Redoing 9-month chart fro m last
class.

BASIC RULE - EPTL § 2 -1.11 (d) -- you're t reated as having predeceased when renouncing. [Person who
renounces can pass to issue, or to residuary of THAT person.]

• All of the laws of the states relating to renunciation treat person as predeceased.

RENUNCIATION PROB LEMS #5-5

         EPTL § 2-1.11 (d) - 9 & 10 each get 1/4 [1/2 * 1/2] and kids 1-8 each get 1/6 [1/ 2 * 1/8] .
         Applying the section from (d) that prevents A's kids fro m "grabbing" more than share.
                 If A were dead his children would get 1/10 each, for a total of 8/10 of the estate, but
                          A cannot decrease 9's and 10's distributive shares by renunciation (subparagraph
                          (d), 10th line); he is treated as having survived D by an instant. [the statute use to
                          read like this, but legislature spelled it out, saying, A will be deemed as having
                          survived the T for a short period -- because 1-2.16 says make the break as the first
                          point there are survivors and so A survived for a short period.]

         NOTE: The "comb ining" step of 1-2.14 and 1-2.16 doesn't work here either. She thinks this was a
         good section.

PROB LEM 6 -
      • Y gets remainder of trust immediately when X renounces.

PROB LEM 7 -
         • If daughter renounces, her then living issue get the remainder. Red Cross is the loser here, since if
the issue died before the daughter the Red Cross would have gotten the remainder given the way the will is
written with the inclusion of survivorship by the kids.
         As much as we want to give intent to testator's intent, we don't want a cloud over property; and if
daughter renounces, as is her right, the alternative would be to leave the propert y in limbo.

PROB LEM #8 - B gets income for life, after A renounces.

         • Statute says the renunciation of a present trust interest accelerates the next interest in line, but has
         no effect on an interest that is contingent on something other than the renunciation.

         EPTL § 2-1.11 (d ) - renunciation is retroactive to the creation of the disposition.
                 You're treated as if you died right before you get the interest. Leg islature put this in to go
                 back to original date to prevent some other event that happen in the 9-months since the
                 triggering event. Another reason is that the thrust of this statute is to protect you fro m your
                 creditors -- this makes it very clear that you never had any interest or possession in the
                 property from the date originally.

PROB LEM #9 - l ast sentence of (d)
      • X renounces; but X loses the remainder too. [A little variat ion on this when it co mes to spouse].
                Because (d) is so specific you can't get (e) into force in this situation. The "same extent"
      part of (d) means if there‟s a renunciation of part of present interest, then that same fraction is
      renounced in the same portion of the future interest under this § 2-1.11(e).

EPTL § 2-1.11 (e) - partial
       • Spouses are treated differently when it co mes to renunciations

If you renounce something in a will you can have an interest in it in the future, but (e) & p. 69, Fed. Tax



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Trust & Estates                                   R. Santalesa                                            Professor Turano



code, about qualified disclaimer statute adds up to spousal renunciation where " interest must pass without
direction by the disclaimant, to either the transferor's spouse...."

 NOTE: A spouse is allo wed to disclaim, but still keep an interest down the line in the disclaimed property.

Example- Will says I give $100 to X, and residue to trustee to pay income to X for life and remainder
thereafter to the Red Cross.
         X wants to renounce the $100, and if X is the decedant's spouse he can renounce and still enjoy the
income fro m it once it goes into the trust for life fro m that property. Everyone else, other than the spouse,
can NOT do this.

EPTL § 2-1.11 (e) - person can renounce part, fraction, o r all.

PROB LEM #10 – TA X/ UNIFIED CREDIT PROBLEM

          • Here husband wants to use both marital deduction and unified credit to offset his trust amount
when it passes to the kids, to avoid the 50% estate tax.
          • Wife‟s $900K renounced goes into the trust... so there's $1.9 million into the trust now.
          • She‟ll have to pay tax on the $900,000 port ion right now however – since it‟s part of the husband‟s
estate since she renounced it, and so over his $1 million unified cred it.
          • But instead of $1 million marital deduction credit to her she has taken only $100,000 tax free
under the marital deduction;
          • Wife‟s motivation is to lessen her estate so she can pass it on to the kids per her own $1 million
unified cred it.
          • And wh ile she has to pay taxes on the $900K now, it doesn't become part of her estate, and the
income on it grows tax free fro m the point it enters the trust [after having been taxed] fo r the kids.

         RECA LL: H wanted to use his $1 mill. unified credit. So he made a trust for W of $1 mill, meant to
         give her maximu m interests while still avoid ing inclusion in her estate when she later dies. So his
         estate taxes are zero.
                   [She's paying $400K in tax, and losing use of that for her life, but she could be giving
                   $11/year to her kids and whittle down it that way, too.]

                   But assume she has $1.8 million of her own. Recall: Two $1.9 estates will produce less
         estate tax than one tax-free estate and one estate of $2. 7 mill. So by renouncing $900K she inherits
         $100K fro m H, which evens out their taxab le estates at $1.9 mill. each. (H gets $100K marital
         deduction.)
                   Subparagraph *(e) allows a spouse (and ONLY a spouse) to continue to enjoy the benefit
         of the renounced property when it "falls" into the trust.

• Don't want the wife to not be able to renounce property simply because the property goes into something
for her benefit.

NOTE: But this approach above is somewhat foolhardy, because you pay up $400K in taxes right away.
Convention wisdom is not to do this unless W is very old, since prepaying estate taxes is always a
questionable idea.

MARITAL TAX CREDIT - 100% - whatever you give your spouse is sheltered right there completely fro m
taxes. Only availab le when the first spouse dies.

UNIFIED CREDIT works for each person.

Question – can you give a gift to a trust?
        Yes, can do that, but only if it‟s a present interest -- can give it to kids when they're minors, but not
        later. [Usually have to accomplish it by making it present for a period of time -- where they have
        actual right to take out that money for a period of t ime.]



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RENOUNCING party has to file an affidavit that they haven't received any consideration fro m person who
then gets.
          Ex. inco me beneficiary renounced, she could not receive anything from the remainderman.
Designed to prevent collusion, s ince even though the whole renunciation statute essentially v iolate the
testator's intent, they draw the line at any sort of collusion.

EPTL 2-1.11 (B)(2) – there are notice requirements to executor and administrator, AND court can order
service on other people as well [i.e. people who's interest would be accelerated.]

         Also, under (B)(2) court can extend the time for renunciation for a g ood cause -- NYS courts are
         generally liberal for good reason -- i.e. that child hadn't reached 21 yet [since Fed. IRS code allows
         it automatically up to that age].
                  But don't forget there's NO NINE month extension period in Fed. court -- if you get
         extension from State Surrogate court, you'll still be making a taxab le gift to n ext person under
         Federal law [see last classes' notes]

Can Guard ian Renounce A Minor's Interest?

EPTL § 2-11(c) - Yes, but only with Court authorization. So generally court will not allo w this to happen
[unless there's some reason.]

         Example - T d idn't do a will and his children want to renounce so their mother will get the whole
         estate under intestacy ... BUT they have minor children themselves. So if kids renounce it would go
         to children's children. But first child ren could, with court approval renou nce for kids.
                   [Courts allowed A to renounce on behalf of 1 and 2 on the theory that they would not have
         any interest unless A renounced, and the renunciation was to maximize tax benefits for the family.]


RULE:             EPTL 2-1.11 (g ) -- RENUNCIATION IS IRREVOCAB LE
                  [that's what Fed. statute says and we have this here to conform to Fed. approach.]

 PRACTICE TIPS: If you have a couple that's wealthy, but not enough to worry about estate taxes, and
they have little kids so if one dies the other needs all the money, so classically you do a simp le will passing
all to other spouse and then trust for kids.
          But then you anticipate that they'll live for a long time -- you want to have something in the will that
will kick in if necessary.
          Disclaimer clause - g ive everything to spouse, kids in trust. If spouse say disclaim property I give
that property to trustee, and then you can make the trust as generous as you want for the other spouse -- and
name trustee, someone close, who can give amounts out of principal -- and put in the 5or5 power [5% o f
principal or 5 percent of... [check this]. Just like credit shelter trust of question 10 above.
          Now the wife dies many years later, and husband says I may as well disclaim a million dollars that'll
go into the trust, and he disclaims it with the vehicle already set up to catch it. And so this one paragraph
would save a good amount of taxes.

PRES UMPTION OF DEATH IN THREE YEARS OF CONTINUOUS ABS ENCE

EPTL § 2-1.7 t wo pronged approach to this in NY:
         1. Relates to absentees [Art. 9 in SCPA – the minute a person disappears you can go into Surrogate's
         court and get appointed as fiduciary - temporary administration - to keep things running.]
                  Ult imately that can result in the distribution of that person's assets. If a person goes
         missing there are a lot of day-to-day things that need taking care of. That's NOT EPTL § 2-1.7.
         Article 9 in SCPA never results in a declarat ion of death. Most people use both in this situation.
         if you have an order 2-1.7 declaring someone dead it's the equivalent of a death certificate. -- Will
can be probated, ins. paid, pension benefits flow.




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Trust & Estates                                    R. Santalesa                                            Professor Turano



EPTL § 2-1.7 - "in any action or proceeding... contractual or property rights contingent upon his death or the
administration of his estate]

REQUIREMENTS - Person seeking declaration of death has burden to prove: [A3DE]
      1. Person must be absent for continuous period of three years. Person not seen or heard from -- if in
      the course of the search someone said "I did see him a year after he went missing" then there isn‟t
      three years [alternately you could go from THAT point for three years.]

         2. Has to be a diligent search of the person‟s last known location and places where the person could
         possible be.
                  [This search HAS to be an exhaustive search of every possible place where this person
                  could be -- look in hospitals, talk to people who knew h im, look at previous living places,
                  places they're moved in the past. It's a fact-driven situation search.]

         3. Absences not satisfactorily explained. -- if person left note saying "I need a new start" you'll
         virtually never get a finding of death after three years; or person emptied out bank accounts day
         before disappearance; BUT under Article 9 you're allowed to distribute the estate after 5 years even
         if there's no finding of death.

Classic case where court does rule under EPTL § 2-1.7 that person is dead -- person left house happy, going
off to work, kissed wife goodbye, and then disappears, car found.

WHEN IS PERSON DECLARED DEAD?

          GEN. RUL E - Three years fro m last sighting. 2-1.7(a) - "to have died three years after the date
         such unexplained absence commenced ..."

SPECIFIC PERIL RUL E - Can be declared to have died on earlier date if clear and convincing evidence
shows person met death, or the person encountered a specific peril [any time after exposure -- p lane crash,
boat crash case].
         • Matter of Consentino, 177 M isc.2d 629 (Surrog. Ct, Bron x Cty, 1998) created this clause. Judge
         Holt zman in the Bron x - fabulous Surrogate according to Turano.]

NOTE: The date of the specific peril is set as the date of the death -- generally set as the date the boat, plane
embarked.

         EPTL § 2-1.7 - applied to people who were in the World Trade center, and person s who were
         suppose to be there but no one was sure. Not everyone could meet the exped ited death cert.
         requirements, however. See In re LaFuente, 191 M isc.2d 577 (2002).

One fact to think about for next time: Actuarial table... up on the screen.. percentage of factor that a
remained interest is worth at the age of the person getting the trust.

LEFT OFF HERE.

         • Fin ish reading case book items
         • Fin ish reading 2-11 notes
         • Fin ish reading 2-17 notes
         • See hand-written notes on last class' chart... update that chart.




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Trust & Estates                                     R. Santalesa                                            Professor Turano



Trust & Estates                                 15th Cl ass                           10/16/03

          Review of last course -- Actuarial table discussion... value of person presently and value of person
who gets the future remainder of the trust -- divided into an income piece and a remainder p iece. And
calculating each portion of the actuarial table.
          Table is also useful in figuring out gift tax items... and also could use that table to figure out value if
you wanted to sell your remainder interest before you'd receive it.

MURDEROUS HEIRS - EPTL § 4-1.6 - Disqualificati on of joint tenant in certain instances

Basic rule comes fro m Riggs v. Palmer is per the Court of Appeals that you cannot profit fro m your own
wrong.
        Easy Example - you're named as a beneficiary in someone's will. You kill the testator. You forfeit
        the gift in the will because you caused the death of the testator.

Q: What does it mean to profit fro m your wrong, though?
        If X & Y bought a house together and Y kills X, to what extent would it be profit ing to inherit that
        house which was owned joint ly with right of survivorship?

Restatement § Slayer Rule
      (a) A slayer is denied any right to benefit from the wrong. For
      purposes of this section, a slayer is a person who, without legal
      excuse or justification, is responsible for the felonious and
      intentional killing of another.

         (b) Whether or not a person is a slayer is determined in a civil
         proceeding under the preponderance of the evidence standard, rather
         than beyond a reasonable doubt.

         For purposes of the civil proceeding, however, a final judgment of
         conviction in a criminal proceeding conclusively establishes the
         convicted person as the decedent's slayer when the conviction is
         for felonious and intentional killing of the decedent.

Matter of Bobula - murder/suicide. - Court of appeals sent it back to the Surrogate's court for the surrog ate's
court to have a trial -- by the preponderance of the evidence standard. How do you try a person who's
already dead?

Neiman v. Hurff, 93 A.2d 345 (N.J. 1952) - p. 507 - Husband killed wife. Husband owned house with wife as
tenant by the entirety; and certain shares together as joint tenants. He was convicted of 2nd degree murder
and forfeited what he would have gotten from her estate -- but didn't forfeit his own solely owned property.
          Everything was in joint name or entirety -- wh ich has right of survivorship.
Q: What did he change by killing her?
         Changed the order of death - that's the big thing he accomplished there. She had the chance to get
         the full p roperty, but so did he. He took away the possibility that she would survive him.

Q: What is it that he would have had no matter what?
        Right to get rid of and distribute his own property. AND an interest in their jointly owned property.
        With respect to the house he'd have the right to life in it for his life and with securities, right to get
        1/2 of the income from the securities.

NOTE: Court he presumes that he, the killer, would have died first and allocates fro m there.

§ RULE - Equity presumes conclusively for the purpose of working out justice that the decedent would have
survived the wrongdoer.




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Trust & Estates                                     R. Santalesa                                             Professor Turano



This presumption now leads to the right for husband to still get his life estate for the period of h is life -- and
that's where the actuarial calcu lations came in.

 They can't have him forfeit the 1/2 life estate interest in the house, nor the 1/2 interest in the securities --
that's his, but the cancer fund will get the rest.

p. 510 - What they actually did, though, was not set up a constructive trust where he kept title. The decree
basically ordered husband to transfer his interest and he got the calculated share that they figured.

          Here they're calcu lating the value of the present interest [whereas the actuarial table we saw was
         calculating the value of the future remained interest -- but to get the converse present interest value
         you simply take the inverse of the future factor in the table.]
          She likes this case because it forces you to think about what the decedent would have had she
         survived.

In re Covert, 735 N.Y.S.2d 879 (2001) - MURDEROUS HEIRS -
         Allowed h is will to continue with asset distribution. Joint will -- which is interesting in itself. Terms
of the will that on death of the 2nd survivor, some stuff with to this friend, 1/3 to husband's parents, 1/3 to
wife's parents, and 1/3 to siblings. And non-testamentary assets.
         This case has all three types of properties -
                    Non-probate
                    Probate
                    And joint property.

 Correct result here, based on what we know, is that the assets in the wife's name should only go to her
beneficiaries, not husbands. But court looked at testamentary intent under the joint will -- both of them
expressed intent to give the property to her's, his and siblings.

         Her property treated the beneficiaries as though they were innocent bystanders and applying the
         testamentary intent fro m will. Court didn't make the ju mp that if she knew that her husband would
         kill her that she would disinherit h is relat ives.

         LIFE INS - went to alternate beneficiaries -- husband's family; not wife's family, though she was the
         primary beneficiary.

NOTE: Court said they never apply Riggs to cause a wrongdoer's forfeiture o f a vested property interest.

         JOINTLY OWNED PROPERTY - court split it in half, and he didn't forfeit his half. But he
         forfeited her half, which went through her estate -- but then out per the joint will 1/3, 1/3, 1/ 3.
         Theory is he didn't forfeit his half.

If you consider the husband died a minute after the wife his income was very neglig ible -- a few minutes --
but the court didn't take that Neiman v. Hurff way. But there is lo wer court NYS precedent that looks at the
life expectancy of the killer per a Neiman v. Hurff method. Court here d idn't because the wife left the
property to the same person.

[Rob] - Life insurance, by killing her she lost the chance to get the money, and so at least a third o f that
would have gone to her parents. So what you can find to be a profit ing is his surviving her and the court
didn't dig fully into this area for whatever reason.

Court cited Petrie case which they said was different where murder got himself named as beneficiary and got
other's listed as beneficiaries.

Problems, p. 514 - go over there -- what exact ly does the killer have a right to.

PROB LEM #1 - B accelerated the remainder. Have to figure out the interest that was A's who'd have lived



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Trust & Estates                                    R. Santalesa                                              Professor Turano



naturally, and give B the remainder fro m that calculation.

PROB LEM #2 - She said that B's killing of A wasn't done by C, so why should C either lose, or benefit?
She's in a dilemma with this problem, so fairest thing might be to pay out remainder to C now. But s he
doesn't think you'd make an adjustment for A's estate.

 NOTE: Shouldn't look to the detriment to A's estate, but at whether B
is profiting from the wrong B committed.

PROB LEM # 3 - Inco me interest kills remainderman. No benefit to A here. But more d ifficu lt question is
NOW what do you do? Trust says that income to A for life, and remainder to B. So does B's estate get it or
does C?
        I think that B's estate would get it. [But could examine an alternative to split per some actuarial
        computation.]

PROB LEM # 4 -

EPTL §4-1.6 - Murder in the second degree or murder in the first degree.
         Basically just deals with BA NK ACCOUNTS - There will be a forfeiture of the moneys in bank
account, except for the amount of money the murder put into the bank account [so it's NOT 50% in a joint
account]. Actually forfeits MORE possibly than 50%.
         Doesn't cover life insurance, pensions or other assets.

MULTI-J URIS DICTIONAL ES TATES

EPTL § 3-5.1 - Formal vali dity, intrinsic vali dity ... by wills having rel ation to another jurisdiction.

          Formal valid ity
          Intrinsic valid ity
          Powers of appointment
          Intestacy in certain regards

         (a)(1) - Defin itions

                   Real property - includes - interests in real estate.
                   Personal prop - tangible and intangibles .
                   Formal valid ities - relates to statute books [formalit ies, etc.]
                   Intrinsic valid ities - legality of a d isposition, substantive law.
                   Effect - legal consequences attributed to the provision.
                   Interpretation - what it is.
                   Local law - means law the courts in the jurisdiction apply that have no relation to another
                  jurisdiction

(b)(1) General rule for real property - has fewest exceptions to it.
         - Covers effect, formal validity, informal validity, effect, interpretation , of REAL PROPERTY are
         all governed by the land where the property is located.

PROB LEMS MJ ES TATES

         PROB LEM #1 - CT law controls on this per 3-5.1(b ) (1).

         PROB LEM #2 - CT law controls per 3-5.1(b) (1); effect - of anti-lapse.

         PROB LEM #3 - What law governs on elect against the will -- NY law, per 3-5.1 (b) (2). Personal
         property - intrinsic valid ity, effect, revocation or alteration of a testamentary dispo sition -- do micile
         at death.



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Trust & Estates                                  R. Santalesa                                          Professor Turano



                 Part 2 - issue of lapse - domiciled at death - 3-5.1 (b) (2). If it was daughter who
         predeceased, her hare of the residuary estate goes to her children under EPTL 3-3.3. If the daughter
         had predeceased W without issue, the friend would have gotten the daughter's share.
                 If friend dies first, the daughter gets her share per 3-3.4 residue of a residue.

EPTL § 3-5.1 (c) - FORMA L VA LIDITY for personal property
        Will d isposing of personal property anywhere or in NY, made by someone's will executed outside
       or inside the state, can dispose of personal property or NY real p roperty, and can be probated here if
                 1. Writing
                 2. Signed by testator
                 And executed and attests in accordance with the local law of
                          1. NY, or
                          2. jurisdiction in which will was executed at time of execution, or
                          3. Jurisdiction in wh ich the testator was domiciled, [either at time of execution or
                          of death]

When we did EPTL § 3-2.2, the NY statute for holographic or nuncupative will, the statue was allowed only
in war/battle situation, but that's OUR NYS ru le, but we admit to probate many holographic wills done in
other jurisdictions IF they're done according to that state's law, and EPTL § 3-5.1(c) is what allo ws that to
happen.
          (c)(2) - if will was valid in jurisdiction when he executed it there.

Have to go to (e) - interpretation MADE according to law where person lived when he made will.
        Q: Are non-marital children a matter of interpretation? Yes, under (e).

PROB LEM #4 - Yes. 3-5.1(c) (2) and (c) (3).

PROB LEM #5 - Yes. Because the will still meets the requirements of (c) (1), and (c) (3) - he died here at
death.

PROB LEM #6 - Yes. Because he executed his will in State Y, and under 3-5.1(c) (2) that would be o k, but it
will only be valid for real property in NY, not in land outside of NY.
         Regarding the real property, that state's law governs (a) (1). Other than that the will can get rid of
personal property under the will and have it probated in NY under (c) (2).

         (b)(1) - says matter of real property that descends NOT by will occurs in that state.

ONLY ORA L WILLS W E WILL ADMIT ARE DONE IN WAR, AND WE WILL NOT A DMIT A NY
UNSIGNED WILLS, REGA RDLESS OF WHETHER THAT OTHER STATE ALLOWS UNSIGNED
WILLS. THEY WILL NOT BE A LLOW ED TO BE PROBATED IN NEW YORK.

EPTL § 3-5.1 (b)(2)

PROB LEM # 8 - Interpretati on -- Interpretation is not listed in (b) (2) related to personal property.
        Answer is law where he was domiciled when he made the will -- not where he ended up when he
died. Because you need to pinpoint what he meant at the time he made the will, and that means what he
meant within the context of the law where he executed the will.

