All MEE Subjects Flashcards

Question

Rights of Partners Among Themselves

Answer 1

Sharing of Profits and Losses * Unless otherwise agreed, profits are shared equally between partners, and losses will be shared in the same ratio as profits. Right to Management & Control * Unless otherwise agreed, each partner has equal rights in the management and control of the partnership business Transfer of Ownership Interest in a Partnership * A partner can only transfer: (1) his interest in the share of the profits and losses; AND (2) his right to receive distributions. Right to Partnership Property * A partnership is a distinct legal entity from its partners. All property acquired by a partnership OR with partnership assets is owned by the partnership Remuneration (Payment for Partner’s Services) * A partner is NOT entitled to remuneration (payment) for services performed for the partnership UNLESS: (a) there is an agreement to the contrary; OR (b) it is for the reasonable compensation of services rendered in winding up the business of the partnership

Answer 2

Management & Control in a Limited Partnership * A Limited Partnership (LP) is composed of general and limited partners. General partners of a LP have full management rights and control the partnership business to the exclusion of the limited partners. Limited partners have NO say or control as to how the partnership is run, and they DO NOT have the right to manage or control the day-to-day business of the partnership. Limited Partner’s Right to Inspect Records * Under RULPA, a limited partner has the right during normal business hours to inspect and copy any information that the Limited Partnership (LP) is legally required to keep

Answer 3

Duty of Care * A partner owes the fiduciary duty of care to the partnership and the other partners, but this duty is limited. Under the RUPA, a partner is only in breach of the duty of care when he engages in: (a) grossly negligent or reckless conduct; (b) intentional misconduct; OR (c) a knowing violation of law. Duty of Loyalty * Partners owe the fiduciary duty of loyalty to the partnership and the other partners, which requires partners to act in the best interests of the partnership. Duty to Provide Full Information * Under the Uniform Partnership Act (UPA), partners shall render, on demand by any partner, the true and full information of all things affecting the partnership.

Answer 4

A partner becomes dissociated from the partnership upon: (1) notice of the partner’s express will to withdraw; (2) occurrence of an agreed upon event in the partnership agreement; (3) expulsion pursuant to the partnership agreement; (4) expulsion by the unanimous vote of the other partners if it’s (a) unlawful to carry on the partnership business with that partner, or (b) there has been a transfer of all or substantially all of that partner’s transferable interest in the partnership (other than a transfer for security purposes); (5) judicial expulsion; (6) bankruptcy; (7) incapacity or death; (8) appointment of a personal representative or receiver; OR (9) termination of an entity partner

Answer 5

Unless there is an agreement to the contrary, dissolution occurs upon: (a) notice of the partner’s express will to withdraw; (b) an event agreed to in the partnership agreement; (c) an event that makes it unlawful for all or substantially all of the business to continue; (d) judicial dissolution on application of a partner that (i) the economic purpose of the partnership is likely to be unreasonably frustrated, (ii) another partner has engaged in conduct making it not reasonably practicable to carry on the business with that partner, or (iii) it is not reasonably practicable to carry on the business in conformity with the partnership agreement; OR (e) judicial dissolution on application of a transferee

Answer 6

A non-judicial dissolution of a Limited Partnership (LP) occurs upon: (a) the happening of an event specified in the partnership agreement; (b) the consent of all general partners and of limited partners owning a majority of the rights to receive distributions; (c) after the dissociation of a general partner either (i) upon consent of partners owning a majority of the rights to receive distributions as partners (if the LP has at least one remaining general partner), or (ii) the passage of 90 days after the dissociation if the LP does not have a remaining general partner (unless the LP admits at least one general partner); (d) 90 days after dissociation of the last limited partner, unless the LP admits at least one limited partner; OR (e) the filing of a declaration of administrative dissolution by the Secretary of State for the partnership’s failure to pay fees or abide by filing requirements.

Answer 7

During the winding up process, partnership assets are converted to cash and then distributed in the following order: (1) creditors; (2) partners’ capital contributions; and (3) profits to be distributed among the partners.

Answer 8

Under the RMBCA, a corporation’s existence begins on the date the Articles of Incorporation are filed with the Secretary of State, UNLESS a delayed effective date is specified. The RMBCA DOES NOT allow for an earlier effective date to be specified because a corporation CANNOT exist until the Articles of Incorporation are properly filed. * The Articles of Incorporation MUST contain: (1) the corporate name; (2) the number of shares the corporation is authorized to issue; (3) the address of the corporation’s initial registered office and the name of its initial registered agent at that office; AND (4) the name and address of each incorporator.

Answer 9

The Bylaws are the rules and regulations adopted by the Board of Directors that govern the internal operations and management of a corporation, including the roles and duties of directors and officers. Under the RMBCA, the Bylaws may contain any provision that is NOT inconsistent with: (a) the Articles of Incorporation; OR (b) the law of the jurisdiction. * When there is a conflict between the Articles of Incorporation and the Bylaws, the Articles of Incorporation control.

Answer 10

The Bylaws may be amended or repealed by shareholders. In addition, the Board of Directors may also amend or repeal the bylaws UNLESS: (a) the Articles of Incorporation exclusively reserves the power to the shareholders; OR (b) the shareholders, in amending/ adopting/repealing a bylaw, expressly provide that the Board of Directors cannot amend/repeal/reinstate that bylaw.

Answer 11

Under the RMBCA (and most states), a corporation has the power to do all things necessary or convenient to carry out its business and affairs

Answer 12

Generally, a Limited Liability Company (LLC) is formed when: (1) the Articles of Organization (a.k.a. Certificate of Formation) is properly filed with the Secretary of State; AND (2) the company has at least one member.

Answer 13

A promoter is a person who acts on behalf of a corporation that has not yet been formed. Under the RMBCA, a person is personally liable for any liabilities arising from their conduct when (1) he purports to act as or on behalf of a corporation, (2) knowing that no corporation was formed (actual knowledge is required). If multiple promoters are liable, then each will be jointly and severally liable. A promoter remains personally liable for pre-incorporation contracts even if the corporation subsequently adopts the contract. In such a situation, both the corporation and the promoter are liable. * However, a promoter will NOT be liable if: (a) there is a subsequent novation (an agreement by all parties to substitute the corporation for the promoter and to relieve the promoter of the contractual obligation); OR (b) the contract explicitly provides that the promoter has no personal liability on the contract.

Answer 14

A corporation is NOT liable on pre-incorporation contracts entered into by a promoter UNLESS the corporation expressly or impliedly adopts the contract post-incorporation. A corporation may expressly adopt a pre-incorporation contract (i.e. by Board of Director action or by reference in the corporation’s formation documents). Implied adoption occurs when the corporation: (1) has reason to know or knows the material terms of the contract; AND (2) accepts some benefit from the contract.

Answer 15

If corporate formation is defective, then the owners may be subject to personal liability for contracts or obligations under general partnership principles (since the owners are personally liable for ALL obligations of the partnership). If there is only one owner, similar personal liability would arise under sole-proprietorship principles.

Answer 16

Under the De Facto Corporation doctrine, a defective corporation enjoys the same benefits and powers of a properly formed corporation – including limited liability. A de facto corporation exists where the entity: (1) made a good faith attempt to incorporate; (2) is otherwise eligible to incorporate; AND (3) took some action indicating that it considered itself a corporation. HOWEVER, only a person who was unaware that the corporation was not properly formed may assert the de facto corporation doctrine.

Answer 17

any person or entity that treated a business as a corporation may be estopped from denying that the business is corporation, even if a valid corporation was NOT formed. The doctrine of incorporation by estoppel applies to BOTH: (a) third-parties that treated the business as a corporation; and (b) an entity that held itself out as a corporation and benefited from that claim. HOWEVER, the incorporation by estoppel doctrine DOES NOT apply to tort actions.