LEFT OFF -- p ick up with problem 9 & 10.
        Finish reading 4-1.6 notes
        Finish reading EPT L 3-5.1 - mult i-j




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Trust & Estates                                   R. Santalesa                                           Professor Turano



Trusts & Estates                              16th Cl ass                           10/21/03

Fin ishing MULTIJ URISDICTIONAL ES TATES - good statutory and analytical exercise.

          Generally - NYS accepts will for probate that were valid where they were done….
          FOUR CHOICES fo r validating wills for person who has multi-jurisdictional contacts.

PROB LEM # 7 - NO.
       Will has to be in writi ng and signed, unless it's done under our own3EPTL -3-2.2.

PROB LEM # 8 - Question of interpretation of the word "issue" and the law of the domicile at the time of
will‟s execution controls matters of interpretation.

PROB LEM # 9 - 3-5.1 (f) - (b) sets out the general rule, but subject to the limitations of the rest of the
statutes.

         3-5.1 (f) deals with revocation or alteration -                             by EITHER 
         another will or  act of revocation.

Here person revoked will by new will, and answer is the revocation validity is governed by DELAWARE
LAW, which is where he executed the other will to revoke the previous on..

         (b) (2) - revocation - the revocation listed in (b)(2) deals with
         revocation by operation of law, such as when the testator divorces,
         etc.

Q: Of lost will, which has presumption where the will was lost -- considered an act, so (f) controls and the
law of where it was thought lost would probably handle the situation.

 NOTE: Crossing out a will, or will section, is an act, and if you did that in a jurisdiction where you were
domiciled, that would be valid there and handled by (f).

INTRINS IC VALIDITY EPTL § 3-5.1 (d) - If you make a will disposing of personal property, and will's
valid in the jurisdiction where executed, but testator then moves to state where that activity Is illegal, that
provision is still be g iven effect in NY [unless the illegality was against public policy or unconstitutional,
etc.]

         NOTE: Revocation by operation of law, o r implied revocation, is handled by (b) (2) revocation,
         which says the law of the state where the revocation/alteration occured. (b)(2) says at death .

         NOTE: 3-5.1 (d) DOES NOT work in reverse -- it simply validates something that was valid
         initially, and then is not valid after moving to another state. It doesn‟t work the other; it can't make
         something that was illegal in state #1, legal upon a move to state #2.

EPTL § 3-5.1 (h) - Allows someone to state in their will (done elsewhere) that the law of NY controls
property in NY being disposed of by will [real p roperty in NY or personal property in NY] o f someone who
lives outside of NY.
          Have to state expressly in the will that NY law will apply to the property situated in NY.
         But you have to admit the will to be probated here. Could move property into NYS and then in will
include

         Matter of Renard, 453 N.Y.S.2d 625 (1982), - held French domiciliary could opt for application of
         New York law to NY property. Imp lied ly overruled Matter of Clark , 288 N.Y.S.2d 993 (1968).
         The statute had changed between 1965 and 1981 when Renard was decided, and court in Renard
         articulated holding that it was very clear Clark was being overruled.




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Trust & Estates                                   R. Santalesa                                          Professor Turano



TIP: So if there's a law you like in NY regarding probate, or estates, § 3-5.1(h) allows you to use NY law
for NY p roperty.  You can go the other way, fro m NY to other jurisdiction, IF (a) that other state has a
similar statute AND (b) the property is located in that state.

SPOUSAL RIGHT OF ELECTION - EPTL § 5-1.1-A

p. 582 - Partnership theory of marri age.
         The debates that led up to 5-1.1-A were so dramatic it was a highlight of T&E law, and part of the
debate came fro m "contemporary view of marriage is that it is an economic partnership ."
         [However, if you truly believed this economic partnership memo you'd have a commun ity property
         system. About 9 states have a community property system, p. 585, wh ich is a pure partnership
         theory, and under it wh ile you're alive, o r if you divorce, you're already considered to own 1/2 of
         marital property.]

§ MAJORITY of jurisdictions do NOT have co mmunity property system and use the common-law or
separate property system.

NOTE: In NYS title determines ownership. So, examp le, in NY if both put money into something but title is
one person‟s name, the court's still do consider various factors, equitably; when you die you‟d get either
equitable distribution or spousal election.

IN PURE TITLE SYSTEM
        EQUITA BLE TITLE SYSTEM - operates at DIVORCE.
        SPOUSA L RIGHT OF ELECTION - operates at DEATH.

p. 589 - Equ itable distribution upon divorce - closer to 50/ 50 community property but at death the
partnership model goes out the window in a NYS in favor of co mmon law/separate property system.

PITFALLS of PURE TITLE S YS TEM

         Husband and wife married many years; he left will d isinherit ing her. Together they had $600K.

         Q: What does she get in conventional common law property spousal state?

          ALL $600K in his name:             she gets $200K (spousal election 1/3)

          $500K in his name:                 she gets $166,500 of the $500K + her $100K = $266K

          $300K in each name                 she gets $100 of h is $300K + her $400L = $400K

          $200 K in h is name                she gets $66,667 + her own $400K = $467K.

IN COMMUNITY PROPERTY STATE SHE W OULD BE ENTITLED [AS WOULD HE IF W ERE A LIVE]
TO $300k.

§ NOTE: UPC takes length of the marriage into account. Marriage of longevity is >$15 years.
      And you take into account both of their estates. States that adopt UPC gets much closer to
      community property system at death -- because it takes both estates at death into account.

NOTE: NYS does neither -- doesn‟t take length of marriage OR the other person's assets into account.

         CHART in POW ERPOINT - showing shortcoming of prior statute, and why we need 5-1.1-A.

Some of the problems with the old law:
        * -------------- PRE 1992 ------------------ *
        1. W got 1/ 3 of net estate if the decedent was survived by issue, and 1/2 if not [(c)(1)(B) old 5-1.1]



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Trust & Estates                                   R. Santalesa                                            Professor Turano



                   I was a stupid rule, because it didn't matter if the decedent actually left anything to issue
                  in will.
                   It was a stingy rule for the surviving spouses in small estates. For examp le, in a $60K
                  estate, W would get only $20K.

         2. The net estate included certain lifet ime t ransfers, BUT NOT LIFE INSURA NCE, PENSIONS o r
         U.S. Sav ings Bonds.
                  RESULT: It was easy to circu mvent the statute, by putting large sums in those three
                  investments.

         3. The right of election could be satisfied by a trust, leaving the 1/3 or 1/2 to a t rustee to pay income
         to W for life, remainder to someone else [(c)(1)(D)].
         * -------------- PRE 1992 ------------------ *

EPTL § 5-1.1-A
          (a) (2) - [same as in intestacy statute 4-1.1 -- have to compute debts first. Spouse is not a debtor,
and debtors come first]
          Drift about taxes - taxes are not deducted from net estate in computing her 1/3 [marital deduction
calculation., see EPTL § 2-18 - wh ich directs everyone to pay a fair share of the taxes proportionality;
however, if you're a charity or spouse, the marital deduction inures to your benefit, and you pay no taxes --
others pay the taxes fro m their shares.]

         This says - Don't take the taxes off the top in co mputing the spouses 1/3. Calc her share at the net
         pre-tax. But taxes get paid before anyone gets paid their share.

Assume estate is $3 million net. Wife would be entitled to $1mill. Let's say taxes were $800K. Her million
is tax free per marital deduction. Other beneficiaries get $2 mill and have to pay entire tax on THEIR port ion
of $2 million. The other beneficiaries pay all the taxes ON THEIR share, but not on wife‟s share.

NOTE: Thin k about concept of NET ESTATE for right-of-election purposes only. [In taxes the GROSS
ESTATE is used to calculate, minus deductions of debts and admin. fees & expenses - marital and charitable
deductions - leaving your TAXABLE ESTATE.]

SPOUS ES GIFT and right-of-election is considered a gift. And her elective share is co mputed on entire
NET ESTATE.

SPOUSAL OPTIONS:
      5-1.1-A (a)(2) -
               1. $50K or
               2. Ent ire estate if < $50K
               3. 1/3 of the net estate.

PROB LEMS.
#1    . $100K - 50K
      . $300K - $100K
      . $30K - entire $30K

5-1.1-A (a)(1) references (b)(1) as included in the calc of net estate.

         (b)(1) listed items are called testamentary substitutes.

(a)(4) - share of testamentary provisions entitled to surviving spouse is:
          (i) elective share minus (ii) value of any share that passes or would have passed absolutely, by
                             (a) intestacy, by
                             (b) testamentary substitutes, or
                             (c) by will.



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Trust & Estates                                   R. Santalesa                                           Professor Turano



         NOTE: This paragraph prevents the wife fro m getting more than 1/3, but makes sure she gets at
         least 1/3. The elective share ensures you can't disinherit your spouse by more than 2/ 3 of YOUR net
         estate. She, of course, gets to keep everything titled in her name.

PROB LEM #2 - W get an additional $100K ($100K p lus $100K fro m will)
(a)(2) and (a) (4).

(a)(4)(B) - defines other than absolutely - absolutely is then:
          entire interest
          non-trust.

EXAMPLES OF OTHER THAN ABSOLUTEL Y

         - I give my wife my house but if she remarries, it goes to my children (not absolute)
         - I give my wife a life estate in my house, and when she dies it goes to my children (not absolute).
         - I give my wife an inco me interest in trust for life, remainder to my children (not absolute).

ABSOLUT E is your entire interest.
     If something is given absolutely, then spouse has to offset her elective share by that absolute gift.

§ RULE: For non-absolute transfers, the rule is if spouse elects the spouse is treated as though the spouse
           died right before the dead spouse testator. (Almost same as if she renounced that non-absolute
           transfer - under election, however, she loses those non-absolute interests but get her outright
           spousal elective g ift.)

PROB LEM #3 -
         ANS: Her elective share would be 1/3 of $1.5 million (a)(2). With respect to trust by electing she
would give up lingering interest in it -- forfeit the income and accelerate the remainder to her ch ildren in
equal shares.
         (a)(4)(A).
         NOTE: Here the $500K trust is a testamentary trust, created with funds in the trust after the person
         dies, made in the will. NOT an additional $500 sitting out there.

(b)(1) - Testamentary substitutes - made while ali ve.

Newman v. Dore, 9 N.E.2d 966 (N.Y. 1937), p. 600 - 80 year old guy married 25 year old. She fell out of his
favor, and p. 601 he executed trusts during his life, transferring all his property to trustees three days before
death.
          ILLUSORY TRANSFER DOC TRINE - Court of Appeals held if transfer is illusory we'll count those
assets as part of the spouse‟s estate for purposes of the net estate calculation. This was the rule fro m 1937 to
1966. And it was uncertain what exactly qualified as illusory until the leg islature set up the list of
testamentary substitutes in 5-1.1-A.

         § NOTE: STATUTE DOESN'T VOID ANY OF THE TESTAM ENTARYR SUBSTITUTES, it's
         just that spouse gets right-of-election against those items.

In 1992, the legislature expanded the list to include:
         1. g ifts causa mortis
         2. Totten trusts
         3. Joint bank accounts
         4. Trust where decedent could revoke or invade principle. In one case decedent was life ins.
         salesperson, commission paid over long term, and he had the right to designate a beneficiary for his
         commission residue, and withdraw. But court held that was a test. substitute.
         5. Gifts within one year of death.

PROB LEM #5 - 5-1.1-A (b)(1)(A). Net estate is $200K gift causa mortis + $100K for net estate of $300K.



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Trust & Estates                                   R. Santalesa                                        Professor Turano



She gets 1/3 to get $100K.

Who pays the $100 share? This will did not provide expressly otherwise as to who would pay it, so her share
comes ratably fro m others (c)(2) - testamentary provisions include
        a. will
        b. (b)(1) test. substitutes
        c. intestacy

         So this directs X beneficiary of gift causa mortis to contribute ratably.

NOTE: GIFTS CAUSA MORTIS - auto matically void if person survives anticipated peril.

INTER VIVOS GIFTS WITHIN ONE YEAR OF DEATH (not in pre -1992 law).

PROB LEM #6 - (b) (1) (b )
         ANS: is $100K. W is entitled to 1/ 3 the sum of the probate property of $100K, p lus $200K of the
gift made with in one year.

Q: Who has to pay the $100K?
          The daughter has to pay 1/3, and the persons who get the probate estate of $100K (will beneficiaries
or intestate distributes ) have to pay 1/3.

TOTTEN TRUST.. break here with PROB LEM #7.

LEFT OFF HERE.
 DO A LL READING -- BIZORG.




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Trust & Estates                                    R. Santalesa                                             Professor Turano



Trusts & Estates                                17th Cl ass                           10/23/03

RIGHT OF ELECTION continued...

Last class we looked at right of election, which states, basically the wife get s up to a third of the dead
spouse‟s estate. We want the spouse to get at least $50K [and then another $56K of property per § 5-3.1].
         Next, we looked at various provisions, subparagraph (a), to calculate that share -- take off debts,
funeral expenses -- but in (a)(4), we clearly ONLY want her to get a third, so her raw third is offset against
items she might otherwise get fro m (i) the will or intestacy plus testamentary substitutes listed in (b)(1).

She wondered if we thought at all about the language we had read -- that the premise is spouse gets a third
offset by items above -- had we gotten the point -- why would she need to elect if there was intestacy? Why
would person entitled to intes tate share be entitled to elect? [She gets 1/2 of remaining 4-1.1].
         Q: What kind of person would elect against the will even though person is getting intestate share?
         ANS. W ill might not have disposed of all property. (i.e. will gives business to son and daughter, but
doesn't have residuary clause, and so for purposes of rest of property there's partial intestacy.]
          Or when most assets were given away in testamentary substitute non-probate assets, and only a
         small amount in probate assets. She's still entit led to right of election if she didn't get enough in
         intestacy.

EPTL § 5-1.1-A (a)(4) - though also talks about ABSOLUTELY; so if spouse gets items less than
absolutely, the spouse can elect against everything else, but will lose the interest in items that did not pass
absolutely [life trust income, for examp le], and then for those she's considered as having predeceased.

Missed something here.

TES TAMENTARY S UBST.
      1. (b)(1)(A) - gifts causa mortis - wi fe can elect against though, even though it's a valid gift.
      2. (b)(1)(B) - g ifts made within last year of life -- added in 1992.
                 Reason for adding was you don't want a person to make deathbed gifts and reduc e estate to
                keep things out of wife's hand. [(b)(1)(B) says Gifts to ANYONE more than $11K --
                which includes gifts made to the wife, too, for purposes of net estate calculation.]
                           But not items "sold" to someone for fair market value (a.k.a. "adequate
                consideration"). In tax code a decedent is allowed to make $11K gift to as many people as
                he wants each year -- tax free. [Th is is the only way left, basically to co mpletely avoid
                estate taxes, and that doesn't cut into $1 mill. unified tax credit OR marital tax deduction;
                and they don't have tot be reported at all {also remember that you can pay someone else's
                med ical bills or tuit ion direct ly, without any tax imp licat ions}.
                            The way the tax code is written if you give someone a gift of $211K, only the
                first $200K is reportable for income purposes.]
      In EPTL 5-1.1-A the authority to except that $11K fro m a gift for net estate calculation is (b)(1)(B)
      -- "provided. .. . that any such transfer is excludible from taxable gifts pursuant to subsection (b)
      [$11K tax free] and (e) [direct medical and tuition payments for anyone tax free -- NOT limited in
      these two items to $11K a year, can be unlimited amount] of § 2503 of U.S. IRS".]

NOTE: Can give that $11K to a trust, too, as LONG as there's given a present interest for the person to
"take" that money for period of t ime. They don't take it, and then it stays in the trust. See 2503(b) hoops.

Talked about life ins. policies and such [and if the decedent "owned" the policy it ‟s included in gross estate;
otherwise "give" the ins. policy to someone else -- if you have someone else "purchase" the life ins. policy
it's not in the D's gross estate.
           Life insurance provides a separate fund that is not part of gross estate that is used to pay estate taxes
-- if you caught client in time you create life ins. trust and you have trustee purchase life ins., if you haven't
caught the client in t ime... [missed more stuff here.]

LIFE INS. - Why bring it up in present interest case? If your client is willing/can make gifts to kids each



NY01/SANT RI/864207.1                                                                                             76
Trust & Estates                                   R. Santalesa                                           Professor Turano



year, fine, but if your life ins. broker , you can pay that gift money to life ins. trustee to pay the premiu ms
[but that payment ordinarily is not included in " Crummy power" [fro m Cru mmy case.] Put $33K in trust,
trustee writes letter to kids saying they had 30 days to take gift out, kids don't take it out, and then after 30-
day the life ins. trustee buys the insurance tax free with the amount. Then, they get the life ins. amoun t tax
free when it's paid out. ]
          Terrific device - irrevocable life ins. trust [usually whole life policy -- but there are ways of making
a term policy work, too; and in term policy there's often a maximu m age that they won't write a policy after.]

         • Batteries went dead -24 minutes into class.

Back to problem #6 - (c) (2) - people who receive test. subst. and will o r intestacy have to cough up ratable
share to make up share for spouse's elective share.

PROB LEM #7 - I did this problem. She get $300K if she elects , compared to $200K otherwise (and her
election of that $300K -- she gets the TT, the $100K per will, and then $100K fro m Z's share of the
residuary.)

JOINT B ANK ACCOUNT - (b)(1)(D)

PROB LEM #8 - What has to be included in the net estate?
          Clearly the $800K. - $50K fro m $100K the Joint Acct with W. (b)(1)(H). [Totten trust creator has
exclusive control of the account during lifetime, and with jo int account, it seems to be for ease of proof, and
when you open a joint account the other person immed iately gets an interest to 50% of the account. So
there's an immediate g ift to the other person of 1/2 interest. And NY imported a lot of 5-1.1-A fro m the tax
code, and that's how the tax code handles it when there's joint account between spouses; there is NO
presumption of this 50% share for when jo int account is made with descendent and some other person.]
          ANS: $400K she gets ($100K fro m TT, $100K fro m will disposition, $50K fro m joint account, and
then $150K fro m X & Z's residuary share, wh ich decedent intended him to get $700K. So X & Z pay in
250:700 proportion. So o f that $150K Z pays 70/95 and X pays 25/95 "unless the will proves otherwise") -
Reading (b)(1)(D) ad (b)(1)(H) together.

NOTE: (b)(1) only talks about transfers by the descendant.
       - Joint account with X of $250K -- wife would have to prove how much D put into the account, and
       the problem says assume that H put all the money in.]

NOTE: (c)(2) also says that the person who has to cough up the ratable share, can decide how to pay it -- in
cash, in property, or partially in cash/property.
          So this statute is NOT meant to disrupt the descendant‟s testamentary plan other than to make sure
          that the wife gets her 1/3 of value. Beyond that the goal is keep the other beneficiaries intact as
          much as possible.

Where there's a lit igation on specific facts [other than election matters] the surviving spouse is also favored
[and we saw that in other sections, too.]

NOTE: If X in the above examp le had contributed one-half of the $250K in the jo int bank account with X,
W's right of election be against $1,025,000 (or $431, 667) -- (b)(1)(H)(2).

PROB LEM #9 - (b)(1)(E) - JOINT PROPERTY • Joint property can be jo int brokerage accounts, real
property
          NOTE: (H)(2) applies to joint property, too, so we only take 1/2 the value of the house in
         figuring the net estate value.

         $800K net probate + $100K TT + $150K house = $1,050,000/3 = $350K under elect ion.
          She would get $100K TT + $150K house + $50K fro m jo int account, and then $50K fro m net
         probate amount.




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Trust & Estates                                   R. Santalesa                                           Professor Turano



EPTL § 5-1.1-A (b) (1 ) (F) - REVOCAB LE TRUS TS AND OTHER CONTRACTUAL TRANSFERS.
          Previous this section was very muddy, and a bunch of cases where wives came in and said x & y
should fit here. Now F is more specific.

         •    D's dispositions made during lifetime
                 ... to the extent that D retained for his or her life . . .
                       (1) the possession or enjoyment of, OR the right to the
                       income from, the property . . .
                       (2) or . .. power to revoke such disposition
                       (3) or . . .power to consume, invade or dispose of the
                       principal thereof. [take $$ from the trust for D's
                       use.]

                  THEN... that asset will be considered a testamentary
                  substitute that the wife can elect against at the death of
                  the D.
                              [again this section above is taken word for word fro m the tax code.]

EXAMPLES OF S UBPARAGRAPH (F)

•   After August 31, 1992, the decedent puts $200K into a trust, and provides income to himself, remainder
    to his children. [if at death there's $200K in the trust, the entire amount is included in the net estate for
    right-of-election].
•   H deeds his house over to his son, retaining a life estate. W can elect against it.
•   After August 31, 192, the decedent puts $200K into a trust and provides income to A, remained to B, but
    if the decedent wants money, he can invade the principal for h imself.

EPTL 5-1.1-A (b)(1)(G) - PENS IONS, RETIREMENT PLANS, ETC.

         • All of the pension plan $$ is included in the calculation of the net estate for purposes of the
         spousal election.

         NOTE: But only 50% of 401(k) ERISA-style pension plans [which under federal law requires the
         decedent to name his wife for 50%... so she already has 50% of it, and this provision gives her the
         other 50%].
         • Pensions were not included in p re-1992 EPTL.

EPTL § (b)(1)(H)(3) - Property referred in (E) -- JOINT PROPERTY - includes U.S. Sav ings Bonds And
other U.S. obligations.
         [Under old law U.S. bonds weren't included in that because Fed. law said they‟re payable on death
         to the other joint owner or death beneficiary -- was a preempt ion problem. N.Y.S, but only because
         of (b)(7), which says, hey if it's pre-empted by Federal law, then that person gets it as specified by
         Fed. law. This is pretty much a parlor trick bait-and-switch.]

LEFT OFF HERE.