Answer 18

Generally, shareholders, directors, and officers are NOT personally liable for the liabilities and obligations of the corporation. However, courts may disregard the corporate form and hold individual corporate shareholders, directors, and officers personally liable for actions taken on behalf of the corporate entity. A court will pierce the corporate veil and hold the shareholders personally liable in the following situations: (1) the corporation is acting as the alter ego of the shareholders – where there is little or no separation between the shareholder and the corporation (i.e. where an individual utilizes the corporate form for personal reasons); (2) where the shareholders failed to follow corporate formalities; (3) the corporation was inadequately capitalized at its inception to cover debts and prospective liabilities; OR (4) to prevent fraud. Courts will generally apply the same factors above to pierce the veil of a Limited Liability Company and hold members or managers personally liable, BUT the failure to follow formalities is not a ground for piercing the LLC veil.

Answer 19

All shares within a class or series must have the same rights, privileges, restrictions, and responsibilities. Common Shares provide shareholders with voting rights, although they are the last in priority to be entitled to a distribution of company assets. Preferred Shares are generally entitled to be paid out from company assets upon dissolution before shareholders with common shares. However, Preferred Shares usually do not carry voting rights.

Answer 20

Authorized shares are the maximum number of shares a corporation may issue, as set forth in the Articles of Incorporation Outstanding shares are the total number of shares issued by the corporation and held by the shareholders Reacquired shares by the corporation (also called treasury shares) are considered authorized shares, but are not outstanding shares of the corporation. These reacquired shares are NOT allowed to be voted at a shareholders meeting.

Answer 21

Decisions to declare dividends or make distributions to shareholders are within the discretion of the Board of Directors, and are normally protected under the business judgment rule. Only the Board of Directors have the power to issue dividends (an Officer cannot). Once a distribution is declared, the shareholder affected has a legal right to that distribution.

Answer 22

Under the RMBCA, a shareholder may vote her shares at a shareholders meeting without physically attending the meeting through the use of a proxy. A valid proxy must be signed on: (a) an appointment form; OR (b) an electronic transmission. An oral proxy appointment is invalid. A proxy MUST be accepted if on its face there are no reasonable grounds to deny its genuineness and authenticity. Proxy agreements are freely revocable by the shareholder, even if the proxy states that it is irrevocable (any action inconsistent with the grant of the proxy acts as a revocation). One exception to this rule is a proxy coupled with an interest or legal right, which is irrevocable if the proxy expressly states as such.

Answer 23

Only shareholders that are registered shareholders on record date are entitled to vote at a shareholders meeting. Thus, the owner of shares on the record date is entitled to vote those shares at the upcoming shareholders meeting even if he sells the shares before the meeting occurs (the transferee is not entitled to vote).

Answer 24

Annual Meetings: A corporation shall hold an annual meeting of the shareholders at a date/time stated in the bylaws. Special Meetings: A special meeting is one held separate from the annual meeting, and may be called by: (a) the Board of Directors; (b) persons authorized under the Articles of Incorporation or Bylaws; OR (c) by the holders of at least 10% of all votes entitled to be cast at the meeting. special meeting requires proper notice to the shareholders who are entitled to vote. Notice MUST: (1) be given at least 10 days in advance of the meeting (but not more than 60 days); (2) include a full description of the purpose of the meeting; AND (3) include the date, time, and place shareholder may waive notice by: (a) delivering a signed writing to the corporation; OR (b) attending the meeting and not objecting at the beginning of the meeting

Answer 25

quorum MUST be present in order for the shareholders to take action at a meeting. Unless the Articles of Incorporation provide a greater number, a quorum exists when a majority of the shares entitled to vote are present. action on a matter (other than the election of directors) is approved if a majority of votes are cast in favor of the action UNLESS the articles of incorporation require a greater number of votes. Each outstanding share is entitled to one vote

Answer 26

Under the RMBCA (and most states), the candidates who receive the most votes (a plurality vote) will be elected as Directors at a shareholders meeting where a quorum is present, even if the Director(s) do not receive a majority of the votes.

Answer 27

Right to inspect: if: (1) the inspection is made during regular business hours at the corporation’s principal office; (2) he provides 5-days written notice; (3) the demand is made in good faith and for a proper purpose; (4) he describes the purpose with particularity; AND (5) the records are directly connected with the purpose.

Answer 28

Under the RMBCA, the Board of Directors can only act if a quorum is present. A majority of the Board of Directors is necessary to make a quorum, UNLESS there are provisions in the Articles of Incorporation stating that a higher or lower number is required. However, the Articles of Incorporation MUST require that at least one-third of the directors be present to make a quorum.