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Trust & Estates                                  R. Santalesa                                           Professor Turano



Trust & Estates                               18th Cl ass                                            10/28/03

Writing assignment #1 Comments
        EPTL § 13-2.1 - some people didn't mention.
        A couple missed dependent relative revocation
               In terms of analysis -- don't forget that you don't want to be conclusoray. So me people said
               this was a good case for DRR because of the wills, but don't forget your audience, and that
               person may not know -- exp lain W HY DRR is appropriate because (1) a will was
               mistakenly revoked because she thought a second will was applicab le, and (2) ...

         ORGANIZATION - Paragraph is the basic building block and it stands for one thing. Should be a
         theme sentence and the paragraph should elaborate that one idea.

         REMEMB ER - Through done everything, but in an organized fashion.

         CONCIS ENESS - HUGE item for lawyers. A lot of the paper's had serious problems with
         conciseness. You can be wordy in a few ways - repeating (it 's a rare docu ment that requires you to
         repeat something); make every single word count. Don't use extra words.

         Writing center - Roo m 2-06 in the library; going to be folders with many different exercises in
         there. Elements of Style - Strunk & White.

FINIS HING UP RIGHT OF EL ECTION.

 Looking at lifetime transfers decedent made which would be counted against net estate.

EPTL § 5-1.1-A (b) (1 ) (F) - Revocable Trusts
        NY Legislat ion decided that if it was sufficient to trigger Fed. IRS code, then the N YS imported
       that section there.
        Person who retains for h is life an interest providing either:
                 - Inco me
                 - Right to revoke
                 - Right to possess
                 - Right to transfers
                           ... then it is included in the net estate calculation.

         EXCEPTION:
              (F) (i) If he sold the interest for fair market adequate consideration -- that money is then
              included in the estate for net estate purposes.

                  (F) (ii) if the D retained power to revoke...
                                       OR
                             in conjunction with any other person who does not have a substantial adverse
                             interest.
                             [then the spouse can elect against the funds ]

                  (But if he holds that interest along with someone who does have an adverse interest then
                  the wife cannot elect against it. Example below.)

                           Example. H puts $200K in trust, inco me to A, remainder to B, and retains the right
                           to invade the principal, but only with B's permission. W cannot elect against it.

EL ECTION PROB LEM #10 - EPTL § 5-1.1-A (b)(1)(F)

         ANS: She elects to get $200K. Under (a)(4)(1), she is considered to have died immediately before
         the D for any assets that pass to her other than absolutely, so the children's remainder is accelerated.



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         She gets $100K fro m the children and $100K fro m the will beneficiaries ratably per EPTL § 5-1.1-
         A (c)(2).

PENSION PLANS — EPTL § 5-1.1-A (b)(1) (G)
      NOTE some pension plans require the spouse to get 50%.  If it is, then it's going to be treated like
      joint-property, conclusively presumption that 50% is testamentary substitute. If it 's not, then
      pension plan will be included to the extent that decedent set it up and contributed to it -- similar to
      joint bank accounts in that respect.

POWER OF APPOINTMENT — EPTL § 5-1.1-A (b) (1) (H)

 Appointment - Power to convey property or interest belonging to someone else.

Classic power of appointment e xample:
          Wife makes trust, with inco me for life to wife, and remainder to husband to appoint distribution to
         children as he deems fit. - she sets it up in her will (so it's a testamentary appointment power here),
         and she says it has to be given to her kids (special power).

[she then went through example o f General power of appointment and Lifetime power

         H says interest in property that was subject to presently exercisable general power of appointment
         held by D right before death
                            OR
         that the D within one year released
                            OR
         exercised in favor of any person other than himself/herself or his/her estate.

They want that general power of appointment to be counted when a spouse elects against the estate.

Example - H's father creates T providing income to H, remainder to X, but H can withdraw $100K fro m the
corpus at any time and pay it out to anyone he wishes, including himself.
         • When H d ies, $100K is included in the estate for right-of-election purposes.
         • [Father's intent becomes irrelevant - because it's really H's money now.]

         The example above is equivalent of the H own ing $100K, for tax purposes and election purposes
         since he has presently exercisable general power it's considered his.

Example, same as above but H releases his power within one year of his death. W can elect against the
$100K [keeping this in parallel of the gift within one-year of death provision in (b)(1)(B).]

Example - same, but H exercises his power in favor of Z and dies within one year. W can elect against the
$100K [and reclaim that money back fro m Z.]

NOTE: § LIFE INSURA NCE IS NOT INCLUDED IN TESTAMENTA RY SUBSTITUTE.
       • So, if you want to do your spouse out of election, you still can do life insurance.

         But life insurance could be read to fit within parag raph (f) - contractual arrangement, etc, but the
         courts have said that the legislative history is so clear that we know life insurance isn't included in
         this paragraph as a testamentary substitute.

A few final points about EPTL § 5-1.1-A --

         (b)(4) - Provision p rotects banks and brokerage houses liability fro m paying money out to the
         wrong person if they haven't received notice of the right of election.

         (b)(5) - Creditors al ways come first. Spouse is a claimant for a benefit under the estate [why her



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         marital election gets marital deduction, like bequest under will].

         (b)(6) - This statute wins if there's conflict with other statutes.

         (b)(7) - Deals with pree mption issue regarding federal law pay ments for federal instruments
         payable. Says, yes, if pre -empted, the spouse can go track down the person who got that share and
         get her elective share ratably fro m them. [She doesn't think we really need this provision, but it
         doesn't hurt.]

         (c) (1) - Says the will and testamentary substitute are still valid otherwise than the chunk offset for
         spousal election --- we don't invalidate that instrument, we simply assess against it for the spouses
         elective share. This provision is here for the older doctrine of illusory transfer doctrine, which
         voided the entire transfer instrument.

         (c) (3) - Right of election is personal to spouse, EXCEPT WITH COURT AUTHORIZATION in
         every case:
                   -- If surviving electing spouse is less than 18;
                   -- If spouse is incompetent, the guardian appointed can elect for her.
                   -- If spouse is not able to protect her rights in the proceeding, then guardian ad litem for
                   that proceeding can exercise the election.

                  § NOTE: Attorney is not included in (c) (3), and executor is surviving spouse's estate is
                  not included in here.
                  § RULE: Estate or executor cannot exercise right of election for surviving spouse if she
                  dies -- has to be exercised before she dies. So have to file it right away.

                  [Q -- Is there a duty to offer a will for probate? Yes, but there's no time fra me, so will's
                  have been offered for probate long after decedent's death.]

         (c) (4) - Allowing special proceeding for election, or can raise election in other proceeding. --
         there's a lot of flexib ility in surrogate court.

         (c) (5) - Spouse can relinquish

         (c) (6) - Election only available to spouse domiciled i n NYS, unless they use EPTL § 3-5.1 (h) to
         put property subject to NYS laws.

         (c) (7) - Includes all property anywhere -- isn't there a problem with this regarding real p roperty?

         (d) (1) – Timeframe -- six months after letters have been issued to exercise right of election, but you
         can get a six-month extension four times after that, and even though statute says "in no event later
         than two years after date of decedent's death."
                   [My question – what if no one probate‟s the will until after two years fro m death? She said
         the spouse still has to do something within t wo years [so even if the will hasn't been submit for
         probate in that time, she still has to go into court to start this]).

p. 637 - Under IRS code, married persons are allowed to take full 100% marital deduction for what you leave
to your spouse - completely tax free.
          Congress was happy to have property belonging to couple taxed once. Spouse can keep marry ing
         and not get taxed that way. But their thinking was they'd just tax it the one time.
          Marital deduction is on TOP o f the $1 million unified martial credit which every person has. [in
two months $1.5 million]. So you can always get rid of $2 million tax free.
                  In line with that theory Congress has set up some exemptions – but there has to be an
                  absolute interest transferred.
                            • The terminology in the IRS code says "terminable" interests versus "non -
                            terminable" interests. If you give your wife something less than absolute that's a



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Trust & Estates                                      R. Santalesa                                           Professor Turano



                             terminable interest under the tax code, but under the theory that Congress is
                             satisfied in taxing only once between two married people, one exemption, p. 637
                             is "QTIP" property - Qualified Terminable Interest Property, wh ich lets you
                             get the marital deduction.
                                       • QTIP allo ws D's spouse to create a deductible trust in which the
                                       surviving spouse receives only a lifetime inco me interest in the property.

         Example - Have $5 million, in will you give the entire $5 million to spouse, that would be under
         marital deduction, could also say I give entire 5 million to trustee and to pay the income fro m that
         every year to my spouse and the remainder when spouse dies to my kids. Co uld do that and that
         could become a QTIP property.
                  Since after D dies, the trust is set up, and at that point the executor will look at everything
         and say "I would like to qualify this" and on the estate tax return he says "I'm qualifying that
         portion" and that would pass under marital deduction.
                  [If four million was qualified, and one million kept out, that four million would be included
                  in the gross estate of the 2nd person when they die. ]
                  [That 5 million put into the trust, checking off the estate tax bo x saying I want to qualify it,
                  the kids would get the rest at 2nd spouse's death.]

         • Effect of QTIP'ing property is that property gets included in the estate of the 2nd spouse to die --
         defers any taxes until then, but then the entire amount having accumulated at the death of the 2nd
         spouse it taxed..

         NOTE: Under post-1992 law a trust is no longer enough to satisfy the right-of-elect ion alone.
                     If the dead spouse makes a QTIP trust, the spouse still has a right to get 1/3 of the net estate
                     per election; people who QTIP are always rich, and this simply p rovides the surviving
                     spouse with flexib ility. She‟ll just have a few months to look at everything and decide do I
                     prefer to get the constant stream of inco me fro m the trust, or should I I get the 1/3 outright?
                     If you did then elect for the 1/3 outright that's completely deductible under marital
                     deduction, and so you could take that, and leave the rest QTIP'd.
         • St ill zero taxes on first decedent's estate.

If you opt to QTIP something, that's included in second spouses gross estate, but taxes on the QTIP are
payable purely out of QTIP trust. That is you're never going to impose additional estate taxes on the
surviving spouse's other assets. The QTIP deemed a separate taxab le entity. •
                   [Correction - if she takes her election, the rest would then goes to children as she forfeited
         trust income] And then there would be taxes.

They call it right of election for reason -- it's a true election.


DISQUALIFICATION AS SURVIVING SPOUS E - EPTL § 5-1.2

Note in EPTL § 4-1.4 you can't get fro m your kid if you've abandoned them.

EPTL § 5-1.2 similarly sets out six areas where spouse is disqualified to receive ANYTHING via :
                4-1.1 - intestacy.
                5-1.1-A - right of spousal election.
                5-3.1 - Family property exempt ion.
                5-4.4 - Wrongful death damages.

A SPOUS E IS DISQUALIFIED IF SURVIVING SPOUSE has:

         • gotten a divorce recognized in NY
         • Abandoned, which means • leave without consent, • without justification and • without intention to
         return. [enormously extended separations are not abandonments merely because of the length of



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Trust & Estates                                   R. Santalesa                                            Professor Turano



         time – i.e. living apart for decades, the surviving spouse still has right to take is they were doing that
         with consent]
         • Marriage was void - incest or bigamy/polygamy.
         • Even if d ivorce wasn't valid, and spouse tried to attain divorce outside the state
         • Judgment of separation against surviving spouse - are disqualified.
         • Failure to support. - Both spouses have obligation to support their spouses.

EXEMPT PROPERTY - EPTL § 5 -3.1

• Legislature try ing to protect spouse and/or children fro m having basic property taken away fro m cred itors.
• Children ONLY get if there's no surviving spouse, OR surviving spouse is disqualified.

5 categories, totaling maximu m of $56K, that are exempt fro m cred itor's claims.

         (1) Housekeeping, appliances, musical instruments, household
         furniture, fuel, provisions, clothing of decedent.

         (2) Family bible and pictures, PCs, & Books- $1,000

         (3) domestic animals, and 60 days food, tractor

         (4) Car up to $15K... surviving spouse or kids can pick which car
         they want and pay the difference is the car is worth more than
         $15K. If you make that payment the payment vests in the specific
         legatee of the car -- if you give that car to the kid, the wife
         would pay the difference and the kid would get that money then.
                     [OR can take cash value of car up to $15k]

         (5) Other money & personal property - up to $15K, except if funeral
         expenses are owed - they come out of this portion. The funeral
         director can get this.

         (b) NO ALLOWANCE MADE IF NONE OF THE ITEMS ARE IN EXIS TENCE - i.e. if no
         sewing machine, you can't get the $150 it would be worth.

You hear this called exempted property or called set-off - because it's setoff fro m the claims of creditors.

LEFT OFF WITH EX EMPT PROPERTY... p ick up with after born children and then start taxes... going
to go quickly through after-born children and try to accelerate a bit.

         • Next EPTL is the tax apportionment - serious statute.

         • POINT on afterborn children - EPTL 5-3.2 -- doesn't require you to give anything to your children.
         Can co mpletely d isinherit your children, but it 's almost like the anti-lapse statute, meant to create a
         system for the person who has not thought things all the way through.
         • Its set up we're going to assume you had a plan for your children... if you had children when you
         made your children and you didn't leave anything to them, that's your plan.

• BUT if you made your will, and then had children and didn't update the will, we're going to assume the
average NYker would have left things to their children.




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Trusts & Estates                            19th Cl ass                                        10/30/03
 Optional 2nd problem writ ing assignment she'll give us.
 ALSO - in the web course there are some samples prior years' problems -- read them.

CLOS ED BOOK FINAL EXAM - 3 hours 100 -120 MC
       TWO ESSA YS - roughly 25% each, or 20/ 30
       Once in a while she asks the first question of essays to give an explanation for T/F answers --
      renunciation how it would effect a by representation distribution. ? uh? Renouncing you're treated
      as having survived for a second IF it affects follo wing issue per rep. distribution.
       SAMPLE exams - two or three are released.              ONLY Course she gives T&F on exams.

AFTER BORN CHILDREN - EPTL § 5-3.2

         (a) - sets up the general ru le - if testator has a child born after the will's execution, AND
                    That child is unprovided for by any settlement
                                       [if you buy a life ins. policy for the kid, or set up brokerage account that
                                       deactivates the statute -- this statute is only targeted at the forgotten
                                       child]
                            AND ch ild is not provided for or mentioned in the will (note - a class gift
                            includes after born children) THEN

                            (a)(1) - if testator already had one of more child living at the time of the will
                                       - AND made no provision for those kids, the afterborn gets nothing.
                                       (B) but if T made some provision for liv ing child then after born kid gets:
                                                 (i) portion of the gift made to the existing kids;
                                                 ***
                                                 (i v) - interest of after-born shall be of the same character -- as
                                                 the interest given to other children.

                            (a)(2) - if testator had no child living at time of will.


PROB LEMS #1 - (i) says C can't get any more than the share left to the kids, that's $30K, and she would
get equally $10K each.
          AFTER born child may recover share fro m other children ratably, so each A & B throw in $5k
         each to go to C.

PROB LEM #2 - First part of co mputation is still same, there's $30K to g ive out. C is going to get $10K, and
A & B have to cough that up in 2:1 ratio or $13.3K to A and $6.67 to B.

PROB LEM #3 - Three kids, but only gives money in will to 2 of them, and child D born later.
       Use only pot given to kids -- $60K/3 = $20K to D. and give it out fro m A & B's share in 1:5 rat io.
       C isn‟t included because (a)(1)(B)(ii). A gets $6.67K and B gets $33.3K, rather than $10K, $50K.

PROB LEM #4 - Same as #3, but D & E are still born after. So D & E get $15K = $60K/4. And A & B share
the remaining $30K in a 1:5 ratio ($5K to A and $20K to B).

PROB LEM #5 - Disinherits 5 out of 6 kids. And a 7th kid is born.
       Statute is very clear. Entire estate is the pot to be shared in this case since the entire estate is given
      to the 6th kid. So afterborn gets 1/2 share.

PROB LEM #6 - T has no children when she left entire estate to her husband. She later had children A & B.
What are they rights?
         They get their intestate share -- 1/2 after $50K has been taken off the top for the husband.




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Trust & Estates                                   R. Santalesa                                            Professor Turano



 TIP - If you want to make sure husband gets entire estate in case you
have children later, expressly add into the will that even if you have
children you want the entire estate to go to the husband.

PROB LEM #7 - Ch ildren get each 1/ 3 as per intestacy § 4-1.1. F gets nothing.
PROB LEM #8 - Workings of (2)(b) - says other chil dren have to cough up share.
       $400K estate. No children at t ime of will; she writes a will leaving $100K to charity, residue to
      Husband.
       Ch ild ren get 1/2 o f estate, paid ratably fro m husband's 1/2 - $300K share, and charity's $100K .
      They get 1/2 of entire estate paid by H and charity in 3:1 ratio. The children get 1/ 2 of $350 [400 -
      50] = $175 (the kids split).
       1/3 of that amount fro m charity ($43,750) and 2/ 3 fro m H, ($131,250), leav ing him with
      $168,750. He's always entitled to at least a third, but since amount he‟s left with is greater than 1/3
      of $400K, the elective share, he has to be content with it.

[Igor] - First $50 going to him is only for calculation purpose her.

 REMEMBER - If you give anything to the child in some fashion [life
insurance, Totten trust, savings bond], or mention him in the will at all
(even if member as class) § 5-3.2 is deactivated.

UNIFORM TRANS FER TO MINORS ACT (UTMA) - Article 7-6.1 et. al. allo ws you make a gift of any
sort to a child just by giving it to a custodian for the child. Very easy to do. Qualifies for $11K annual g ift,
so you can add to it; only drawback is that payment time by default 21 years old, but you can say 18 yea rs
old, too. If you want distribution later you have to make a trust.

Problem #9 - Was EXAM QUESTION.
        Married W, but no will [so you know right away there‟s an elect ion situation.] H noted on Life
       insurance policy language with no legal effect.
        D - only gets savings bond.
        W - gets life ins + right of elect ion. The net estate is $1 million, and there are no testamentary
       substitutes, since the life insurance is not a testamentary substitute, nor is the inter vivos transfer of
       the U.S. Treasury bond, because it's not joint property -- in the name of the decedent and his
       daughter jointly, but in her name alone [joint property is a testamentary substitute that wife can
       elect against.]
        W therefore has a right to get 1/3 o f the $1 million estate by exercising right of election, and she
       doesn't have to offset anything against it (that is she gets the life ins., too.) She is entitled to $333k
       + $1 million insurance.

          Daughter is after-born child so § 5-3.2 applies. Has a right to her intestate share, but it could be
         argued that settlement even though small, could preclude. But counterargument is he bought the
         bond on her birthday so it could be viewed as a pure gift, not a settlement.

          If i t's a settlement, and the statute is deacti vated, wi fe gets $333K and X gets $666K.
          If it's NOT a settlement, but a birthday gift, the daughter is entitled to her intestate share 1/2 -
         $475K. W gets $333K, the daughter gets $475 ($1 million minus $50K = $950/2 = $475K) and X
         gets the rest $192K.

         CORRECTION - PROBLEM #9. She said the afterborn child gets $475K... but it wasn't following
         election statute... WIFE gets $333 absolutely. But now the Daughter and X have to make up right of
         ... afterborn statute says take afterborn share from will beneficiaries -- (2)(b) -- ???
          W gets $333K and the daughter and X have to make up her right of election in a 475:525 ration
         ($158,300 and $174,700 to afterborn). Daughter ends up with $216.7K and X keeping $350.3K.
         Mistake first time entire right of elect ion share was attributed to X [above]... right of election is
         done before after afterborn stuff.




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Trust & Estates                                   R. Santalesa                                            Professor Turano



§ NOTE: The afterborn ch ild is read into the will by 5-3.2.

NOTE: In s mall estate less than $50K - wife gets everything, and even if there's afterborn child. That child
gets nothing. [Remember if estate is less than $150, you still are entitled to $50, which works out to be more
than 1/3].

EPTL § 5-3.2 (a)(1)(B)(iii) - takes care of chil dren li mited provisions.

PROB LEM #10 - It's covered by subparagraph (a)(1)(B)(iii). since the existing child received a limited
provision that specifically applied only to her, the after-born can take her fu ll intestate share.

         10(b) - Is “nothing” a limited provision? It seems the answer would be the same, but it's less clear
         whether the statue covers it. She thin ks it should be a limited provision.
         Suppose this was the only provision... that would still be a valid will.

         10(c) - After-born gets nothing under the statute - 5-3.2 (a)(1)(A)

OVERVIEW OF ES TATE AND GIFT TAXES (see handout).

§ NOTE: Won't have final essay on tax question, but will have T&F questions.

p. 396 - Princi pal credi t is the unified cred it of $345,800 on $ 1million. [next year it's $555,800 wiping out
$1.5 million -- it 's not deduction, but a credit.] See footnote 4, p. 396.
           In 2010, people will have to pay taxes on items after $675K.

$11K yearly exclusion gift - unlimited number o f gifts you can make. If you give more than $11K to
someone, only the portion above $11K is subject to gift tax. [donor pays th e tax, not donee].
       This $11K only applies to present gifts.

p. 393 - CUMULATIVE ESTATE AND GIFT tax system.

Es tate tax co mputation
          1. Co mpute gross estate (what the decedent owned, plus certain lifetime transfers somewhat similar
          to EPTL 5-1.1-A's testamentary substitutes -- joint bank accounts, joint property, pensions, etc.)..
                  1a. Fro m gross estate, then take away deductions - debts, marital deduction, funeral
                  expenses, charitable deductions, admin. expenses.

         2. Add back adjusted taxable gifts (oversimplified definition - gifts during the decedent’s lifetime not
         included in gross estate). Taxable part of gifts decedent made.

         3. On the total, compute your tentative tax (see rates on p. 395). In theory tax rates begin at 18%
         and rise to 55%, and p. 396 - top rate is being reduced until it tops out at 45%.
         Note, this is bracketed progressive rate of taxation. But unified tax credit covers up to $1 million, so
         really tax starts at 41%.

         4. Substract gift taxes paid on post 1976 gifts (a little oversimp lified ). Don't want to be taxed
         doubly since you've already paid taxes on gifts over $11K. And you want to tax at the rate of the
         gifts + estate; and want gifts to be taxed at the rates the person's bracket was at gift time.

         5. Subtract any available credits (significantly, the unified credit, listed in footnote 4 on page 396).

Example 7.1 and 7.2

This cumulative system was enacted in Sept. 1, 1977 to remedy inequities in the prior law caused by the
following:
          gifts tax rates were 75% of estate tax rates. (if you could affo rd to make g ifts you could say 25%



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Trust & Estates                                   R. Santalesa                                          Professor Turano



         of tax giv ing it away during life time).
          There was one exemption for estates ($60K) and second exemption for gifts - lifet ime ($30K).
          Prior g ifts were accu mulated on each successive gift tax return, but lifetime gifts were not
         accumulated with the donor's estate when she died.
          The acutely wealthy could skip a generation of taxes: Grand mother would make a trust, income to
         Daughter for life, remainder to Grandchildren. Grand mother have to inclu de the money at her death,
         but Daughter would not have to include that money in her gross estate. Money wouldn't be taxed
         again until the grandchildren?

Law in 1977 stopped all of these.
         No w we get one lifetime unified cred it of $1 million (either during lifetime or at death)... going
        up to $1.5 million
         Prior g ifts were accu mulated for effect on tax co mputation purposes.
         Stopped tax-free GST. GST now imposed a tax at daughter's death, as in example above, not
        grandchildren's death. Flat-rate of 50%, wh ich is killer. Not like QTIP trust.

NOTE: Third generation skipping event is a direct skip – i.e. if I give money direct ly to a grandchild that‟s
skipped a generation -- but if you give more than $1mill of that it's taxable event.

COMPUTING THE GIFT TAX:
       Identify THE CURRENT YEAR'S GIFTS.
       DETERMINE WHAT PART OF THE GIFTS IS TAXABLE (THAT IS, SUBSTRACT
      OUT THE $11k EXEMPTIONS AND THE MARITAL (See Handout.)

p. 398 - Example 7.2 of how cu mu lative gift tax works.

§ NOTE: Generation skipping exempti ons -- have to watch out for these.

POWERS OF APPOINTMENT – (see handout.)
     A general power of appointment is a power that can be exercised in
     favor of:
            (1)  the person holding the power, or
            (2)  his estate, or
            (3)  his creditors, or
            (4)  the creditors of his estate.

For example, A's grandmother make s a trust of $100, 000 inco me to A fo r life, remainder as A appoints in
her will. A has a general power o f appointment.

ES TATE TAX CONS EQUENC ES :

         RULE: If a person has a general power of appointment when he dies, the p roperty over which he
         has the power is included in his gross estate.

GIFT TAX CONS EQUENCES :
       If a person exercises a general power of appt in favor of X, he has made a gift to X.
       If X fails to exercise it and it passes by default to Z, he has made a g ift to Z.

Example - A's grandmother makes a trust of $100K, giv ing A the power to appoint the whole corpus to
anyone at any time, but if she doesn't, the property passes to Q. If A appoints to Z during her lifetime, she
make s a gift to Z. If A fails...

LEFT OFF HER E. WHEW!




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Trust & Estates                                   R. Santalesa                                           Professor Turano



Trust & Estates                              20th Cl ass                                 11/04/03
Handed out 1st assignment -- came in late. Picked up stuff.
Model answers - she picked four persons' selections. Discussed passive verbs, and writing tutor stuff.
         Joe's answer got "excellent job" -- make sure I review his answer.
         My answer got DRR incorrect; and had stylistic issues.

BACK to TAXES.

Overview Of Es tate, Gift And Generati on Skipping Transfer Taxes
        Way to compute gift taxes, and ways to compute the estate taxes.
        Power of appoi ntment - examp les... general power -- if exercised in favor of yourself, creditors
       or creditors of estate it will be included in gross estate.
                 If you exercise power of appointment in favor of X, that's a gift that's taxable; if you
       exercise it for spouse, that's not a gift... did th is at end of last clas s.

EXCEPTION: 5 and 5
                             If a person has a power to invade the corpus of a trust, to the extent of not more
                  than $5,000 or 5% of the corpus (whichever is greater), and that power lapses every year if
                  not exercised, THEN the holder has not made a g ift when it lapses and that portion does not
                  have to be included with the underlying property (portion that would have been distributed)
                  in his gross estate.
                             In the trust instrument you would say if he didn't exercise it that year, that amount
                  lapses.... it's not cumulat ive amount.  Only 5,000 o r 5% whichever greater each year; it
                  doesn‟t roll over.
         Without the 5and5 exception above, if trustee let that distribution lapse it would be included in
gross estate. But the 5and5 rule doesn't include any lapse in the underlying gross estate.

Example - one million in trust, inco me payable to husband for life, and remainder to children when husband
dies. Do ing it to preserve first spouse‟s million dollar exempt ion. But she wants to be as generous as
possible to her husband and keep funds in one place to protect the children. She could take the million as
unified income deduction amount, or could create the trust and say the trustee has discretion to pay out to
husband or to hold fund; or could say trustee has to withhold all principal fro m husband.
         Q: But if she wants to be generous to husband -- how to do it?
                    Could say “all the inco me to him for life”, and give trustee power to invade principal and
         give husband 5%. But note, EPTL § 10-10.1 doesn't allow trustee cannot invade right of principal
         for himself (so husband can't be trustee).  Wife could even say trustee can invade principal up to
         any amount.

         EPTL § 10-10.1 - New law signed Friday -- the legislature has allo wed the trustee to invade the
         principal for himself fo r med ical/support/educational needs.

Stepped-Up Versus Carry-Over Basis

BASIS: (Oversimplified) The cost at which the property was acquired.

§ RULE: The amount by which the selling price exceeds the basis results in income taxes (taxed favorably
at capital-gain rates, but income taxes nonetheless).

Example -- house bought years ago worth for $20k... now wo rth $600K. You can raise the basis by adding in
cost of improvements. So, say, they raise the basis to $100K and sell for $600K, leading to $500K capital
gains. There's a $250K per indiv idual exempt ion, so as a couple they'd have no capital gains. But say they
deed the house over to kids, the kids would have $500K cap ital gains to pay taxes on.

IMPORTANT - When a decedent dies, property included in decedent‟s gross estate has its basis increased to
the date of death value (meaning that when her loved ones sell it, it doesn't incur inco mes taxes).




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Trust & Estates                                   R. Santalesa                                           Professor Turano



Q: Why doesn't it matter that this large house asset is in the gross estate?
          Because there's a million unified cred it, so unless they have a lot of other assets it doesn't matter.
         However, when people get into 80's there's issue of rapid depletion of assets because of medical
costs. [Medicaid -- can not get unless you're below certain level of assets and income. Th ink about right of
election statute -- if decedent transferred property but retained possession right the spouse could elect against
it. Similar princip le with fed. inco me tax situation -- if parent deeded house over to kids, but retained a life
estate and was living in the house, for federal tax purposes the life estate causes the house to be included in
gross estate. [If five years pass you've accomplished your Medicaid goal of lowering assets, but Medicaid
could require you to rent out the house to contribute money; but many people need to consider the basis
value effect.]
         NOTE - Life estate retain ment preserves the basis value at death.

 Remainder interest is calculated actuarially as well.

INCLUS IONS IN GROSS ESTATE
       Probate property (IRC 2033) (page 408).
       Certain lifetime gifts over $11K within 3 years of death (IRC 2035) (page 409). [life insurance,
      and certain other items] [significant because all of your lifetime gifts do come back into the
      calculations of your adjusted taxable estate. All IRS has lost is the ...
       Lifetime transfers where the decedent retained... [see posting]
       Lifetime transfer where decedent retained reversionary interest (IRC 2037) (page 410).
       something ehre
       Powers of appt (IRC 2031).
       Jointly owner property (IRC 2040) (page 413) .
       Life insurance (IRC 2042) (page 414).
       Pensions (IRC 2041)

Tax-Inclusi ve Vs. Tax-Exclusi ve Tax B ase

 TAX-EXCLUSIVE - GIFT Tax
       Example, if I give my friend $1,211,000, the taxes are assessed on that amount and I pay them out of
       my OTHER assets.
              The taxes on $1,211,000 are $82,000., and you pay that $82K fro m somewhere else.

 TAX-INCLUSIVE - Estate Tax
       The estate tax is tax-inclusive. That is, if I leave my estate of $1,293,000 to my friend, that taxes are
       assessed on the whole, for a total tax of $120,990. My friend, who got $1,2000,000 in the prior
       examples gets only $1,172,010 in this one. The different is a 43% tax on the $82,000 of g ift taxes,
       and on the $11,000 that was exempted above.

 Makes $11K exempt ion more important.
 If you knew you were going to die and there'd be inclination then to give things away... except for the
three-year provision that would grab that gift tax paid back into the gross estate.

TAX APPORTIONMENT

 TIP : FINAL - On exam, tests will be light on fed tax, but tax apportion ment statue will be treated like
other parts Don't need to know statute numbers on final exam.

NOTE: The taxes referred to in these questions are made up to illustrate EPTL § 2-1.8 and are not actually
the amounts that would be due in an estate of the size mentioned.

Remember top tax rate is 49%, so if you apportion taxes to someone that could be a huge bite from them. So
be careful.
§ IMPORTANT: Adding language dealing with estate taxes IS NOT BOILERPLATE. THINK A BOUT IT
AS THE BIGGEST BEQUEST I YOR WILL.



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Trust & Estates                                 R. Santalesa                                         Professor Turano




NY has recently repealed its estate tax, but that's not actually what happened. p. 396. Estate credit. See
1999 Practice Commentaries. Good idea to get rid of death estate tax, because NY had a high top estate
death tax rate, and legislature decided to repeal it. Sponge tax...

EPTL § 2-1.8 -          If any estate taxes are due:

         (a) under NY or any other jurisdiction with property in gross
         estate the following rules apply...

         § GENERAL      RULE: [T]he amount of the tax, except where testator
         otherwise      directs in his will... shall be equitably apportioned
         among the      persons interested in the gross tax estate [whether
         residents      or non-residents of this state]...

         (c)(1) The tax shall be apportioned among the person benefited in
         the proportion that the value of the property or interest received
         by each such person benefited bears to the total value of the
         property AND interest received by all persons benefited, the values
         finally determined in the respective tax proceedings being the
         values to be used as the basis for apportionment of the respective
         taxes.

         EPTL § 2-1.8 (c)(2) - Charitable, marital, insurance -- those
         people are not taxed for estate taxes.
               Charity - no taxes.
               Spouse - no taxes
               Insurance - could be taxed. [check]

NOTE: Date of death is generally the date of death value in 99% of the cases. But the statute talks about tax
proceedings, since you're able to revalue assets up to six months after death, too.

TAX APPORTIONMENT PROB LEMS

PROB LEM #1 - X- $25K, Y - $75K, Z - $900K.. estate taxes is $200K.

         X - $5K (2.5% of taxes)
         Y - $15K taxes (7.5% taxes)
         Z - $180K taxes (90% of taxes because Z received 90% o f estate)


PROB LEM #2 - $500K of estate is out of the computation of tax because is marital deduction.
      X - $1500 (5%)
      Y - 4500 (15%)
      Z - $24,000 (80%)

         $500K is taxable out of million so it's 25/600, 75/500, 400/500.

NOTE: Back to EPTL 2-1.8 (a) except in a case where a testator otherwise directs -- means you can
deactivate 2-1.8 by saying so in your will.
          Where there's specific gifts, and you don‟t want them to have to pay taxes you can say taxes come
         out of residuary.

NOTE: In a standard will you usually say I hearby revoke all prior wills and codicils. Often, the very next
clause is "I direct executor to pay my taxes, debts and expenses...." that does NOT act to deactivate EPTL §
2-1.8 regarding estate taxes.



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Trust & Estates                                   R. Santalesa                                            Professor Turano




We saw a lot of non-probate assets (Totten trusts, revocable lifetime trusts, etc.) are included in net estate
for tax purposes. So we know turn to ru le EPTL 2-1.8 (d), but (a) says taxes are apportioned against people
who have an interest in the gross tax estate -- therefore, if you're recipient of life insurance. in gross estate
you are benefiting and you do have to bear your share of estate taxes.

And (c)(1) says "tax shall be apportioned among the person benefited..." - includes those non-probate assets.

Q: What about testamentary intent to exclude those people fro m taxes? (d) - says subject to 1, 2, 3, ...

PROB LEM #3 - (d) says all estate taxes ... but he doesn't s pecifically menti on the life insurance policy
and so the D. pays.
         Turano wanted us to be thinking about that T hasn't said she wants the residuary to be the ONLY
party paying taxes.
          In the alternati ve cl ause, the will specifically addresses property passing “under this will or
otherwise..." which does deactivate EPTL § 2-1.8.


 NOTE: LIFE INS URANCE isn't always included in gross estate -- there are three situations where it will
not be included, really four. (See p. 414)
         Only way to keep insurance proceeds out of the gross estate is to:
         1. make a lifet ime g ift of the policy,
         2. to relinquish all rights over the policy during life, and to
         3. assure that the proceeds are not paid to the estate or
         4. available to pay creditors of the estate.

NOTE: If you said "any property that's included in my gross estate should have taxes paid from... " this
would clearly include life ins urance and other non-probate assets, and would therefore deactivate EPTL § 2-
1.8.

PROB LEM #4 - LIFETIME TRUS T EPTL § 2-1.8 (D)(3)
       Lifetime trust here says taxes for the trust should be "paid by X & Y, but not Z. "
      This is perfectly fine according to (d)(3). The testator can say how taxes for the trust should be paid.

         NOTE: You a re allowed to apportion taxes in non-testamentary instrument (such as a trust) within
         that instrument; however, you can't shift the taxes owed for THAT non-testamentary instrument to
         some other portion of estate from within that non-testamentary devise.  ALSO - cannot say in trust,
         that the trust will pay taxes for everything. (d )(3).

§ RULE: Trust cannot shift taxes to the will. Will can shift taxes and assume taxes for anything, including
trust.


PROB LEM #5 - Trust in 1970, said taxes fro m trust to be paid fro m trust.
      Will in 1990, said A LL taxes and specifically mentioned trust, should be paid from residuary.
      ANS: Two conflicting provisions, and (d) (1) says later instrument, will, h ere controls. [This is the
      overruled Matter of Cord:]
      ANS: The later instrument prevails if it specifically refers to the directive in the prior instru ment. Q:
      Q: Does the 190 will make such a specific reference? Not really. Crazy result. A thin king court
      should give effect to the later will and direct the executor to pay the taxes fro m the residuary.

PICK UP WITH PROBLEM #6,
LEFT OFF HERE.




NY01/SANT RI/864207.1                                                                                           91
Trust & Estates                                    R. Santalesa                                           Professor Turano



Trust & Estates                            21st Class                                         11/06/03
         Talking about 2nd optional assignment she handed out tonight.
         Model answers and question on web -- try answering a bunch of them.

FINIS HING UP TAX APORTIONMENT

         Ended last class with situation when direction in will contradicts a direction in a trust -- does will
         control? Yes, if it‟s later, but it must make specific reference and direction to the trust directive.

PROB LEM #6 - EPTL § 2 -1.8 (d)(2)
      The inter vivos trust is not valid in contradicting the will, because the trust does not "specifically
      refer[] to the direction in such prior will ...." previous 1970 will.

NOTE: This tax apportion ment clause is valid, because a will can proportion taxes passing on property even
outside the will. But that doesn't work in trusts .
NOTE: The later instrument has to specifically refer to the earlier one's provisions in order to tru mp.

§ RULE: You can never make a trust that directs ALL estate taxes to be
paid from the trust, or that directs taxes, for anything other than the
trust, be paid from a specific source.


EPTL § 2-1.8 (d)(2) parallels (d )(1).         Alternative that would name the trust provision in #6 valid :

NOTE:: If the trust instrument directed that “all taxes incurred because of inclusion of the trust in the gross
estate be paid out of the trust” notwithstanding the contradictory direction in the earlier will, it would prevail,
and the trust would bear its proportionate share of the taxes. This language would have satisfied (d)(2)

EPTL § 2-1.8 (d-1) - QTIP trusts.
        QTIP - often happened with remarriages where there're kids fro m prior marriage.
                 Non-terminable interest = absolutely.
        QTIP - first decedent directs income goes to surviving spouse for rest of life and then rest goes to
       surviving kids.
       QTIP must be "qualified terminable interest property" -- to qualify it the survivor checks off a bo x
       on the income tax return.

RULE Taxes on QTIP trust are paid ONLY out of QTIP trust funds, unless
the QTIP instrument says otherwise.

         NOTE: Wills with residuary tax clauses could be interpreted as providing otherwise, but Matter of
         Gordon held that a clause directing estate taxes to be paid out of the residuary estate would not
         apply to QTIP property unless it specifically said so.

EPTL 2-1. 8 (b) - TRUS T tax apportionment.
        When there's a present and future interest (life estate, or trust) you don‟t pick tax fro m the future
       person and the present interest person. It's all taken fro m the present value -- not fro m the future. If
       you take the taxes fro m principal it does apportion because future remain der is lo wer, and current
       income stream is lo wer.
        BUT th is does not apply to a "common law annuity."

EPTL § 2-1.8 (e) - Recovery by fi duci ary from people who di d recei ve property.

EPTL § 2-1.8 (f) - Fi duci ary can wi thhol d money from beneficiaries until taxes are pai d. Can give stuff
out before taxes paid if adequate security provides.

EPTL § 2-1.8 (g) - Gi ves surrogate board discretion is apporti oning taxes.



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Trust & Estates                                   R. Santalesa                                            Professor Turano




EPTL § 2-1.8 (h) - Very i mportant!
          Mentioned that many things are included in gross estate if various circu mstances are met. (i.e. non-
          testamentary substitutes, life insurance, etc.).
          Q: What if an issue arises on gross estate, and the person wins that it is n't part of the gross estate?
          Who pays for that litigation?
                    ANS: The estate, but with a piece paid for by the property not included.
          (h) says if there's a proceeding to argue about what is included in the es tate in order to determine
taxes, the surrogate can assess, against that property that was then excluded fro m the estate for tax purposes,
a portion of the legal fees.

EPTL § 13-1.3 (d) - Order of abatement.
       This section dealt with abatement -- but abatement order does NOT apply to taxes. Taxes are solely
       apportioned by EPTL § 2-1.8. (i.e. residuary people would only have to pay all taxes IF the will
       contained a specific clause that says this.)

§ RULE: Figure out order of abatement first (if not enough to pay), THEN
figure out apportionment of taxes remaining.

PROB LEM -- X gives engagement ring to my daughter. X g ives the residuary estate to my husband and then
directs that all taxes be paid out of the residuary.

         This is a problematic will above -- since the residuary estate above is suppose to be completely
         covered by the marital deduction -- and so exempt fro m taxes. Suppose there was $100K taxes to be
         paid out of estate above -- ring worth $1.2 mill, residuary worth $1 million. He has to pay $100K
         to cover taxes, but how are you going to figure out the taxes until you know what husband gets? The
         marital deduction and tax co mputation are intertwined.

         SIMILA RLY - I give my residuary estate in equal shares to my husband and my sons. I direct that
         my taxes be paid out of the residuary.
                 This has substantive problem co mponent, too. Statute says husband gets marital
         deduction... can will deactivate marital deduction? Courts have had problems with this. Did the
         above mean that the sons' portion of the residuary pays for taxes?


TRUSTS            - EXPRESS PRIVATE TRUS TS

Where you've heard of them before:

          Revocable li ving trust to avoi d probate. (During my lifet ime I g ive my property to myself as
         trustee, to pay the income to myself and my husband, and at my death inco me to my husband, and at
         his death remainder to our children.)
                   --- these trusts are explicitl y approved by our statute now. Note that this trust does not
                   change any life style items.

          "By-pass" or "credi t-shelter" trust to use both spouses' unified credi ts . (In my will I give my
         trustee an amount equal to the federal cred it exempt ion ($1 mill this year, going up to $3.5 mill), to
         pay income to my husband, remained to my ch ild ren, and my husband can take out the greater of
         5% or $5,000 each year, so long as he does it by December 3, after which that year's power lapses.)
                  [she created this above to be generous to husband. Could also give the trustee the right to
                  take out other amounts for husband. New 10-10.1 legislature says even if the husband's the
                  trustee he can take out principal for h imself for health/education/support costs. Otherwise
                  husband cannot take out principal if he's the trustee.]
                           Turano tells WTC story - she creates optional "by-pass" trust that allows spouse to
                  disclaim items that will then fall into the trust. Husband died in WTC and his will created
                  bypass trust and $675K was expected to go into trust, however, as per 2001. After WTC



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Trust & Estates                                    R. Santalesa                                            Professor Turano



                  deaths, however, federal government said they would exempt taxes for as many people as
                  possible up to $3 million.

          Life insurance trust to avoi d inclusion of life insurance in gross tax estate. (I give money to
         my t rustee to buy life insurance on my life and name the trustee as beneficiary of the life insurance.
         The trust may provide inco me to my husband, remainder to my children.)
                   [Side advantage to this trust -- First, if you think your estate is going to be $2 million, you
                   could buy life insurance for amount to pay estate taxes on that. Secondly, if there's illiquid
                   assets in estate, you could have the trustee controlling the life insurance to buy those
                   illiquid assets. Third, instead of making $11K gifts, by using the Crummy power you can
                   make the $11K gifts to the trustee to buy insurance premiu ms, as long as you convert that
                   $1K into a present interest for a period of t ime where beneficiaries are allowed to take that
                   money out.]

          Generation-skippi ng trust - ( I give my estate to my trustee to pay income to my children for
         life, remainder to my grandchildren). Could skip estate taxes on $1 million, OR the much larger
         amount that the fund will gro w into.

          Trust including a power of appointment - (I give my estate to my trustee, inco me to my
         husband for life, remainder as he appoints by his will.) -- Th is is a trust not for tax purposes, but for
         setting up human life choices.
                  We only cover powers of appointments with regarding to some tax imp lications and in rule
                  of perpetuities. But powers of appointment are a very useful thin g to extend items.

          QTIP trust - (I g ive my entire estate to my trustee to pay....)