Answer 29

If a quorum of the Board of Directors is present when a vote is taken at a meeting, an act is approved by the affirmative vote of a majority of directors present UNLESS the Articles of Incorporation or bylaws require a greater number.

Answer 30

Unless the Articles of Incorporation provide otherwise, regular meetings may be held without notice, whereas special meetings require at least two days’ notice.

Answer 31

Generally, the Board of Directors can only take action at a meeting. However (unless the Articles of Incorporation or bylaws provide otherwise), action may be taken without a meeting by the Board of Directors if: (1) each director signs a consent describing the action to be taken; AND (2) delivers it to the corporation

Answer 32

Under the RMBCA (and most states), shareholders may remove Directors with or without cause UNLESS the Articles of Incorporation only allow removal for cause. At common law, Directors could only be removed for cause.

Answer 33

The Board of Directors may elect individuals as Officers (i.e. President, Vice-President, Secretary) to manage the dayto- day business of the corporation. (General Authority Rules Apply) The President of a corporation generally has implied authority to bind the corporation for matters within its ordinary course of business, BUT DOES NOT have authority to bind the corporation for extraordinary acts.

Answer 34

An Officer may be removed at any time with or without cause by: (a) the Board of Directors; (b) the Officer who appointed such Officer, unless the Bylaws or the Board of Directors provide otherwise; OR (c) any other Officer, if authorized by the Bylaws or the Board of Directors.

Answer 35

Under RULLCA, an LLC is presumed to be membermanaged UNLESS the Operating Agreement provides otherwise. A manager-managed LLC is run by an elected group of managers, who manage the business similarly to a board of directors.

Answer 36

Under RULLCA and general agency principles, each member or manager of an LLC generally has authority to bind the LLC for the purpose of its business (including entering into contracts).

Answer 37

A preemptive right is the right of an existing shareholder to maintain her percentage of ownership in the corporation by being offered the opportunity to purchase shares of the corporation issued for cash before outsiders are permitted to purchase them.

Answer 38

Under the RMBCA, the Articles of Incorporation, bylaws, and shareholder agreements may impose restrictions on the transfer of shares of the corporation for: (a) any reasonable purpose; (b) to preserve exemptions under federal or state securities law; OR (c) to maintain the corporation’s status when it is dependent on the number or identity of its shareholders. An absolute restraint on the transfer of shares is invalid. A restriction DOES NOT affect shares issued before the restriction was adopted UNLESS the holders of the shares are parties to the restriction agreement or voted in favor of it. Under the RMBCA, the following restrictions are expressly allowed: (1) a right of first refusal (the shareholder must first offer the corporation or other shareholders an opportunity to buy the shares); (2) the obligation of the corporation or other persons to acquire the shares; (3) to require the corporation or certain shareholders/persons to approve the transfer of shares, if not manifestly unreasonable; and (4) to prohibit the transfer to designated persons or classes of persons, if not manifestly unreasonable.

Answer 39

Directors must discharge their duties: (1) in good faith; (2) in a manner the Director reasonably believes to be in the best interests of the corporation; AND (3) with the care that a person in a like position would reasonably believe appropriate under similar circumstances. However, the Business Judgment Rule DOES NOT apply or protect Directors: (i) financially interested in a transaction (a conflict of interest); (ii) not acting in good faith; OR (iii) who engaged in fraud or illegality.

Answer 40

Generally, shareholders DO NOT owe fiduciary duties to fellow shareholders, and they can act in their own selfinterest. However, courts have found that controlling shareholders in close-corporations owe a fiduciary duty of loyalty and good faith and fair dealing to minority shareholders

Answer 41

Under the RMBCA, the Articles of Incorporation may eliminate or limit the personal liability of a director for any action taken or not taken EXCEPT for: (a) financial benefits improperly received; (b) intentional infliction of harm on the corporation or its shareholders; (c) unlawful corporate distributions; or (d) an intentional violation of criminal law

Answer 42

shareholder may bring a direct action against a director or officer, but MUST prove an actual injury that is NOT solely the result of an injury suffered by the corporation (i.e. an action to compel divided). Similarly, a member of an LLC may bring a direct action against another member, a manager, or the LLC, and MUST prove an actual/threatened injury that is not solely the result of an injury suffered by the LLC.

Answer 43

derivative action, a shareholder is suing to enforce the corporation’s claim, not his own personal claim. The suit must be one in which the corporation could have brought itself, and has harmed the corporation in some way To commence or maintain a derivative suit under the RMBCA, the plaintiff-shareholder must meet the following requirements: (1) be a shareholder at the time of the act or omission or became a shareholder by operation of law from such a shareholder; (2) be a shareholder through entry of judgment; (3) he must fairly and adequately represent the interests of the corporation; AND (4) he must make a written demand upon the corporation to take suitable action. o A derivative suit CANNOT be commenced until 90 days after a written demand

Answer 44

a derivative proceeding MUST be dismissed by the court on motion by the corporation if (1) a majority of the board’s qualified directors (directors who do not have a material interest in the derivative action), (2) have determined in good faith, (3) after conducting a reasonable inquiry, (4) that the derivative proceeding is not in the best interests of the corporation.

Answer 45

the elements are the same (as those above) for a corporation EXCEPT: (1) the action may be brought within a reasonable time after the demand; and (2) the demand requirement may be waived if the demand is deemed futile.

Answer 46

Rule 10b-5 prohibits the use of any means or instrumentality of interstate commerce in any scheme to defraud, make material misrepresentations or omissions, or in any other way to use fraud in the purchase or sale of securities. In order for a plaintiff to prevail under a Rule 10b-5 claim, he must show that: (1) the defendant engaged in a fraudulent scheme or device; (2) which was relied upon; (3) in connection with the purchase or sale of a security; (4) acted with scienter (actual knowledge or recklessness); (5) used some means of interstate commerce; AND (6) caused damages.

Answer 47

Articles of Incorporation may be amended at any time, BUT ONLY IF the following procedures are followed: (1) adoption by the Board of Directors; (2) notice to each shareholder (whether or not entitled to vote) of a meeting to vote on the amendment – the notice must (a) state that a purpose of the meeting is to consider the amendment, and (b) provide a copy of the proposed amendment; (3) adoption by the shareholders by a majority vote However, there are two exceptions to the above rule: o First, the Board of Directors have the authority to make general minor amendments to the Articles without shareholder approval. o Second, the Board of Directors (or its incorporators if it has no board of directors) may adopt any amendment to the Articles of Incorporation without shareholder approval if a corporation has not yet issued shares.

Answer 48

the approval of a merger requires: (1) approval by the Board of Directors of both corporations; AND (2) shareholder approval of both corporations by a majority vote (unless a greater number is required by state law or the Articles of Incorporation). * Shareholder approval by the surviving corporation is NOT required for a merger if: (1) the corporation’s Articles of Incorporation will not be changed; (2) the shareholders’ number of outstanding shares will not change; AND (3) the voting power of any shares issued as a result of the merger is 20% or less of the voting power of the surviving corporation short form merger occurs when a parent corporation merges with its own subsidiary corporation. If the parent corporation owns at least 90 percent of a subsidiary’s outstanding (voting) shares, then only the Board of Directors of the parent corporation has to approve the merger

Answer 49

sale of all or substantially all of the corporation’s assets is deemed a fundamental change if the sale is NOT in the usual and regular course of business.

Answer 50

A dissenting shareholder is entitled to appraisal rights, and to obtain payment of the fair market value of his shares, for the following fundamental changes: (1) when the shareholder has the right to vote on the merger plan; (2) when he is a shareholder of the subsidiary in a short form merger; (3) when he is a shareholder of a corporation whose shares are being acquired in a share exchange; (4) when the shareholder has the right to vote on the distribution of all or substantially all of the corporate assets; and (5) when an amendment to the Articles of Incorporation materially and adversely affects the shareholder’s rights. o Appraisal rights are NOT available to shareholders of publicly traded companies.