OTHER TYPES OF TRUSTS W E MA Y NOT YET HA VE DISCUSSED IN CLASS:

          Trusts for minor chil dren. (I give my estate to my trustee to hold for my ch ild ren, to be paid out
         to them one-third when they turn 21, one-third at 25, and one-third at 30). [can make up any terms
         you want, and can do it inter vivos or testamentary in will.]
                   Can also make simple g ift to kids Uniform Transfers to Minors Act 7-6.1. [Qualifies for
                  $11k gift even though kid can't use it until 21.]

          Trust for mentally retard chil d. (I give a part of my estate to my able daughter as trustee for my
         disabled daughter, with instructions to use it for anything government funds does not cover, such as
         lu xuries.) See EPTL § 7-1.12 Supplemental needs trust.)

          If you sai d "Totten Trusts." WRONG!! Totten Trusts are just bank accounts, NOT true
         trusts.

Restatement 3d of trusts, § Definition of Trust., p. 751.
      A trust when not qualified by the word "resulting" or
"constructive", is a fiduciary relationship with respect to property,
arising as a result of a manifestation of an intention to create that
relationship AND subjecting the person who holds title to the property to
duties to deal with it for the benefit of charity or for one or more
persons, at least one of whom is not the sole trustee.

TRUST 4 EL EMENTS [B RIT]
       BENEFIT of one or mo re persons - Beneficiaries.
       RES or PROPERTY
       INTENT
       DUTIES on Trustee's part

NOTE: A resulting trust is like a reversionary interest.



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Trust & Estates                                    R. Santalesa                                            Professor Turano




THREE PARTIES TO A TRUS T
      1. The creator, grantor (inter vivos or lifet ime trust), settlor, or testator (testamentary trust).
                -- transfers property to...
      2. Trustee -- who holds legal tit le to the property. The property is in the legal name of this person.
                -- holds it for, and in a strict fiduciary responsibility to -->
      3. The beneficiaries, or cestuis -- holds the equitable title interests, or beneficial o wnership
      interests.

§ CRUCIAL - p. 753-754 - The splitting of ownership between legal tit le holder and equitable
title/interest/ownership is a crucial element of the existence of a trust. SPLIT in tit le is importance also [along
with set of direct ions] in it creates fiduciary duties for a trustee. Important because we look "are there are
duties for the trustee to perform?" If not, it's not a valid trust.

         Historically because beneficiary had an equitable tit le they could get into the equitable courts [is
         there an enforcer here? Is there a split such that someone could go into the equity court and enforce
         the trust terms?]

NOTE: Trust creator has NO remedy for trustee's breach and no standing to enforce trusts.
NOTE: Courts don't treat trusts in contract sense, but as fiduciary relat ionship.

         Beneficiary has right to the income fro m t rust often. Property may also give to beneficiary right to
use property for life -- life estate. Frequently life estates are NOT in trusts.
         Generally those with interests in principal are the remainderman. Can also have other interests in
the principal. But not every principal beneficiary is a remainderman.

Corpus or PRINCIPAL - The property put into trust is called the corpus, principal or sometimes res. [Over
20 years the problem with trusts was the rise in stock fund where inco me stream didn't grow that much, but
principal amount grow hugely - benefiting the remainderman and not the beneficiary.]

TRUST FACTS:
       trust may be a testamentary trust (will) OR a lifetime (inter vivos) trust.
       A trust can be irrevocable or revocable.
       The grantor or testator may require the trustee to pay out all inco me [or not pay inco me --
      accumulate income] or may give the trustee discretion to pay out income or not, or to choose among
      beneficiaries [this isn't power of appointment, but has similar result] [trustee co uld have power to
      "sprinkle" inco me among certain people, or anything you want.]
       Grantor can name himself or somebody else as trustee.
       The grantor may name himself as beneficiary (either of inco me or of the remainder).
               [Why would someone name h imself as remainder? Could make trust for someone older
               than you, and then get the money back when that person passes away -- not common, but
               could happen.]

UNI-TRUST in § 11-2.4, enables income folks to take principal.

EL EMENT OF A VALID TRUS T [BRIT}(p. 767).
       Beneficiaries that are identifiable.
       Res or corpus
       Intent to create specific trust.
       Trustee

Purchase-money resulting trust - EPTL § 7-1.2 -- when property is transferred to one person and the
purchase price is paid by another person, a resulting trust presumptively arises in favor of the person who
pays the purchase price [can't defraud creditors by buying property and putting it someone else's name to
keep it fro m creditors.]




NY01/SANT RI/864207.1                                                                                            95
Trust & Estates                                    R. Santalesa                                             Professor Turano



WHO MAY MAKE A TRUS T?

         EPTL § 7-1.14 -- Any person may make a lifetime trust to dispose of real or personal property. A
         natural person shall be 18 years old or older.

         NOTE: 7-1.14 say "person" in the first sentence not natural person, so any entity defined in 1-2.12
         (associations, partnerships, corp, etc.) can make a trust -- compare, wills can only be made by
         natural persons.

WHAT PROPERTY MAY B E S UBJ ECT OF A TRUS T?

         EPTL § 7-1.15 - Every estate in property may be disposed of by lifetime trust. [parallels will
         provisions.]

NEW YORK'S FORMALITY REQUIREMENTS
     (meant to ensure that all necessary trust elements are there):

         EXEC UTION OF A TRUST: EPTL § 7-1.17                 [WEA]
                In writing AND
                Executed AND
                Acknowledgement by original creator
                         - in the manner required by record ing of conveyance of deed for real property
               OR
                executed in presence of two witnesses (not as formal as will execution).

         TO AM END lifet ime trust: EPTL § 7-1.17(b)
                 WRITING
                 EXECUTED - by person authorized to amend or revoke the trust (will be listed in
                original trust instrument)
                          and in manner required by (a).

         Basically an amend ment to the trust has to be done like original instrument.

          Have to give WRITTEN NOTICE to at least one trustee within a reasonable time.
          Failure to give the notice will not effect valid ity of amend ment, but no trus tee will be liable for
         acting on the way the old trust was originally.

REVOCATION OF A LIFETIME TRUS T B Y WILL -

         EPTL § 7-1.16 - A lifet ime trust shall be irrevocable unless it expressly says otherwise

BEFORE 1997 there were NO requirement for trus t formation -- you could even make an oral trust. And this
in the state with the most stringent wills formalities. Leg islature decided to tighten trusts up.

LEFT OFF HERE... p ick up next week with trusts again.




NY01/SANT RI/864207.1                                                                                               96
Trust & Estates                                     R. Santalesa                                          Professor Turano



Trusts & Estates                                22nd Cl ass                    11/11/03
[Joe's notes - mine were handwritten]

CONTINUING WITH TRUS TS

EPTL § 7-1.16: General rule : The default for a trust is that it is assumed to be irrevocable unless stated
otherwise.

          This provision also allo ws for the revocation of a lifetime trust in a will.

 Trust corpus (funding of a lifet ime t rust). Every trust must be funded to some degree. Assets that are
transferred into a trust must be formally transferred.
           Mere recitation of a transfer is not sufficient--an actual t ransfer appropriate to that type of asset
          must occur.
           In the case of a self-declared trust the requirements are especially stringent--the requirement is that
          the assets are registered or the deeds recorded in a comp lete fashion and in the name of the trustee.
          If the transfer is not completed, the item does not transfer into the trust.
           Property that does not have registration or recording associated with a transfer must be transferred
          by a written assignment (a formal document) that specifies the property with specificity.

 Intent to Create a Trust (Note: most of the problems relating to this point have been eliminated by NY's
enactment of the formal requirements of EPTL 7-1.16 etc.)
        Example illustrating page 777's last paragraph: G wants to deed her house over to her child. She
        executes a news deed but never records it or hands it over to the child. The g ift fails for lack of
        delivery. Could the child argue that G intended to create a trust of the house and name herself
        trustee? No.  The requirement of intent for the creation of a t rust is to prevent every failed gift
        from becoming a trust.


Farmer's Loan & Trust Co. v. Winthrop: wife was about to take money fro m her husband's estate into a
newly created trust. She gave a trust company a power of attorney to take into the newly created trust the
deceased husband's estate. 800k of her husband's estate was paid out into the wife's trust, but wife died
before the rest could be paid out.
         So, was the money that was not yet paid into the newly created trust part of the trust at her death?
The court held that it was not, because her power of attorney was such that she could have revoked the
remain ing transfer at any time. So, there must be a present intent to transfer to create a trust.

Ex Parte Pye (p. 782): this is the first exa mp le of a self-declared trust.

Richards v. Delbridge (p. 781): court refused to transform a failed gift into a trust -- this is the way courts
have tended to look at failed gifts.

Precatory Language (this is still related to intent to create a trust): there must be intent to impose
enforceable duties on a trustee in order to create a valid trust. So, imposing a mere moral obligation or wish
is not sufficient to create a trust.

Factors considered in determining if there is a creat ion of enforceable duties: see p. 784. Especially consider
....

Colton v. Colton: p. 784: concerns a determination of whether a 'request' to wife to use his estate to take care
of some of h is other relatives.
         The court held that, under the circumstances, there was enough to find that there was not merely
precatory language (in other words, there was enough to find intent to create enforceable duties).

Corbett (the hypothetical in the handout material): if it was a trust, it was invalid because NY does not allow
incorporation by reference. Therefore, T was intestate, and the three (MI, M 2, and J should share equally).



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         If it was merely p recatory language, it goes to the issue of a predeceased brother or sister by anti-
lapse, and consequently all to J through 3-3.4 (note that residuary-of-a-residuary provision would have the
two deceased sisters' share goes to J).
         The appellate division held it was merely precatory language--the dissenting opinion, on the other
hand, said that it was an attempted trust and it failed. Th is illustrates how difficult it can be to figure th is out.

3RD EL EMENT OF A TRUS T: THE TRUS TEE.

Unlike the two prio r elements (intent; funding), the absence of a trustee does NOT usually cause a trust to
fail. Why? Because the court can always supply a trustee.

Adams v. Adams (p. 787). Husband deeded over house to a trustee with the rents to go to the wife. And after
wife died, the trustee was to hold it for the children. The deed was executed and recorded. But, the husband
and wife divorced, and the husband sought to disavow the trust.
            The trustee stated no knowledge of the transfer and the deed was not delivered to him. But, the
court held that a trust had been created -- although the failure of delivery had probably caused a failure of
legal t itle to vest in the trustee.

NOTE: p. 789 - A trustee can resign only with the permission of the appropriate court.  This is NY law.
Often, the court will not allo w a resignation. BUT - this statute can be de-triggered by an exp ress provision
to the contrary in the trust.

 If you name t wo trustees, they take it as joint tenants. So, if one dies, the other takes over.
 If there are t wo or mo re trustees, they must operate by majority rule: so, if there are two trustees, they must
both agree. In NY, the death of a sole trustee results in the court having the power of appoint ment of a new
trustee.
 At common law, the trustee's interest passed to the trustee's heirs or through the trustee's will.

4TH EL EMENT OF A TRUS T: A TRUS T MUS T HAVE ASCERTAINAB LE B EN EFICIARIES .

NOTE: unborn beneficiaries are OK. G, who has two child ren, creates a trust, income to G for life,
remainder to his children. He later had a third child. That child is included and shares the remainder.

Co mparison of Folk v. Hughes with Morsman

In 1929, Morsman put securities in trust, declaring himself trustee...Income was paid to him, Mors man, fo r
life, then principal to h is issue, or if he had none, to his widow, if he had none, to his brother,
          In Folk, a father transferred real property to his son to hold for life for h imself and the support of his
children. He had no children. Morsman had been trying to avoid taxes, so he transferred assets to a trust in
an effort to be taxed at a lower rate. The court held that this was not a valid trust b/c he did not have a widow
and did not have issue.

§ RULE: In a trust, equitable title must be in a different person fro m the legal tit le. So, when a grantor
names himself as a trustee with an unascertained beneficiary, this is not a trust because legal and equitable
title remain in the same person (merger doctrine).
          But, if the grantor gives to a trustee for an unascertained beneficiary, then there is a resulting trust
because the trustee is available to enforce the trust (and, equitable and legal tit le vest in separate persons).

          In Morsman, the court was swayed by the fact that there was nobody who could enforce the rights
         of the beneficiary.
          In Folk , there is a trustee to enforce the rights of the unascertained beneficiary.

The MERGER doctrine: In a t rust, ownership of the trust corpus is split:
       Legal t itle is in the trustee
       Equitable tit le is in the beneficiary




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Trust & Estates                                    R. Santalesa                                            Professor Turano



HYPOS on page 795
       Category 1: A and B have separate interests so they can enforce against each other.
       Category 2: Again, A and B have separate titles and interest, so they can enforce against each
      other.
       Category 3 (crucial one): th is is a situation where A is the trustee and is the lifetime beneficiary
      and B is the remainder beneficiary. In NY, the Reed case held that there was no trust--A had a life
      estate outright, and B has a remainder interest. A key difference is that creditors cannot reach a trust
      life estate, but can reach a legal (outright) life estate. This case, however, over-ruled Reed and
      abolished the merger doctrine in EPTL 7-1.1.

EPTL § 7-1.1 : as long as there is a present or future beneficiary out there, the trust does not merge--in other
words, the trust does not cease to exist and is not merged.
         Q: Why is this important? Because the underlying fact pattern is that of a revocable liv ing trust
         (whose sole utility was to avoid probate), and this might result in a t rust life estate being found to
         have merged or to have become invalid, thus jeopardizing the revocable living t rust. No w,
         revocable living trusts are safe from this potential threat.

EPTL § 7-1.2 : this statute prevents the creation of a trust where a trustee has no duties. The courts, however,
have been very liberal in finding that the trustee has some duties.


INDEFINITE B ENEFICIARIES
      HYPOS on page 796

Page 797: Discretionary powers are almost always valid because the test for their valid ity is so easily
satisfied:
          TEST: they are valid unless the group of beneficiaries is so indefinite that it is impossible to identify
          any person who the donor intended should be the objects of the power.

See hypos on page 797:
        1. Clearly invalid because nobody to enforce the trust. A will get it fo r life, then it will revert to the
        grantor.
        2. Th is is a mandatory power; a trustee has the obligation to carry it out.
        3. Th is is OK; this is a discretionary power. A does not have to exercise the power. If A does not
        select, it will revert to the grantor

NOTE: Mandatory powers are subject to a much tougher standard, namely that the intended beneficiaries
must be sufficiently ascertainable that a court can enforce the trust.

Clark v. Campbell (p. 797): here, the trust gives a mandatory power, and it is not enforceable because the
beneficiaries cannot definitely be ascertained.
         The court held that it was not permissible to allow the trustee to simply choose who the
beneficiaries/friends would be. This is not permissible because a testator cannot substitute a trustee's wishes
for his own. The court held that the trust failed co mpletely and reverted to the residuary.

Key issue: a power of appointment that is given to a trustee must have ascertainable beneficiaries or it fails
(b/c there is no definite enforcers of the beneficiaries' rights).

Estate of Seabright:
See EPTL § 7-6.1 that is specially set aside for pets. Court treated it as power of appoint ment.

LEFT OFF HERE




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Trust & Estates                                     R. Santalesa                                           Professor Turano



Trusts & Estates                                23rd Class                           11/13/03 (Thurs.)

TRUSTS - REDUX

 Three parties to trust [GTB], 4 requirements - [BRIT] - Beneficiary, Res, Intent, Trustee
 Doctrine of merger & underlying reason -- if legal and equitable titles are not split then there's not one to
enforce it. But NY in EPTL 7-.1.1, basically abolishes merger doctrine if there's an additional beneficiary to
the trust.

SPENDTHRIFT TRUS TS, p. 827

Spendthri ft trust - once a trust has been properly formed should the law allow the beneficiaries to undue it
in light of the testamentary intent? American Rule is we g ive effect to the trust; if you're the beneficiary of a
trust should you have any saw in the trust's results?

Restatement Definition, p. 827
      A spendthrift trust is a trust that contains a provision imposing a
      disabling restraint on the alienation of the beneficiaries'
      equitable interests. A disabling restraint on alienation is one
      that purports to nullify any attempted assignment by a beneficiary
      of his equitable interest and any attempted attachment of a
      beneficiary's interest by the beneficiary's creditors.

Issue whether an issue in a trust is alienable. Example, p. 828

§ RULE: Under prevailing NY law, disabling restraints on alienation ARE
valid; and spendthrift trusts are indestructible (i.e. the beneficiaries
can't compel the trustee prematurely to terminate such a trust.)

Argument in favor of U.K. rule (where beneficiaries can alienate trusts)
       -- Law favors alienation and not clouded titles.
       -- Creditors should have rights; why should the creditor not be repaid?

Argument in favor of U.S. rule to allo w testator's intent to prevail.
       -- Strong public policy in favor of donative freedo m; shouldn't allo w beneficiaries to go against

Broadway National Bank v. Adams, 133 Mass. 170 (1882), p. 831 - Testator created trust payable to Adams,
specifying it was a nonassignment and out of reach of creditors. Cred itor came in to try and get money fro m
it.
          Court held the cred itor could not reach the interest income because testator said so.
          Case goes through rationale and history of free alienability, but court decided this would be the
American way if the testator wanted to do it, and it's not against public policy

RULE: If testator says interest in a trust is inalienable that will prevail.

NOTE: Creditors can reach income interest ONCE the beneficiary is paid the money; but creditors cannot
attach the income while it's in the trust. They cannot levy against the trust and access the income stream
before it's paid to the beneficiary.

NOTE:: What's restrained is the equitable interest. A trustee can freely sell property and reinvest it in a trust
via their legal title. In discussing inalienability We're talking about the equitable title, not the legal tit le in
spendthrift trusts. If the testator has placed a restriction that is a valid restrict ion.

Evolution of the ru les of alienability in N.Y.:
        - Earliest statute (1830) made trusts for the benefit of minors inalienable.
        - Next, all income interests became inalienable (minority view).



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         - Creditors had (and still have) a separate remedy to execute against 10% of the income interest, and
         creditors had an amorphous right to reach amounts above what was necessary to keep the
         beneficiary in his accustomed station of life plus
                   amounts to support the beneficiary‟s dependents,
                   amounts to provide necessities to the beneficiary,
                   And attorneys' fees and trustees' fees in administering the trust.

EPTL § 7-1.5 - When trust interest inalienable; exception.

         Oddl y worded statute -- starts by saying:
         (a) The interest of the beneficiary of any trust may be assigned or otherwise transferred, except that:
                  in other words: GEN ERAL RULE - interests in trusts are alienable. Therefore you can
                  sell them, assign them, g ive them away, etc.

         (a)(1) EXCEPTION: Income interests are not alienable, UNLESS the creator provides otherwise
                 (effect ive in 1973; before that, income interests were inalienable in all cases -- even if the
                 trust instrument tried to say it was alienable.) [DEFAULT now is that income interest is
                 NOT alienable, unless the trust says it is.]
         (a)(2)

         (b)(1) But not withstanding that rule above, an income beneficiary can assign income over $10K
         per year to certain relatives (spouse, issue, ancestors, brothers, sisters, aunts, uncles, nephews and
         nieces) so long as the instrument doesn't prohibit it.
                   [Rat ionale: To shift money to lo wer inco me tax b racket people wh o you might be taking
                   care of already.]
         To transfer inco me interest to others above, the transfer must be done in
                   - Writing
                   - Signed
                   - Acknowledged
                             - With affidavit stating he's not received any consideration fro m the assignee
                   - And delivered to the trustee

EPTL § 7-3.1 - Disposition in trust for creator void as against creditors.

         (a) A disposition in trust for the use of the creator is void as against the existing or subsequent
         creditors of the creator
                   [can't set up self-settled trust to protect income stream to yourself fro m existing or
                   subsequent creditors]
                   For example, if the grantor makes a trust, inco me payable to him, remainder to X, the
                   income interest is reachable by his creditors.

                  NOTE: There‟s NO standard of living consideration in self-settled trusts.

         (b)(1) Annuities, insurance contracts, IRA - cannot be attached by creditors [aside -- this is why
         O.J.‟s pensions were safe fro m civ il judgment against him.]

p. 867 - adds that "the maximu m amount that the trustee can pay the settlor or apply for h is or her benefit in a
discretionary trust . . . can be reached by creditors."

NOTE: Restatement 3d of Trusts § 59(b) - Co mment a states
      "[i]t is imp licit in the rule of this section, as a statement of the common law, that governmental
      claimants, and other claimants as well, may reach the interest of a beneficiary o f a spendthrift trust
      to the extend provided by federal law or an applicable state statute." [includes fed. tax claims, and
      Medicaid, etc.].

MEDICAID -- the creditors can reach that income trust property.



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EPTL § 7-3.4 - Discretionary
        If there is no discretion to accumulate inco me, inco me in excess of the support and education
       needs of the income beneficiary is subject to creditors' claims.
                 For example, G creates a trust, income to A, remainder to A's issue. The inco me is more
       than enough to meet A's support and educational needs. A's creditors can get the excess.
                 They would go to the court to get an order to determine this, and then the creditors could
       get that other money.

         [EPTL 7-3.4 -- certainly covers the case of a large trust made fo r a tru ly spendthrift person; why
         should the creditors have to wait and constantly go after that beneficiary. Creditors are allowed to
         go directly to the trust for satisfaction of those claims in excess. They get the excess amounts of
         income not trust principal.]

 TIP: If trustee is directed to pay exactly the amount to B needed for support and education; and rest is
accumulated, then the creditors cannot get anything from the inco me stream because there is NO excess. So,
with the right language you can evade sloughing any of the income stream to the creditors.

NOTE: Determin ing excess is always a contextual and fact-specific determination.

CPLR 5205 - The inco me beneficiary ‟s creditors can reach 10% of the income stream.
       - this is true WHETHER the inco me beneficiary needs it or not.
       - If the income beneficiary needs $100K and the inco me stream is only $50K, the creditor can get
      10% anyway. Much more creditor friendly.

NOTE: This CPLR provision applies concurrently with EPTL.

Four major protecti ons for creditors
       - Excess beyond what‟s needed for support & education.
       - 10% of income stream no matter what.
       - ?
       - ?