Answer 51

Under the RMBCA, a shareholder may petition the court to dissolve the corporation if he can show: (a) a deadlock of the Directors in the management of corporate affairs and irreparable injury to the corporation; (b) the Directors have acted in a manner that is illegal, oppressive, or fraudulent; (c) the shareholders are deadlocked in voting power and have failed to elect Directors for at least two consecutive annual meetings; OR (d) the corporate assets have been wasted or misapplied.

Answer 52

Under the RMBCA, a corporation’s Board of Directors may propose dissolution to the shareholders. The following procedure MUST be followed by the corporation for the proposal to be adopted: (1) adoption by the Board of Directors; (2) notice to each shareholder (whether or not entitled to vote) of a meeting to vote on the proposal – the notice must state the purpose of the meeting; AND (3) adoption by the shareholders by a majority vote (unless a greater amount is required in the Articles of Incorporation or state law).

Answer 53

Under RULLCA, a person has the power to dissociate as a member of the LLC at any time (rightfully or wrongfully). * A member becomes dissociated from the LLC upon: (1) notice of the member’s express will to withdraw; (2) occurrence of an agreed upon event in the Operating Agreement; (3) expulsion pursuant to the Operating Agreement; (4) expulsion by the unanimous vote of the other members; (5) by judicial order for misconduct; (6) bankruptcy; (7) incapacity or death; (8) appointment of a personal representative or receiver; OR (9) termination of the entity member

Answer 54

Under RULLCA, an LLC is dissolved upon: (a) the occurrence of an event in the Operating Agreement causing dissolution; (b) the consent of all members; (c) the passage of 90 consecutive days during which the LLC has no members; or (d) judicial dissolution of the LLC. * A court may grant judicial dissolution of an LLC upon an application by a member If proper dissolution and winding up procedures are NOT followed, then a creditor’s claim may be enforced against: (1) the dissolved LLC; and (2) the members personally if the assets

Answer 55

Under the traditional vested rights approach, the law of the state in which the transaction or event occurred is applied (i.e. the place of the wrong or injury, where the contract was formed or is to be performed, or where the real property is located).

Answer 56

Under the Restatement (Second) of Conflict of Laws, the laws of the state having the most significant relationship to the transaction and the parties will govern the action. Under this approach, courts consider various factors dependent on the type of action (i.e. torts) to determine the state that has the most significant relationship to the action.

Answer 57

Under the governmental interest analysis approach, the court weighs the interests of the states involved. Specifically, the court (i) examines the connections that each state has to the parties and the events of the litigation, (ii) analyzes the difference between the state laws, (iii) pinpoints the underlying policies behind those state laws, and (iv) then applies the facts to the law to determine which state has a greater interest in having its law applied.

Answer 58

Use three Main theories, depending on question. Traditional vested rights, most significant relationship, or government interest analysis approach.

Answer 59

Parties to a contract are free to choose a particular state’s law to be applied for matters of contract construction. o For matters of contract validity, the parties may only choose which state’s law applies if: (1) the state has some connection with the contract; (2) the contract has not been entered into under fraud, duress, or mistake; AND (3) the choice of law isn’t contrary to a substantial policy interest of another state that has more of a significant interest in the matter.

Answer 60

If a valid choice of law provision is NOT applicable to a contract action, then the choice of law must be analyzed under one of the choice of law theories. Traditional Vested includes both where it was formed/performed

Answer 61

Generally, a court will enforce a contractual forumselection clause to transfer venue UNLESS special factors are present (i.e. significant/unusual hardships or inequality of bargaining power). Additionally, the Supreme Court has held that a forum-selection clause is an important factor favoring a change of venue, even if the forum-selection clause is unenforceable under the applicable state law.

Answer 62

In determining the enforceability of a premarital agreement, states apply the law of either: (a) the state where the agreement was executed; OR (b) the state having the most significant relationship to the transaction and the parties. * Most states apply the Most Significant Relationship Approach, where the laws of the state having the most significant relationship to the transaction and parties will govern.

Answer 63

In cases involving the title to real property or a contract for the sale of real property, the laws of the state where the real property is located will generally govern (known as the situs rule), as states have a strong interest in actions that affect real property located within their state.

Answer 64

Inheritance of Real Property: Under the Restatement (Second) of Conflict of Laws, the law of the state where the real property is located (the situs) governs its disposition under intestacy or under a last will and testament. o In a will, a decedent may designate a particular state’s law to be applied for matters of construction, BUT the validity and effect of a will is always determined by the law of the situs state. * Inheritance of Personal Property: The law of the decedent’s domicile state at the time of death governs the disposition of decedent’s personal property. Domicile is determined by a person’s: (1) residence (physical presence in the state); AND (2) subjective intent to make the state their permanent home.

Answer 65

Under the Erie doctrine, a federal court sitting in diversity will apply its own federal procedural laws, but must apply state substantive law. Since choice of law rules are considered substantive law, a federal court sitting in diversity MUST apply the forum state’s choice of law rules to determine the applicable substantive law in the action

Answer 66

A state court will apply the law of the forum state to procedural issues For substantive issues, the choice of law rules of the forum state determine which state’s substantive law is applied.

Answer 67

A judgment is entitled to full faith and credit when: (1) the rendering court had jurisdiction (both personal and subject matter jurisdiction); (2) the case was decided on the merits; AND (3) the judgment was final. o Under the doctrine of comity, courts may, but are not required, to give full faith and credit to judgments from foreign countries

Answer 68

The validity of a marriage will be determined by the law of the state that has the most significant relationship to the spouses. A marriage that is valid where formed is valid everywhere, UNLESS it (1) violates the strong public policy of another state that (2) has the most significant relationship to the spouses and the marriage. * Most states will honor a valid common law marriage established in another state

Answer 69

A divorce (whether ex parte or bilateral) validly granted in another state is entitled to full faith and credit in all other states. An ex parte divorce (a divorce action where only one of the spouses is before the court) may be maintained without personal jurisdiction over the absentee spouse when the plaintiff-spouse is a domiciliary of the rendering state. In a matrimonial action involving economic or child custody/support issues (alimony, property distribution, child support and custody) the court MUST have personal jurisdiction over the defendant-spouse for the judgment to be entitled to full faith and credit in other states

Answer 70

A valid marriage requires: (1) consent from both parties; (2) a marriage license; AND (3) that the marriage is solemnized in a ceremony by a judicial officer or church. * Courts interpret the consent requirement differently. Some courts find consent if the parties participate in a marriage ceremony and sought some benefits of marriage. While other courts find consent only if the parties consented to the obligations of marriage.

Answer 71

common law marriage generally requires that the spouses: (1) live together for a specified amount of time; (2) be legally able to marry; (3) have a present agreement that the two parties are married; AND (4) hold themselves out as being married. Once formed, a common law marriage can only be dissolved through divorce or annulment.

Answer 72

A person CANNOT be married to more than one person at the same time

Answer 73

Generally, such agreements are enforceable UNLESS procured by fraud, duress, or coercion. * Under the Uniform Premarital Agreement Act (UPAA), a premarital agreement MUST be: (1) in writing; AND (2) signed by both parties. a premarital agreement is NOT ENFORCEABLE if the spouse against whom enforcement is sought proves that: (a) the agreement was made involuntarily; OR (b) it was unconscionable when executed and before execution the spouse was (i) not provided fair disclosure of the property and financial obligations of the other spouse; (ii) did not waive disclosure in writing; and (iii) did not have (or reasonably could

Answer 74

Provisions in a marital agreement regarding child support or child custody are NOT binding on a court, and any provision that adversely affects a child’s right to support is unenforceable.

Answer 75

Under the Uniform Premarital Agreement Act (UPAA), modification or elimination of spousal support by a premarital agreement is permitted, BUT such provisions will NOT be enforced if doing so would make the spouse eligible for public support

Answer 76

Spouses may agree to any matter (including their personal rights and obligations) that is NOT in violation of (a) public policy, or (b) criminal law.

Answer 77

Under the common law, a woman would lose all of her property rights upon marriage. However, ALL states have abolished such laws. Under the Married Women’s Property Act, a woman retains full rights to her property after marriage.