Q:A RE REMAINDER INTEREST INA LIENA BLE?
        EPTL S 7-1.5 - Yes. 7-1.5 (a).
Q: CAN THE CREATOR PROVIDE THAT THEY SHA LL BE INA LIENABLE? Yes.

Estate of Vought 250 N.E. 2d 343 (N.Y. 1969), p. 841 - Very impo rtant case historically.
          Father created trust, income to wife, remainder to his two sons.
           Will went on and said the sons could not alienate the remainder interests.
           Chance Jr. sold all the interests in his remainder interest.

NOTE: In trust of income to wife and remainder to t wo sons -- you should know that the remainder interest
to the two sons is a vested interest. Since it's not contingent they do not have to survive the decedent's
widow to take it. It's vested in their estate, and does not lapse if they predecease the widow/income
beneficiary, but passes into their estate. IMPORTANT: If you don't set forth a contingency to a trust
interest, none is read in, and it's a vested interest as soon as its made..

ISSUE was whether the creditors that had been assigned the interests got nothing.

§ RULE: You can make a trust remainder interest inalienable.

p. 844 - Prior to Vought, most cases upholding spendthrift restraints on remainder interests in principal were
cases of income to A- until A reaches 30, then principal to A type, rather than Vought's income to A for life,
remainder to B. Should this matter?
          RULE today applies to both types of cases.



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Trust & Estates                                    R. Santalesa                                            Professor Turano




§ RULE: Spendthrift restraint on remainder interests in principal is vali d, whether or not the beneficiary is
entitled to the income in the meantime.

DISCRETIONARY TRUS TS, p. 845
       Allo w trustee to distribute among several beneficiaries or withhold or not.

Q: Can creditors reach inco me interest if t rustee has discretion to pay income to beneficiary or not?

Trustee liability - Court cannot judicially co mpel a trustee of a discretionary trust to pay creditors rather than
the beneficiary.

Restatement 3d §60, however, says if
         there's no spendthrift restraint AND
         the trustee has knowledge that the beneficiary has assigned his interest
                  OR the beneficiary‟s creditors have serve the trustee with process in a proceeding to reach
        that interest,
THEN the trustee is liable to the assignee or creditor if the trustee pays the beneficiary first.

Hamilton v. Drogo, 150 N.E. 496 (N.Y. 1926), p. 851. - Court Allo wed 10% Levee Under CPLR 5210. But
the trustee didn't have to pay anything. If the trustee did however pay an income that year, he had to send
10% to the creditor.
          But Hamilton case allowed the trustee to maintain d iscretion -- once a year the trustee had to make
a decision to pay to anything or not. But creditor cannot come in and say you have discretion to pay so you
have to pay my debt -- this case is limited to only those times when the trustee does exercise discretion and
pay out funds.

SPENDTHRIFT - trust balances between honoring trust terms and creditors' rights.

TERMINATING A TRUS T                  - EPTL 7-1.9

1. The most common termination: a trust can terminate pursuant to the terms of the trust instrument.
        For example, T creates a trust, income to A for life, remainder to B. The trust terminates
        automatically at A's death.

2. Purpose of trust completed - End transmission.
         For example, T, whose child died of malaria, creates a trust to be used to exclusively fo r research to
         find a cure for malaria. When a cure fo r malaria is found, the trust terminat es (subject to a possible
         pres refo rmation, which we'll discuss under "Charitable Trusts" -
                   Cy pres -- allows ONLY a charitable t rust to be reformed if it appears that's what the
                   testator would have wanted.
         Here the trust says exclusively for this cause -- which makes it inappropriate to apply a cy pres
         doctrine.

3. Trust purpose is frustrated - trust terminated.
         For example, T makes a trust to pay his daughter's rent in her apart ment for the rest of her life. The
         daughter buys a house and moves out of the apartment. The trust terminates.
                              Actual case this came up in was more co mplicated and raised another question.
                  T really wanted to make sure his daughter had a place to life for life. The neighborhood
                  changed and she didn't want to live there any more. And she wanted to move, and the
                  question was then should the apartment house be sold and the money's used for her house
                  costs?
                             In the actual case the court's two choices were sell the house and distribute the
                  proceeds under the testator's will, and she would have gotten part of that, OR continue the
                  sales proceeds in a trust and let her have the income for her. They ult imately decided to
                  sell the house and distribute the proceeds. Cautionary note -- in drafting, when people say



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Trust & Estates                                   R. Santalesa                                              Professor Turano



                  they don't want the house sold until their kids are all gro wn. But you need to consider
                  alternate contingencies.

§ REMEMB ER: So long as the trustee has a duty to perform, the trust does NOT fail for frustration of
purpose. (see EPTL § 7-__ . ____ - reason is trustee has to have a duty to perform, otherwise it's not a valid
trust.)

See Claflin v. Claflin (p. 885), where the court held that in a trust to pay $10K to the decedent‟s son at 21,
$10K at 25, and the balance at 30, the trustee had an active duty to perform in keeping the money out of the
son's hands until he reached 30.
         Court had to decide whether the trustee had an active duty, as the argument was made it wasn't a
         trust - he just has to pay the money. The court found it was an active duty -- duty to keep the
         money out of the son's hands until 30.

NOTE #1, p. 887 - If there's a material purpose of the trust there will not be premature termination.

WHAT ARE SOME MAT ERIAL PURPOS ES ? pp 888-91
       It is a material purpose to postpone someone‟s enjoyment of property (ex. 14.2, p. 888_
       It is a material purpose to keep a trust spendthrift. [p. 889].
       It is a material purpose to hold a trust for someone's support.
       to allow a trustee discretion to "sprinkle" inco me and invade principal for a g roup of loved ones.

SUM - Very few trusts fail for lack of material purpose.

p. 887 - We are stricter than the American Ru le Restatement 2d of trusts § 337, p. 887

EPTL § 7-1.9 - REVOCATION OF TRUS TS. (Is a default statute that activates IF the irrevocable trust
instrument does NOT state how the trust can be revoked or amended.)

         Upon written consent ... of all the persons beneficially
         interested, the creator of such trust may revoke or amend the
         trust.

FIRST - The creator of the trust is guided by the trust instrument (if the trust says he can revoke it by
standing on his head he can revoke it that way WITHOUT following EPTL § 7 -1.9).

NOTE: EPTL § 7-1.9 IS TA LKING ABOUT IRREVOCA BLE TRUSTS.
        And it says the creator CAN revoke a revocable trust IF he gets consent fro m all beneficiaries?

HOW DO YOU DO REVOKE?
      Have to get consent from all beneficiaries in the trust.
            o If the trust said income to A and remainder to B, then G (creator), and A & B could get
                together and revoke that trust.

Q: Suppose B was a minor, though? And that A was of child bearing age an d had two toddlers [minors] and
so there could be a future child, too?

§ RULE: Unborn beneficiary consent is not required, but minors cannot give their consent because they're
legally incapable of consenting. So that trust would not be revocable unless a guardian was appointed and
then applied to the court to revoke, but it's unlikely UNLESS something else was being given to the minors
[the court will make an equitable decision.]

§ GEN. RUL E - If there's a minor involved, you generally can't revoke the trust -- barring some equitable
exchange.

 NOTE: Trustee is not involved at all in this -- their consent is not required.



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Trust & Estates                                  R. Santalesa                                           Professor Turano




EPTL § 7-1.9 (b) - class trust - grantor don't need their consent.

         Class of persons described only as the heirs, next of kin or
         distributes (or by any term of like import) of the creator of the
         trust does not create a beneficial interest in such persons.

                  Example - T makes a trust. Income to T's son, and remainder to son's children. But adds
                  phrase if there's no grandchildren, the trust should be paid to intestate distributes. [Suppose
                  he has a brother, his brother is the intestate distributee.. should you need his consent? NO.
                  They're considered to NOT have a beneficial interest.]
                             Log ic is something that's payable to a grantor's distributees is as though it's
                  reverting to the grantor herself, so she's already given her permission. You don't need to go
                  these distant parties.
                            Historical reason - because under the common law if you gave a gift to your heirs
                  it was not a gift; it was considered to be a revision to yourself. That was abolished in NY -
                  - EPTL § 6-5.9, and it's couched in historical language. "To take as purchasers" means you
                  take as an actual class of beneficiaries.

For EPTL § 7-1.9 purposes this old "worthier title" doctrine has been retained in this section -- if you give an
ultimate remainder to a non-existence class you don't have to get their consent.

LEFT OFF HER E.




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Trust & Estates                                   R. Santalesa                                            Professor Turano



Trust & Estates                               24th Cl ass                                     11/18/03

TRUSTS -- Terminating... trusts picking up.

EPTL § 7-1.9 - GRANTOR of trust can get consent of all beneficiaries of
trust, and terminate the trust even if it's an irrevocable trust.

         But if MINORS INVOLVED -- they can't consent; can get a guardian appointed, but if you're
         asking the court to terminate they likely won't do it unless there's something in it for the child.

EPTL § 7-1.9 -
            (b) creator's "heirs" is not a true class, and consent is not
            needed from them.
                  (Turano gave us the historical grounding for that, as
                  usually a gift to heirs is a gift and they are
                  beneficiaries -- so for EVERYONE purpose under NY law,
                  except for 7-1.9 are "heirs" considered merely a
                  reversion to the grantor and NOT a real part (this is
                  from doctrine of worthier title). This doctrine is
                  abolished for all other purposes by EPTL § 6-5.9.

 NOTE: EPTL § 7-1.9 tax point. If you have an irrevocable trust, but can revoke it, then everyone trust is
in theory revocable; there's an IRC statute saying if you have a state statute, that does nothing more than
allo wing the revocation of a trust you're not going to consider EVERY trust a revocable trust (included in
gross estate) for tax purposes.

Consent on Behal f of Minors, Incapacitated and Unascertained Person , p. 895

Hatch v. Riggs Nat'l Bank , 361 F.2d 559 (D.C. Cir. 1966)- inco me fro m trust was inadequate to meet her
needs; court said the unborn people are a true class of people and the court appointed a guardian ad litem.
          NOTE: In NYS we are NOT in accord with the Hatch ruling. -- So EPTL § 7-1.9 is a help for
         terminating such trusts.

Modi fication (or termi nation) Because of Unanticipated Circumstances, p. 899 -
Casebook breaks it down into two cases

         1. Distributive Deviations - Petition of Wolcott, p. 891
         2. Administrative Deviations.

Q: When can court authorize the trustee to deviate from the terms of the trust? [not ending the trust]
       - In this class of circu mstance we're not talking about beneficiaries consent, but going to court

Petition of Wolcott, 56 A.2d 641 (N.H. 1948) - CHANGED CIRCUMSTANCES - Two generation simple
trust. Testator gave trustee power to allocate between income and principal and "to do anything the testator
could have done."
          Widow's inco me wasn't enough and trustee sought to invade the principle for the widow.
          Court allo wed the trustee to do so based on changed circumstances that the testator would not have
         objected to, and the material purpose of trust would not have been affected.
         This came up frequently enough that NY enacted EPTL § 7-1.6

Matter of Pulitzer, 249 N.Y.S. 87 (Sur. Ct. 1931), p. 905 - ADM INISTRATIVE DEVIATION - Pu lit zer
newspaper empire.
         Had will and trust. Income for sons and male decedents; terms were NOT to sell the newspaper
        press stock.
         It became unfeasible for the newspapers to continue and if they held the sto ck it's value would
        have evaporated.



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         ISSUE: Whether the court could modify the trust to sell this stock.

         HELD - Court allowed sale; said yes there's a prohibition in the exp ress trust , but court has
         equitable power to prevent the trust from being driven into the ground in order to fulfill goal of
         benefitting the beneficiaries.

 NOTE: Ad min. alterations to trust are not frequent, but can occur.

REFORMATION OF TRUS TS
     [other EPTL statutes allow trustee to merge and separate trusts, and to change trust to take
     advantage of tax changes [we haven't read these].


EPTL § 7-1.6 - Application of Princi pal to Income Beneficiary
       Allows for invasion of principal for inco me beneficiary of the trust.

 NOTE: Requires court permission.
TEST: Have to show court:
      1. Original purpose of the trust cannot be carried out, and
      2. Such allowances [of invading the principal] effectuates the
      intention of the creator.

AT COMMON LAW - There was no authority to invade principle for inco me beneficiary, no matter what.,
even if the inco me beneficiary would u ltimately get the remainder.

Q: Why is (a) prior to 1966 [there was a version of (a) in effect in 1966, leav ing the law as it is.]

                            Pizza guys come in!!!

Both EPTL § 7 -1.6 (a) and (b) require
       1. Effectuation of testators intent [if t rust says DON'T INVA DE PRINCIPA L the trust will prevail].

         PRE -1966 - Under EPTL § 7-1.6 (a) court could invade principal BUT on ly if:
                 the income beneficiary had a interest in the principal, AND
                 if creator would have intended that, AND
                 other beneficiaries had to consent .
                          [also inco me beneficiary must need it ONLY for support or education.]

         POST J UNE 1966 - EPTL § 7-1.6 (b)
                Court can order invasion of principal, even if:
                - other inco me beneficiaries do not consent AND
                - income beneficiary does not have interest in principal or remainder.
                BUT
                (b) still requires - (1) that invasion satisfies original purpose of creator of intent
                                               AND
                                     (2) the allowances would effect intention of the creator.

EPTL § 7-1.16 (c) - Payback.
        If you do invade principal for someone who has a remainder interest that principal received
       ultimately by the person is reduced by the amount advanced.

EPTL § 7-1.16 (d) - Charitable deduction.
        If a trust is partially payable to a person and to a charity, when you make a charitable trust there's a
       presumption that you wanted to get that charitable deduction.
                  IN 1969, Congress allowed split-interest trust [etc. give you give money to Red Cross and



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         you get income for your lifetime.] You can get a charitable deduction for that, but then once you
         have that deduction, they want to make sure the whole remainder p ortion deducted for the charity
         goes to the charity. Very strict trusts that 7-1.6 would otherwise violate, but (d) prevents that portion
         fro m being invaded.


EPTL § 7-1.12 - Supplemental Needs Trust
       Goal is very simply to make a t rust that to enhance the life of a loved one, but to keep that child
       elig ible for Medicaid benefits.
        So, the amounts spent and items allocated are not reachable. If Med icaid would only allo w them
       to see Doctor Z, you could pay for Dr. A that Medicaid wou ld not pay for. Puts into the hands of a
       trusted person all these decisions.

DEF: Trust created for chronically and severely disabled beneficiary that
supplements governmental benefits rather than supplanting them.

Two Types of Supplemental Needs Trusts :

         I. Created wi th the funds of someone other than t he disabled person.
                  a. Purely discretionary trusts (where trustee had TOTA L discretion to pay out or not to pay
                  out; pitfall to this approach was EPTL § 7-1.6, where if trustee had discretion to pay out or
                  not, the income paid out could be attached.  This became problematic when Fed.
                  regulations tried to reach these funds. But problem could be overridden by saying in the
                  trust that EPTL § 7-1.6 does not apply.)

                  b. Escher trusts - Still valid trust. St ill method of sheltering for develop mental disabled,
                  prior to 1993, is still valid if you fail to meet EPTL § 7-1.12 supplementary needs trust req.
                            -- Th ird party would state that you wanted these funds to be used for things other
                            than what govt funds would cover; courts were honoring those both in
                            testamentary trusts and lifet ime trusts. It was a judicial approval of wh at we've
                            now codified in 7-1.12

                  c. Statutory Supplemental needs Trust - On ly one we use now for these purposes - EPTL §
                  7-1.12; effective 1993; specifically prohib its a trustee from using trust's funds (b)(1).

                                     EPTL § 7-1.12 (b )(2) - states EPTL § 7-1.6 is deactivated for this trust.

                   NOTE: No upper limit on the size of this trust.
                  EPTL § 7-1.12 - (a) definitions
                  EPTL § 7-1.12 - (e) form for setting up this trust is right here
                  EPTL § 7-1.12 - (f) Says nothing in this section vitiates Escher trusts

         II. Trusts Established wi th the disabled person's own funds:
                  Q: Ho w could this be given the self0settling trust prohibition we saw?
                           After passing of EPTL § 7-1.12, Congress tried to address the question of whether
                           a person's own funds could be used in a way that would allow someone to remain
                           elig ible for Medicaid and such.
                                       If someone was disabled in an accident, and sued and got a settlement,
                           Congress wondered if those proceeds could be put into a trust for the person. They
                           went back and forth, and in 1994, they finally addressed it, and determined that an
                           individual is considered to have created a self-settled trust if the assets came fro m
                           the person; those assets are income and would preclude the person fro m Medicaid
                           elig ibility.
                           Finally Congress passed regulations that are mirrored by our NYS SSL.

                           NY Social Services Law 366 (b)(2) -- can created a supp. needs trust with the



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                           person's own money IF:
                                    - Disabled person is under 65; and
                                    - Created ONLY by parent, grandparent, guardian or court; and
                                    - Upon disabled person's death, state is repaid for med ial benefits fro m
                                    remainder.

         B E CAREFUL: This needs to be created by only the parent, grandparent, guardian or the court --
         NOT another loved one.

EPTL § 8-1.1 - Charitable Trusts

         Charitable trusts are creature of statute, whereas private express trusts were old co mmon law
         derived. Our predecessor to EPTL § 8-1.1 was enacted in reaction to Tilden v. Green, where donor
         wanted to do public library.

Charitable Trusts Are Different From Pri vate Trust In Four Ways: [TERR]

         1. Tax t reatment - unlimited charitable deduction 100%. No gift tax, no estate tax on it. And would
         get an income tax deduction for it.
                    [Charitable lead trust, where charity gets first inco me; Charitable split trust, where
                    charitable interest follows private interest.] [A trust is a taxpayer and generally has to pay
                    taxes; not so in charitable trusts.]
         2. En forcement - Unlike private trust which is enforced by beneficiaries, a charitable trust is
         enforced by: (a) State Attorney General;. No definite ascertainable beneficiaries - can direct charity
         trust to be given to such charity as A chooses; could not do that in private trust.
         3 Not subject to Rule Against Perpetuities - Private trusts are limited to life of beneficiaries + 21
         years. Charitable trust can last forever.
         4. Reformation of trusts - Private trust reformation is very difficu lt - EPTL 7-1.6 or if trust needs to
         be admin. derivative. In charitable trust we have the cy pres doctrine, wh ich is a way of reforming a
         charitable trust.


p. 918 -- Charities are generally conforming to IRC definition.
p. 921 - "charitable and benevolent purposes" strongest case for charity.
          "charitable or benevolent purposes" -- weaker.

PART B. THE CY-PRES DOCTRINE - REFORMATION of CHARITABLE TRUS T, p. 941

         cy pres - "as near as"

Restatement 3d of Trusts § 67
      If the trust becomes unlawful, impracticable, impossible or
      wasteful. [Be careful with that "wasteful" item -- NY doesn't have
      it.]

RULE: Cy Pres can only be used when there's a general charitable intent,
not specific intent.

TRADITIONALLY - INTENT - Creator was not presumed to have a general charitable intent. Under NYS
courts have to determine whether the settlor had a general or specified charitable purpose.

         Example - NY Case - Testator was graduate of Syracuse medical co llege, then faculty and dean.
         Syracuse medical college closed and its operations were picked up by State Univ. Court had to
         answer was his gift a general charitable intent, or as a specific charitable. Court held, no cy pres
         application, because it didn't look like creator wanted to benefit just ANY med ical co llege.




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Hypo #1 - Trust to find cure for aids, and then cure for aids is found. Could you apply cy pres there?
Depends on whether there was a general or specific charitable intent to cure diseases.

Hypo #2 - Other time when cy pres fails is when the amount of the gift has become skewed.
       i.e. give residuary to trust for kidney transplant section at L.I. Jewish, and when you die the money
       is not enough. Court will ask was it a general intent, could they reform the trust to make a room at
       the hospital?
       p. 949 - NOTES:

Hypo #3 - Thatcher v. City of St. Louis, 1851 trust, established when St. Louis was gateway to the West.
trust set up to help western travelers. St. Lou is stopped being the gateway t o the west.
          Court said they could reform the trust because the testator had a general charitable intent to benefit
          St. Louis, and use the money to help people generally in St. Louis.

Matter of Wilson - Analysis of the way to approach (we did it in context of whether you're allowed to put
conditions on trusts).
          Case where p. 963 - donors designated trusts to be used for male high school grads. Should we
         collapse the trusts because they're discriminatory, or should they be reformed via cy pres?
          Court removed state actor of school board to allow it to stay with only male students.
          When the court talked about cy pres, that if it was a general charitable g ift they could have used cy
         pres, but they found NO GENERA L INTENT here.

         RULE: Executor never puts down the mantle. So thirty years later..

p. 942 - Estate of Buck - Trust corpus ballooned to a huge amount, throwing off $30 million a year.
           Court said just because something is inefficient or ineffective does not qualify to apply cy pres.

          NOTE: When waste is raised it's usually when a trust has shrunk to a point that the admin. costs
         are wasting the trust, etc. She doesn't see Buck fitting into the wasteful category.

FIDUCIARIES - p. 1299.

Being a trustee is a serious thing. Estate of Rothcko, p. 1325, artwork - trustees were crooks. Th ird trustee
didn't do anything but didn't take. Damages against the wrongdoing trustees were calculated differently, but
the do-nothing trustee was $6 million..

Property fi duci aries - people are casual about taking over as a fiduciary, but it's a hefty responsibility, and
can lead to liability.
          Legal responsibilit ies imposed on property fiduciaries tend to be more specific and more onerous
         (that other fiduciaries.)
          Fiduciary of estate - ad ministrator (intestate) or executor (testate).
          Trust fiduciary - trustee
         (guardians, etc.)

EXEC UTOR DUTIES:
      1. Marshal assets - getting deeds made out and real property and personal property together
      2. Prepare taxes
      3. Pay Debts
      4. Accounting of what you've done.
               Process -- if an estate is amicable situation, the accounting is often in the form of an
               informal thing -- everything you received and paid out; give the accounting to the
               beneficiaries of the estate and they sign off on it, and you keep the accounting.
                         Formal accounting - Can also go into Surrogate's court and get a formal
               accounting and approval. Then you have a judicial decree, wh ich is even st ronger than the
               simp le signoff.




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TRUSTEE DUTIES - Concept of duty is different since is ongoing. Trustee must :
     1. Receives assets that go into trust
     2. Prudently make reinvestments.
     3. Follow terms of trust for distributions. (Give $100 to X each month).
     4. Pay expenses.
     5. Account every ten years or so -- Surrogate or Supreme Court. Or informally to beneficiaries as
     well. Then the trustee is exonerated for that ten-year period.
     6. At end of trust, or termination, the trustee distributes the money out and the final accounting is
     done, and the trust is over.

RULE: Trustee or executor is NEVER allowed to make a profit fro m the trust or estate property. Can't do
any self-dealing.
         [Many times beneficiaries would like to buy the house fro m the estate, and if they're the trustee, they
         could do so, but court would make sure they are several appraisals for the h ouse. Other beneficiaries
         could consent to lower market price.]

COMMISSIONS - Are treated as ordinary inco me.
EXECUTORS - SCPA 2307 - get co mmissions 5% of first 100K, then 4%, and then sliding.
TRUSTEE - SCPA 2309 - Gets annual commission and then payout commission on a sliding scale. (2/3 fro m
income and 1/3 fro m corpus).

 RULE: Fiduciary has HIGH DUTY OF LOYA LTY and has to exercise CARE and SKILL.

NOTE: In your trust you can saw you want to relax the standards for the trustee that the statutes 11 -x.x
otherwise allows.

LEFT OFF HERE - Start o ff with EPTL § 11-1.7




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Trust & Estates                              25th Cl ass                         11/20/03

FIDUCIARIES' DUTIES - continued....

 Statutory backing for why to be so careful when serving as fiduciary?
         (See Estate Admin istration course).

Then going to discuss very interesting development in principle inco me -- 11-1.1 (and new 11-1.1A). What's
happened in the past few years is very significant. (We won't be getting to powers of attorney in the last
class -- she'll just tell us what we would have done.)

Meihard v. Salmon (J. Cardozo) - On standard of duty for fiduciary

         "A trustee is held to something stricter than the morals of the
         marketplace. Not honesty alone, but the punctilio of an honor the
         most sensitive, is then the standard of behavior. As to this there
         has development a tradition that is unbending and inveterate... the
         rule of undivided loyalty...."

DUTIES OF FIDUCIARY
       Make no profit and take no personal advantage of the position (no self-dealing).
       Administer the trust or estate
       Maintain a h igh standard of loyalty toward the beneficiaries
       Keep accounts (careful and detailed).
       Render accounts (either one in an estate or every ten years in a trust. Beneficiaries can always go
      into a court to order an accounting)
       Ho ld trust or estate property earmarked (no commingling)
       Perform (don't delegate) duties (can give someone else power of attorney as a trustee to do some
      stuff). -- can get an investment manager however. [prudent investor statute allows])
       Exercise reasonable care and skill (can't delegate judg ment to others... surcharge is when an
      executor or trustee has to pay money back to the estate).
       Enforce claims (have to pursue claims)
       Trustees: make the property productive with due regard to inco me beneficiary and remaindermen.
      (have to invest it and have to invest it in a way that inco me and remainderman get).
       Executors: Marshal and protect assets, make distributions.

SCPA 7-07 - Eligi bility to serve as fi duciary
       A fiduciary may qualify unless he is a:
                 infant;
                 felon;
                 a non-domiciliary alien (with 2 exceptions);
                 unfit because of drunkenness, improvidence, etc.;
                 clueless as to what it means to be a fiduciary;

         If you're not one of the above you do qualify as a fiduciary and then removal is only under certain
         conditions.

FIDUCIARIES' LIAB ILITIES

Matter of Green-
         Turtle Lake Farms - owned one-third each after husband's death by:
                 - Charitable trust created by H during his lifetime
                 - Marital t rust created by H's will
                 - W (u ltimately, W's estate)

Defendants:



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          Co merica Bank
                  - trustee of the charitable trust (along with Jaffee and two clergy man)
          Jaffe
                  - trustee of the charitable trust (along with Co merica and two clergy men);
                  - attorney for Mrs. Green's estate and attorney for her executor;
                  - attorney for the trustee of the marital t rust
                  - attorney for Co merica in its capacity as trustee of the charitable trust.

Very conflicted defendants. All of who m have to agree to the price to sell. Worst thing is that Jaffe sells to
one of his clients.

FACTS:
          Mr. Green's marital trust and Mrs. G's residuary clause left their respective interest in Turtle Lake
         Farm to the charitable trust.
          The beneficiaries of the charitable trust sued to surcharge Jaffee and Co merica because they sold
         the farm for an inadequate price. [had appraisals fro m 3.1 to 5.x million]
          Wrin kle in this case was that trust contained an excu lpatory clause allowed the trustees to "do
         everything they in good faith deemed advisable even though it would not b e authorized or
         appropriate for fiduciaries (but for this power) under any statutory or other rule of law..." and to
         determine the time of a sale of real property for full value in their discretion (page 1313).

Q: Should such a clause be allowed?
        Bad faith is "arbitrary, reckless, indifferent or intentional disregard of the interest of the person
        owed a duty" (p. 1313).

RULE: Trustees must keep beneficiaries informed o f trust administration . In th is case, they had to tell the
charities of the impending sale (p. 1314).

          Here they had to advertise and market the property adequately (p. 1316).
          They had to procure an adequate price (p. 1317.

Failure to do these things were "not mere negligence or errors in judgment ...." Rather, they constituted
"reckless or indifferent disregard of the beneficiaries' interests" and arose to "bad faith" (p. 1320).

Measures of damages:
 The exculpatory clause doesn't seem to cover selling the property for lower price than it would get.
 The court assessed damages in the amount of the difference between the selling price ($3.25 million) and
the appraisal of $5.15 million. Court just a straight standard measure of damages :
                  what you should have gotten - what you did get [in absence of
                  self dealing]
         Court was sort of hog-tied here, in that the property was sold and gone; and how else could the court
have determined fair value other than by the real estate appraisal.

Q: Why didn't the trust's exoneration clause work?
       See EPTL § 11-1.7 - Limitations on powers and immunities of
       executors and testamentary trustees.
                 (a) ... contrary to public policy [if you try and exonerate
                 trustee] from:
                            (1) liability for failure to exercise reasonable care,
                            diligence and prudence; and
                            (2) [cannot give trustee] power to make a binding and
                            conclusive fixation of the value of any asset for
                            purposes of distribution, allocation or otherwise.

                                     Settlor cannot give trustee power to make a binding appraisal o f an
                                     asset's value -- they have to get an outside appraisal [this is partially to



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                                    offset tax ch icanery and other slick dealing].

 NOTE: That limitation on exoneration does NOT apply to trustees of lifetime trustees]
 NOTE: You can exonerate your lifetime trust fiduciary fro m negligence [though not in testamentary
trust], but not fro m gross negligence is how the section is interpreted.
 NOTE: You can, however, allow your fiduciary to self-deal if you want, or state a certain investment
scheme they can follow.

 NOTE: Can exonerate your lifetime trustee fro m failure to exercise reasonable care -- can say "they'll be
liab le only fo r gross negligence or bad faith." Courts honor this, with some slight erosion as of late. But
statute is clear is exempt ing the lifetime trustee fro m this 11-1.7.

Estate of Rothko, 372 N.E.2d 291 (N.Y. 1977), p. 1325 - DUTIES OF TRUSTEES - APPRECIATION
DAMAGES
FACTS: Not a good idea to dump so much of an artists work into the market. 798 paintings were sold to the
studio MAG.
           daughter contested these contracts entered into by the trustees.
           Decedent killed himself. Decedent had contract with one of the studios before death, giving them
exclusive right to sell paintings at 10% co mmission. -- but trustee deal with them was for 50% co mmission.
Three fiduciaries -- t wo conflicted, one passive.
           Surrogate removed all executors under SCAP for breaching fiduciary duty, set aside contracts on
ground of unfairness, and questions was how to make the estate whole.
           They did appreciation damages [of paintings as to what they should have sold for at the time of
the court decree, because there wasn't merely negligence, as in Matter of Green;
           Levine was liab le for $6.4 damages, wh ile others were liab le for ext ra amount bringing it up to
$9.2 million overall by bringing the price of the paintings up to the time of this calculation, minus amount
paid to the estate previously.

NOTE: Appreciation damages are not common; but because of the wrong doing this is how court assessed.

 TIP: If you step in as an executor/trustee you have to keep an eye on your co -executors/trustees. If you
see you need to notify them and beneficiaries stating that you dissent from the decision and repudiate your
role in it .

No-further inquiry rule - Note, the court in Rothko talks about self-dealing -- if there is self-dealing, many
jurisdictions have adopted a no-further inquiry rule, where if there was self-dealing we don't need to look
any further as to the fairness or propriety of the transaction. They simp ly need to undo the deal and make
restitution.

Something else is happening in this area to keep in mind -- NY jarring case decided this past year where
trustee had [sort of like Greene case] two or three entit ies, and through the years there was a regular
accounting, and same parties took over as fiduciaries for the next entity. [For e xamp le, one of the
granddaughters who sued her money came init ially fro m estate and then from mother's trust.]
          At the end the court said the trustee had a duty to look back and hold previous trustees accountable
for previous trustee's accounting and wrongdoing AFTER the accounting. Did not seem to be fairly decided..

RULE: If a private, non-charitable trust has multiple trustees, the
default rule requires that they act unanimously, although the trust can
provide otherwise.

DIFFER ENCE B ETWEEN CONFLICT OF INTERS T AND S ELF-DEALING is important.
          - Very co mmon for a trustee to have a conflict of interest. You can serve as a fiduciary with a
conflict of interest
          (i.e. might name business partner as executor in the will, who has duties toward the corporation and
          different duties toward the beneficiaries of the will.)
But you can 't act on your conflict in a way that will disadvantage one set of fiduciary duties.



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          Self-dealing is also culpable -- some people will allow consent of all beneficiaries, so it in a sense
protects you, but its more prudent to go to court and get approval.

EPTL § 11-1.1 - Sets forth fi duci ary defaul t powers -- if you say "I give my trustee powers under NYS
law" this covers what they get. You can give a t rustee other powers, and there are some things that aren't
covered by the statute that you might want to add.
          (b) is the power portion -- court can make a decree as to what trustee would/can do; then will
          provisions to trustee, then this statute

                  (b)(1) - can accept additions to the estate or trust from sources other than the estate...
                  (b)(3) - invest and reinvest property of the estate or trust.
                  (b)(4) - keep property insured [house or automobile] - listed here as power but duty, too.
                  (b)(5) - can gather rents fro m real property
                  (b)(6() - call sell or lease real property
                  (b)(5)(c) - trustees lease period
                  (b)(5)(D) - mortgage the property
                             BUT can't take a loan.
                  (b)(6) o rdinary repairs
                  (b)(7) g rant options for sale of property up to six months
                  (b)(8) - can foreclose or make mortgages.
                  ....
                  (b)(11) - if one fiduciary d ies the other(s) can continue to admin ister [they still always have
                  had title]
                  …
                  (b)(13) - co mpro mise claims - executor has power to settle a claim against the estate.
                  …
                  (b)(14) - vote shares of stock
                  (b)(17) - enter and execute into agreements
                  (b)(19) - if su m of money under $10K is payable to a kid you can pay that over to a child
                  without getting a guardian appointed.
                  …
                  (b)(20) - can make distribution in cash or in kind -- so could give $10K worth of cash, or
                  $10k in stocks. Fiduciary has some leeway. [has to be out of the estate].

NOTE: Po wers NOT included in EPTL § 11-1.1 :
        Cannot borrow;
        Cannot continue a business [unless it says in the will that the fiduciary is allowed to, OR you can
       go into Surrogate Court and get the court to approve the continuation of the business];
        Cannot self-deal;

WAYS OF THINKING ABOUT INCOM E:

          Taxable inco me (have already looked at that)
          Inco me as compared with remainder - actuarial division of the trust between or among classes of
         beneficiaries
          Inco me as compared with principal - what the trust earns - trust accounting income -- this is OUT
         topic here.

Example -- If you're 80 years old and have an interest in a property - you can make a value that you have of
that by looking at an actuarial table and coming to an amount.
           That's useful in thinking about income for market purposes.

Example: Suppose you make a trust of $100K in cash that earns interest, the interest is the income; the
$100K is the principal.

The former Princi pal and Income Act, EPTL § 11-2.1 (is now 11-A -x), defined trust accounting income



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narrowly (div idends on corporate stock , rental on real property interest on bank account and bonds, etc.).

          EPTL § 11-2.1(a)(1) required that a "trust shall be administered with due regard to the respective
interest of income beneficiaries and remainderman." [this is now also in our p rudence rule, but this statue
11-2.1 is no long in effect.]

         For the inco me beneficiary, that required reasonable income (that is, trust accounting income). But
         in the last twenty years the Dow Jons average went from 1000 to 10000 [back down to nearly 4000].
         But reasonable income was not being thrown off by the DJ index.

OLD S TANDARD
       EPTL § 11-2.2 - the "Prudent Man Rule, in effect before 1949 required that a "fiduciary holding
       funds for investment... invest the same in such securities as would be acquired by prudent men of
       discretion and intelligence in such matters...."

NEW S TANDARD - Takes entire portfolio approach of conduct.
       EPTL § 11-2.3 - now requires "standard of conduct, not outcome or performance ."
       (subparagraph (b)(1)); it requires the trustee to use the "reasonable care, skill and caution [that] a
       prudent investor would for the entire portfolio ..." (subparagraph (b)(2)).

                 The new approach is the prudent investor rule takes a portfolio as a whole approach, not
         weighing each ind ividual investment and asking whether IT was prudent.

PRUDENT - The old statute went on to require that a fiduciary invest as a prudent man would who was
"seeking a reasonable i ncome and preservati on of [his] capi tal. . . ." (EPTL § 11-2.2(a)(1)).

         Missing 11-A [don't have that volume]

Under EPTL § 11-2.3(b)(3)(A), trustee still must " pursue an overall investment strategy to enable the trust to
make appr opriate present and future distri bution to or for the benefit of the beneficiaries under the
governing instrument, in accordance with risk and return objectives reasonably suited to the entire portfolio."
-- So the trustee still has to think about the income and remainder beneficiaries.

NOTE: Capital appreciation, if stock is sold, is not considered income, but is accu mulated into principal.

However, new prudence EPTL § 11-2.3 rule still required trustees to earn income.
In short two objectives clashed in EPTL 11-2.3:
           Investing for a "total return" under the prudent investor rule
                             and
           balancing the interests of the income beneficiaries and the remainderman.

Jan. 1, 2003 legislation solved this problem. In overview:

         The NY leg islature created a new Principal and Income Act (EPTL § 11-A) that defines "income"
         as a "money or property that a fiduciary receives as current return from a principal asset ," EPTL §
         11-A-1.2(4), and "princi pal" as "property held in trust for distribution to a remainder beneficiary
         when the trust terminates." EPTL § 11-A-1.2(10).

LEFT OFF HERE…
The defini tions above di dn't make the real changes, but legislature gave fi duciary two super i mportant
options.

         1. EQUITAB LE DISTRIB UTIONS - If the trustee opts to administer the trust under the Principal
         and income Act (EPTL § 11-A), he can make equitable adjustments between income and principal
         (EPTL § 11-2.3(b)(5)). [eg. if you see each year that your income beneficiary is only getting a small
         amount you can allocate a capital ga in, or some of the principal in the trust to the income



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         beneficiary.]

         2. UNITRUS T - A lternatively, t rustee can treat the trust as a unitrust under a new EPTL § 11-2.4
         and pay out 4% of its value annually to the income beneficiary (regardless of actual inco me earned
         by the trust assets).
                   [Treating it as a unitrust -- put money in, but instead of directing that the actual income be
                   paid out, you set a percent of the principal valued each year over to the inco me beneficiary.
                   This is nothing new; unitrusts were nothing new, and since 1969 have been very popular in
                   the arena of charitable trusts, when Congress passed very stringent charitable trust
                   requirements.]

                            So, under the this provision the trust is revalued each year, and the person gets a
                           flat 4% of the trust's principal value -- and this allows the income beneficiary to
                           take advantage of growth stock potential.
                            In practice the current year is averaged with previous two years to smooth out
                           what inco me beneficiary gets -- provides predictability to an extent.

 NOTE: If you opt for unitrust (option #2) and then decide you've made a mistake, you have to go to court
to get it changed to other scheme.

EPTL §11-2.3 (a) - A trustee has a duty to invest and mange property ...
in accordance with the prudent investor standard of this section.
      * * * *
      except as otherwise provided by the express terms and provisions of
      a governing instrument . . . ."

         Trustee can state a conservative investment approach, fixed investments, etc. Nothing in EPTL §
         11-2.3 prevents a grantor from defin ing investments and investment strategies, limited only by
         EPTL 11-1.7, which states that in a testamentary trust it is against public policy to exonerate the
         trustee for failure to exercise reasonable care, etc.

         (b) The prudent investor rules requires a standard of conduct, not outcome or performance.

         Co mpliance ... is determined in light of facts and circu mstances prevailing at the time of the
         decision or action of a trustee.

RULE: A trustee is not liable to a beneficiary to the extent that the trustee acted in substanti al compliance
with the prudent investor standard OR in reasonable reliance on the express terms and provisions of the
governing instrument.

§ 11-2.3 (b)(2) - RULE: A trustee shall exercise reasonable care, skill
and caution to make and implement investment and management decisions as
a prudent investor would for the entire portfolio.

§ 11-2.3 (b)(3) The prudent investor standard requires a trustee:

         (A) to pursue an overall investment strategy to enable the trustee
         to make appropriate present and future distributions to ... the
         beneficiaries ... in accordance with risk and return objectives
         reasonable suited to the entire portfolio.

         (B) To consider. .. the size of the portfolio... tax etc. .. the
         expected total return of the portfolio, including both income and
         appreciation of capital, ... and the needs of beneficiaries .. for
         present and future distributions....




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Trust & Estates                                   R. Santalesa                                            Professor Turano



NOTE: Under subp. (b)(4)(B), the trustee may also consider related trusts and the income and resources of
beneficiary to the extent reasonably known to the trustee.

The new subparagraph (b)(5)

Where the rules in Article 11-A apply to a trust ...
        and the terms of the trust describe the amount that may or must be distributed to a beneficiary by
        referring to the trust's income, ...
                  - the prudent investor standard also authorizes the trustee to adjust between princi pal and
                  income to the extent the trustee considers advisable to enable the trustee to ... [missed here]
                  - if the trustee determines, after applying the rules of 11-A, that such an adjustment would
                  fair and reasonable to all of the beneficiaries, so that current beneficiary may be gi ven
                  such use of the trust property as is consistent with preservation of i ts val ue ]still trying
                  to do balancing between income and remainderman].

The trustee's deliberation process:

Review the (b)(3)(B) factors above:

         the size of the portfolio, the nature and estimated duration of the fiduciary relationship, the liquidity
         and distribution requirements of the governing instrument, general economic conditions .. inflation
         and deflation, .. the tax consequences of investments decisions .. the expected total return of the
         portfolio, including both income and appreciation of capital, ... and the needs of beneficiaries .. for
         present and future distributions...

[download this slideshow]

LEFT OFF HERE
Will do future interests and then start RULE OF PERPETUITIES.




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Trust & Estates                                26th Cl ass                                    11/25/03

Talking about Princi pal and Income Act - new...

         Last class talked about restrictions on trustee under the old prudent investor act and today new
principal and inco me act, that requires trustees to be careful of both the income beneficiary and the
remainderman.

Dilemma arose because of the stock market rise and growth was outstripping yield. That's the reason for this
new leg islation, wh ich takes two forms.

         OPTION #1. the Trustee's Power to Adjust -- if he finds the income at the end of day isn't enough
         he can make an equitable adjustment. EPTL § 11-2.3. No w trustee is going to be able to make
         investments in stock that rise greatly in cap ital, but can then make equitable pay ment to inco me
         beneficiary.

                   Trustee factors - not on test.

         OPTION II - The Unitrust option -- Opt for it at beginning, and to then change have to go back to
         court; permits trustee to treat trust as Unitrust paying income beneficiary a percentage of trust.
         EPTL § 11-2.4 (4% of the trust, regardless of what the trust actually earned.) Standard court will use
         to review a decision by the trustee is abuse of discretion.
                  NOTE: The 4% is calculated by averaging the trust's income over last three years.

---> MISC Provisions. Not on exam.

These changes are bold modifications, done Jan. 1 of last year.

PRUDENT INVESTOR RUL E

EPTL § 11-2.3 - Prudent Investor Act
       Significant change fro m prev ious version in effect until 1994 (as 11-2.2), and now it allows a trustee
       to use portfolio theory of management -- NOT the prudence of every single investment, but the
       prudence of the overall scheme of investment taken. (i.e. could put 50% in equit ies, 50% in
       something else and gauge the prudence overall, not the individual choices.)

NOTE: The trust instrument can overrule this and state "I want my trust to be in speculative items" - but the
trustee always still has to be prudent, in keeping as much as possible with the trust instrument.

EPTL § 11-2.3 (8 )(a) - If a testamentary trust § 11-1. 7 will apply -- cannot exonerate your trustee from
ordinary care and prudence. In lifetime trust you can tell your trustee he has more leeway than a
testamentary trust.

         (b)(1) requires standard of conduct, not outcome or performance.

         (b)(2) reasonable care ... for entire portfolio … taking into accounting governing instrument.

         (b)(3) - overall investment strategy taking both present and future interests in account. Note
         doesn't take notice of new (b)(5) and new 11-2.4 here -- so, there shoul d be references made
         next year in a technical correction.

         (b)(3)(B ) - Consi der all of the factors in making investment

         (b)(3)(C) - Di versify assets -- has been specified as a requirement now into the statute; it's not cut
         in stone because statute says the trustee can reasonably determine that it 's not in the best interest of
         the beneficiary. But safe course is to have a good well-mixed group


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         (b)(3)(D) - just because a portfolio of stocks/funds/etc. comes to you as the trustee in the initial
         created trust you aren't allowed simp ly to keep it; you have to decide whether it's prudent to have the
         items already in the trust.

         (b)(3)(4) -- trustee is allo wed to consider other assets/income of beneficiary - delegation feature --
         usually a trustee is not allowed to delegate any duties -- but here you can delegate investment
         management functions.
                             BUT - If you do delegate trustee investment authority subparagraph (C) says
                  trustee has to keep some responsibilities for himself (e.g., choosing the delegee carefully,
                  establish scope of delegation carefully, and control the cost of the delegated service.)

 NOTE: Trustee is always ultimately responsible.

         subparagraph (b) -- looked at power to adjust via new Principal and Inco me Act

         (b)(6) - Special Investment SkiIls.
                   If you hire a professional advisor or your trustee is a bank (corp. trustee) then their standard
                   of prudence is higher than what's required of an ordinary trustee. The exercise of skill
                   contemplated ... shall require the trustee to exercise such prudence ... as those having such
                   special investment skills ….

EPTL § 11-A - Defines what interest and other income is "income" fo r terms of inco me beneficiary.

FUTUR E INTERES TS & RULE AGAINST PERPITUDITIES

Future interest - Article 6 - important article because it defines ownership in property and says how we can
own property.

         Part 1 - Define property in terms of duration
         Part 2 - Nu mber of people involved in the ownership (i.e. tenancy in co mmon)
         Part 3 - Length of enjoyment of the property

Rule of Perpetuities looks at property fro m when an interest VESTS in someone. When is the vesting point?
That's because the Rule Against Perpetuities s ays something has to be able to vest (not that it must vest)
within a Life in Being at the time of the interest creation + 21 years.

WHEN DOES THIS PROPERTY VEST IN SOM EBODY -- Vest means certain to become an estate in
possession (in other=worlds it's certain, there's no contingency attached at that point.).

If you hand someone ten dollars that gifts vests in that person immediately.

FUTUR E INTERES TS

EPTL § 6-3.2 - GRANTOR FUTURE INTER ES TS
        REVERS ION - very common.
        POSSIBILITY OF REVERTERS
        RIGHT OF REENTRY (which we call in NY the Right of Reacquisition 6 -4.6)

EPTL § 6-3.2 (a)(2) - GRANTEE INTER ES T

          REMAINDER
          EXECUTORY INTEREST (subsumed in NY into contingent remainder [condition
         precedent and subsequent and li mitati on) -- NY doesn't have an e xecutory interest anymore.




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4 CATEGORIES OF VES TING. (see sheet handout)
       The "contingent" interest, officially called an "interest that is subject to a condition precedent".

DOING FUTURE INTEREST PROBLEMS > (See handwritten sheets).

 NOTE: An income interest for life in a trust is not a life estate -- important to note because 7-5.1? , says
an income interest is inalienable, wh ile a life estate you can alienate.

RULE: In trusts you never read any conditions into an instrument that isn't already there (i.e. never read a
requirement for survivorship in unless the trusts expressly says so .)

PROB LEM #1 - Present interest for life - 6-4.1
      and Reversion for G (DPTL 6-4.4)

PROB LEM #2 - Gi ves property to A for life.
      A - life estate is a present interest.
      G - indefeasibly vested reversion [EPTL § 6-4.4] is future vested interest. [It's indefeasible because
      nothing will change that it doesn't come back to G.]

PROB LEM #3 -
      A - life estate
      B - indefeasibly vested remainder EPTL 6-4.7
      Even if B d ies before A, B's estate will get it; there's no survivorship requirement read into.

PROB LEM #4 -
      G - Reversion [EPTL 6-4.4] -- reversion can be indefeasibly vest or vested subject to defeasance
      [possibility of reverter is when B's interest is subject to defeasance, and G could then get it back.]
                - G's - reversionary interest is vested -- but is subject to divestment.
      A - life estate
      B - contingent remainder (subject to condition precedent under EPTL § 6-4.10).

PROB LEM #5 -
      A - life estate
      A's kids - contingent remainder
      G - reversion interest [EPTL 6-4.4)

PROB LEM #6 -
      G - nothing
      A - life estate
      A's kids - vested remainder subject to open
                 unborn kids have contingent remainder (a remainder subject to a condition precedent
                under EPTL 6-4.10).

PROB LEM #7 -
      A - life estate
      G - reversion (if G is dead his estate has a reversion) - 6.4.4 - if one of A's kids reach 30 G won't
      get.
      A's kids who reach 30 - contingent remainder subject to open
      A's unborn children - contingent remainder (subject to being born and reaching 30.)

PROB LEM # 8
      A - life estate
      A's living child - vested interest subject to open.
      A's unborn - have contingent remainder (s ubject to a condition precedent)
      G - has no reversion.




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 NOTE: A LWAYS LOOKING TO CATEGORIZE THE INTEREST AT THE OPENING.

PROB LEM #9 - EPTL 6 -4.9 -
      W - life estate
      Son-in-law - remainder vested subject to complete defeasance (EPTL 6-4.9)
      Daughter - contingent remainder (subject to a condition precedent under EPTL 6-4.10)

 NOTE: Language that usually characterizes co mplete defeasance is B UT IF or ON CONDITION
THAT. So if you were to say I give the remainder to my son-in-law, but if he divorces my daughter you
have set it up as a condition subsequent.

PROB LEM #10 -
      W - life estate
      Son-in-law - indefeasibly vested remainder (EPTL § 6-4.7)
                "on condition that"

REVERTER - EPTL § 6-4.5
       Terminates automatically on a period of time.

RIGHT OF REA CQUISTION EPTL § 6-4.6
       A right of reacquistion is the future estate left in the creator o r his successor in interest upon the
      simu ltaneous creation of an estate on a condition subsequent.
       Casebook calls it power of termination or rights of entry.
      Grantor is transferring functionally the same thing... but it's purely semantic and historical
      difference. Co mes fro m o ld co mmon law for purely historical reasons .


PROB LEM #11
      X - life estate
      Y - remainder vested interest subject to complete defeasance. [BUT IF language sets up a condition
      subsequent] (EPTL 6-4.9)
      BUT always consider the rule against perpetuities.

FEE ON LIM ITATION - "so long as" -- classic fee on limitation or fee simple determinable language
includes some running of time language.
         "so long as"
         "during"
         "until"
         "while",
etc.

PROB LEM #12 -
      City has fee simp le on limitation
      G - has possibility of reverter
      The "for so long as" language is a time based limitation

PROB LEM #13 -
          The grantor's interest in this property is the possibility of reverter. It occurs automatically on the
failure of the limitation. So long as makes it fee on limitation.

PROB LEM #14 -
      Typical words that indicate a condition subsequent, and hence the right of reacquisition, are "on
      condition that, provided that," "if", "bit if."

          D gets the property subject to a condition subsequent, and G has the right of reacquistion (EPTL
         6-4.6).



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Trust & Estates                                    R. Santalesa                                           Professor Turano




PROB LEM #15 -
       G - has right of reacquisition (EPTL 6-4.6), and Z and Z's issue get the property subject to a
      condition subsequent.

NOTE: The RPL and other statutes contain provisions that require the possibility of reverter and the right of
reacquisition to be registered at awkward intervals (between 27 and 30 years after creation and then every ten
years thereafter) or the grantor will lose it.
          This reflects the law's disfavor of such restrictions (that is, the legislature hoped many of them
         would disappear).

NOTE: BUT IF - indicated condition subsequent and complete defeasance are the same thing.


RULE AGAINST PERPET UITIES

In NYS we have three ru les against perpetuities - we'll cover t wo

         EPTL § 9-9.1(a) - Suspension of Alienation Rule.
         EPTL § 9-9.1(b) - Vesting rule - codification of the common law
         rule against perpetuities.

          A third application deals with leases and rights of first refusal and such. [Turano will try to talk
         about it and give us something to tuck into our notebooks to keep in mind. The cases are kind of
         scary on this -- things are fine and then one party says "this lease violates the rule against
         perpetuities" so we're not going to honor it.]

EPTL 9-1.1(b) - Vesting rule

RULE - For perpetuity purposes, we always analyze the interest fro m the time the trust is created (and
remember a trust in NY is by default irrevocable [though it can be revoked]), o r if the trust is a lifetime
revocable trust, we analy ze fo r perpetuity purposes from the point when the trust becomes irrevocable
(typically on the death of the grantor).

RULE: If it's at all possible (not that it would) that an interest COULD vest too remotely, it's invalid fro m the
start!! If it COULD vest too remotely -- have to check for th is as the essence of the R.A.P.
          Example - inco me to my husband, and their children and then grandchildren... if one of the interests
          could occur too remotely it will be cut out of the trust right now.

Question isn't did it vest too remotely, but could it possibly vest too remotely, or not at all.

PINPOINT THE CREATION OF THE INTEREST - WHEN IS TRUST CREATED?
       If it's a testamentary trust - the interest is created when the
      testator dies.
       If it's a lifetime trust - the interest is created when the trust
      is made (or if its revocable, when it becomes irrevocable).

         First ask -- Is the interest contingent?
                     - If yes, do a perpetuities analysis.
                     - If not contingent and it's already vested, it's fine
                     -- no rule against perp. issues.

         Second, big picture perp. question is:
               Is it possible that the interest could vest more than 21
               years after lives in being at the interest creation? [people
               who are alive today.]



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Examples of vested interests...
        To A for life, remainder to B. The remainder interest vest in B upon creation. We don't read in a
       survivorship requirement.
        Inco me to W for life, then income to D for life, re mainder to GD or her estate. The remainder to
       GD is vested. There is no contingency here, so you don't need to look at perpetuities.

CONTINGENT INTERESTS

          Interest conditioned on survivorship, as in "income to my daughter, remainder to my grandchild
         alive at my daughter's death." Interest contingent on survivorship IS a condition interest. EPTL §
         6-4.10 (contingent, non-vested subject to cond. precedent). Unborn GC have to be born and survive
         the daughter.

          Class interests conditioned on reaching an age - Inco me to my daughter, remainder to my
         grandchildren who reach the age of 30 -- this you have to apply a perpetuities analysis to the
         grandchildren class.

          Contingent interest conditioned on an event -- As in income to X, remainder to Y if she has at that
         time graduated fro m law school; remainder to Y is contingent on occurrence of uncertain event.

LEFT OFF HERE..




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Trust & Estates                                    R. Santalesa                                           Professor Turano



Trust & Estates                                27th Cl ass                                    12/02/03
Joe's notes… lost mine.

Common-Law Rule Ag ainst Perpetuities (9-1.1 b)
      See handout

Income to W fo r life, then inco me to daughter D for life, remainder to grand -daughter GD or her estate. The
remainder to GD is vested.

Note: Vested if at all does not require that the interest must eventually vest.
 RAP does not apply to vested remainders, not even those vested subject to defeasance.  It does not apply
to reversionary future interests.
 Class gifts are subject to the RAP.          All-o r-nothing rule - if the interest of any potential class
member might vest too remotely, the entire class gift is invalid.

 Powers of appointment are an exception to the usual NY prohibit ion against a wait-and-see approach.
The default is the all-or-nothing approach from the start.

 Ti p: The parents of the class whose interest is under analysis for RAP are often the ones to examine as the
relevant 'lives in being.'

         Consider if all these living people were to die, is it possible
         that 21 years could go by after that and somebody is still waiting
         to have the interest vested? If so, this violates the RAP.

 A period of gestation can extend the 'lives in being + 21' formu la
 The measuring lives must be human but need not be related to the trust.

CB method of applying RAP: CB p. 1177. The same logic but a positive, rather than negative, analysis. I
find it confusing--will stick with her approach.

 RAP will likely be changing in NY within the next 5 or 6 years.

Hypo 1 : no contingent interest for the children; the grandchildren may or may not be all vested. Could any
of the grandchildren's interest vest more than 21 years after a life in being? No. The measuring lives are the
children. When the children die, it beco mes a closed class, b/c at that point there cannot be any more
grandchildren. It will therefore vest in the grandchildren (at the latest) when the children die.

Hypo 2 : The g ift to B's children who reach 21 is valid. It is contingent (upon their being born and reaching
21), but B is a life in being and his children will have to vest (that is, reach 21) within 21 years of B's life.

Hypo 3 : Here A and B are the lives in being. Could A and B be dead and more than 21 years go by without a
vesting? Yes. But in NY the gift would be saved by the reduction of age contingency in 9-1.2.

EPTL § 9-1.3: There is a statutory presumption that
       a male can have a child at 14 years or older;
       that a female can have a child at 12 but not after 55.

These presumptions can be rebutted by evidence about the actual fertility or infertility of the person in
question. This data, however, cannot be used to show that a 56 year old wo man is actually fertile. Usually,
this information is relevant only to save an otherwise-invalid gift.

EPTL § 9-1.2: When there is a contingency invalid ONLY because of a
requirement that the person reach an age over 21, the requirement will be
reduced to 21, and the distribution will occur then, at 21, contrary to
the testator's intent.



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Trust & Estates                                    R. Santalesa                                            Professor Turano




Hypo 4 : Invalid : the scenario is that there is an after-born child, then other children and the grantor die, then
more than 21 years pass before a grandchild is born. This hypo would have a different outcome under the
suspension-of-alienation rule.

         Digression on suspension of alienation rule:
                   Remember an inco me interest in inalienable fo r their entire duration, un less otherwise
                  specified. Here, the inco me interest would also be invalid (why?).

         CB p. 1184 hypo #1: all the interests are valid. A is dead at testato r's death, X and Y are both vested
         at the creation of the trust. Remainder to A's grandchildren: the contingency is to be born, which
         has to occur within the lives of A's child ren, X and Y, who are lives in being.

         CB 1184 #2: Invalid. It could vest too remotely if A had an after-born child, then everybody died,
         and the after born child would reach 25 mo re than 21 years after a life in being. Note: in NY, the
         age contingency would be reduced to 21.

Rule of Convenience : CB pages 1184 and 1116:

          First prong of the rule:
                  The use of only a group or class description indicates that all persons who fit the
                  description--whenever born--were intended to share the gift

          Second prong:
                  You can close the class artificially and prematurely at the point when a distribution may be
                  made.
          Third prong: when they conflict, Rule #2 p revails over Rule #1.
NOTE: The Rule o f Convenience stands separately fro m the RAP and was not created for that purpose.
Rather, they were created to keep property moving and to not have to wait an inordinate period to distribute
property.

RULE: The Rule o f Convenience is applied whenever applicable, not just RAP issues.

         CB p. 1184 # 3: Valid. The class closed by the rule of convenience at G's death. If the other
         children reach 25, they will also take their share. Afterborns would not take anything.

         CB p. 1185 # 4: The remainder interest is invalid. The class remains open b/c the rule of
         convenience operates only [she changed the slide too quickly]. If this were a NY analysis , the age-
         contingency reduction rule would save it.

Hypo # 6 : Here, the class closes around all of A's living children. So, the gift is valid. The class closing rule
saves against the RAP because it makes the members of the closed class the lives in being.

NOTE: the class-closing (convenience rule) closes around all existing members of the class at the time of
closing. So, the existing members at the time of closing could take if they meet the contingency.

RULE: If it can be applied, the rule o f convenience must be applied.

Hypo #7 : Gift is valid for the same reasons as in hypo 6.

LEFT OFF HERE… only one class left to go.




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Trust & Estates                                    R. Santalesa                                           Professor Turano



Trusts & Estates                     Last Cl ass                                     12/04/03
        PERPETUIT IES -picking up and finishing.

Rule of Fertile Octogenarians - NY EPTL presu mption that women over 55 are infertile for purposes of
applying the Rule of Perpetuities.

FINAL EXAM INFORMATION:
       Three former exams of her - two on web -- one hard copy in library.
       Dec. 15th - 6:30 - 9:30 p.m.
       She'll be here between now and exam stuff. (outline).
       100-120 (T&F).
       No calculators.
       EXAM IS PURE EPTL. (But trust materials will include cases discussed in class, but UPC
      material not covered at all.) Remember domiciliary stuff.
       Very little taxes on FINA L (whew!)
                - most basic things (unlimited marital deduction, $1mill unified credit; etc. things she said
                over and over).
       NOTE ON TES T -- Application of Ru le of Perp. to property leases, interests, rights of first
      refusal (read symphony space case, but not on test.)
       2 ESSAYS -25% each or (20 & 30).
                          - may assign points to explaining a T&F question (i.e. when you renounce and
                          sibling has unequal number o f children.)
       ONLY VES TING RULE 9-1-1(b) -- NO SUSPENSION OF A LIENATION RULE on FINA L
                Print out suspension of alienation ru les -- down load -- tried to give little class notes in it,
                too. [also check outline]

PERP. PROBLEMS #8 - Class closing rule not applicable, and class still open. INVALID. The
contingencies for A's children are to be born and to reach 30. That's problematic because A could have a
child born after the T's death who could reach 30 more than 21 years after A's death (and the deaths of
everyone else alive at T's death).
         But NY EPTL § 9-1.2 saves it via the age-contingency reduction rule.

PROB LEM #9 - Not only the nieces fro m that brother. Really need more info -- are T's parents dead?
       Niece's have contingent remainder -- to be born and reach 21. That could happen more than 21
      years after lives in being IF the T's parents are still alive after the T's death, then it's INVALID.
       If the T's parents are dead, then it's VALID.

Q: What could save it?
        First , if the testator's parents were dead at his death. Then the class of testator's brothers and sisters
        would be biologically closed, and any niece would have to reach 21 (if at all) within 21 years of her
        birth, wh ich has to be during the life o f a lie in being.
                   - And class closing doesn't work because the money's NOT ready to be paid out -- as the
                   brother is still alive. [Thin k about the parents who's class you're analyzing -- even though
                   T's parents aren't part of this trust.]
        Second - if B is dead at T's death and one of the nieces has reached 21. Then the rule of
        convenience closes the class of nieces to those alive, and the money would be ready to be paid out.
        [Class closing wants to keep class open as long as possible, and then close the class artificially when
        money is ready to be paid out.]
        Third - requires knowledge of the fertile octogenarian rule. If the father is dead and the mother is
        over 55, the class is closed.

§ RULE: Note, under common law rule the only one of the three things that
applies in “class closing”, while under NY’s application you have (1)
fertile octogenarian, (2) rule of convenience class-closing and (3) other
contingencies are part of NY law.




NY01/SANT RI/864207.1                                                                                         127
Trust & Estates                                      R. Santalesa                                               Professor Turano



PROB LEM #10 - Contingent on nieces being born and reaching 21. Once one reaches 21, the class could
close around those alive at the time.
          Depends on whether T's parents were dead or not, or in fertile.
          Start with same analysis. That is, if the parents are dead, the interest is VALID.
                  If they're alive, can you apply the rule of convenience?
                                      If a n iece has reached 21, the class closes and the gift is valid. If no niece
                            has reached 21, the interest is invalid, unless the fertile octogenarian rule applies
                            (father dead, mother 56)..
         The class would be closed artificially, though once one of the nieces reached 21, and then the Rule
of Convenience would kick in and after born nieces would be out of luck to bring the estate wrapped up.

NOTE: Remember Rule of Convenience is not simply a R.A.P. law, but is applied whenever appropriate.

PROB LEM #11 - Children is vested immediately, so there's no R.A.P. applicab le - no problem.
Grandchildren - vested subject to open. Gift to grandchildren is VA LID. The class of child ren is closed
because the testator has died. The contingency for the grandchildren is to be born. They will be born during
the lives of their parent, the closed class of testator's children.
          Remainder to G.C. surviving issues - contingent remainder subject to open. Contingency is to be
born and survive death of grandchildren. And that could occur more than 21 years after lives in being. The
lives in being are the grandchildren alive at testator's death, which is not a closed class. An after born
grandchild could give birth to a great-grandchild more than 21 years after the death of lives in being.

PROB LEM #12 - VALID. The gift to A's children is VA LID, because it vests at A's death. [If XYZ do not
survive any after born, the remainder interest goes to XYZ's issue, which you kno w when the last of XYZ
die, who are all lives in being.]
           The gift to XYZ is VA LID because they're all lives in being. -- Ru le Against Perp. statute says
interest must vest, if at all [not necessarily that interest has to vest], the gift to their issue is valid because it'll
vest, if at all, when XYZ die before the last of A's children.

Page 1179, Problem #1
         To A for life [VA LID not contingent] -- then to A's children for their lives [VA LID because it's
vested for children born and on A's death for kids who are not born the class has closed], AND on the death
of each of them to the survivors [VA LID for same reason] and on death of last survivor to B and her heirs
[not contingent - vested upon creation in B (so no R.A.P. analysis).]

Page 1180, Problem #2 (a)(1) - fee on limitation - A LL INTERESTS A RE INVA LID. An heir of A, and B's
estate, could vest more than 21 years after lives in being. A's great-grand-children could be living there and
no liquor being sold -- too remote -- [Interest is VA LID for A, however.] "and if it is to B" that's also
INVA LID.

p. 1180 - Problem #2 (a)(2) -- All interests are INVA LID [except A's interests]. This is a condition
subsequent rather than a fee on limitation, but the vesting in A's heirs and B's estate could still happen too
remotely.
p. 1180 - Problem #2 (2)(b) - A ll are VA LID, but INVA LID for the interest of "corpus to A's grandchildren"
The grandchildren‟s contingency is to be born, but a child of A's could be born after G's death and more than
21 years could pass before having a baby, therefore, that grandchild wou ld vest too remotely.
p. 1182 - Problem - Trickiest one we do.
G makes a trust, income to herself for life . [see answer in book written, and answer in outline p. 139].]

Has PowerPoint presentation that redoes all these problems with suspension of alienation

 NOTE: suspension of alienation has now become irrelevant -- if you vest in time you can alienate, even
an contingency interest -- in NY inco me interests are ALL inalienable (and so many of the answers to hypos
are same except where inco me interest is in favor of a class that include unborns and so the interest would
remain inalienable for too long.).
                                                        LEFT OFF HER E - THAT'S IT!!



NY01/SANT RI/864207.1                                                                                               128

								
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