Answer 78

In most states, spouses are liable to a creditor who has provided necessities to the other spouse

Answer 79

State courts have subject matter jurisdiction over marital actions (divorce, annulment, child custody and support, spousal support). An ex parte divorce (a divorce action where only one of the spouses is before the court) may be maintained without personal jurisdiction over the absentee spouse, if the plaintiffspouse is a domiciliary of the rendering state. In a matrimonial action involving economic or child custody/support issues (i.e. alimony, property distribution, child support and custody) the court MUST have personal jurisdiction over the defendant-spouse, in order for the judgment to be entitled to full faith and credit. A divisible divorce allows one party to terminate the marriage in one proceeding and reserve other issues (i.e. property division and spousal support) for a later proceeding.

Answer 80

In a matrimonial action involving child custody issues, the court MUST have personal jurisdiction over the defendantspouse in order for the judgment to be entitled to full faith and credit.

Answer 81

a court may decide custody only if it exercises one of the following: o Home State Jurisdiction: When it is the child’s home state or where the child lived with a parent for at least 6 months immediately before the custody action was filed. o Significant Connection Jurisdiction: When (1) there is no home state; AND (2) the child and at least one parent have a significant connection with the state. Substantial evidence in the state must exist concerning the child’s care, protection, training, and personal relationships. o Emergency Jurisdiction: When the child (1) is physically present in the state; AND (2) has been abandoned or it’s necessary in an emergency to protect the child. o More Appropriate Forum Jurisdiction: When no other state has home state, significant connection, continuing, or emergency jurisdiction.

Answer 82

UCCJEA provides that a court has jurisdiction when: (a) there is no home state; OR (b) the home state has declined to exercise jurisdiction because the current state is the more appropriate forum. All else, same as PKPA

Answer 83

An annulment invalidates a marriage, which treats the marriage as if it did not happen. For a court to grant an annulment, a spouse must establish one of the following grounds: (a) lack of capacity (fraud, duress, mental incapacity); (b) bigamy (one spouse is already married); (c) consanguinity (marriage between close family members); OR (d) a spouse who is underage at the time of marriage (the marriage is voidable by the underage spouse). An annulment by wrongfully obtaining consent to marry by fraud exists when (1) a spouse made misrepresentations prior to the marriage concerning an essential and vital part of the marriage, AND (2) had the other spouse been made aware of this, the marriage would not have been consented to.

Answer 84

In most states, there are five grounds for divorce: (1) cruel and inhuman treatment; (2) adultery; (3) abandonment for a set amount of time (set by statute); (4) habitual drug addiction or drunkenness; and (5) a “no-fault” divorce (irretrievable breakdown). To procure a “no-fault” divorce, a party MUST show that (1) the relationship between the spouses has irretrievably broken down, (2) for set amount of time depending on the state’s statute (i.e. at least 6 months).

Answer 85

A separation agreement is invalid if it: (a) is unconscionable; OR (b) was the result of fraud. * A divorce settlement agreement may be set aside if it is: (1) substantially unfair; AND (2) the result of fraud by the spouse or mediator misconduct. * A settlement agreement may be set aside for mediator misconduct, including the mediator’s failure to: (a) be impartial; (b) disclose conflicts; OR (c) fully inform the participants about the law and their rights.

Answer 86

includes (a) property and assets acquired by each individual spouse before marriage, (b) gifts and bequests to each spouse as an individual during marriage, (c) property which the spouses agree will be separate property, and (d) passive appreciation of assets in any of the above categories. Passive appreciation is appreciation in value due merely to the passage of time, and not to the efforts of either spouse.

Answer 87

includes all other property acquired during the marriage, regardless of whose name is on the title of the property. In most states, marital property also includes the active appreciation of separate property. Active appreciation includes appreciation caused by the effort of one or both spouses. Future expectancies (even contingent expectancies) created during the marriage are still deemed to be marital property, even if payment will not be received until after the marriage ends.

Answer 88

In most states professional degrees or licenses are NOT deemed marital property subject to equitable division. A minority of states consider professional degrees or licenses to be marital property subject to division at divorce

Answer 89

In most states, the marital fault of either party (i.e. adultery) is irrelevant to distributions of marital property. However, most courts will consider the economic misconduct (i.e. dissipation of assets) of a spouse when dividing property, even in a “no fault” jurisdiction. Dissipation of assets occurs when, during the breakdown of the marriage, a spouse uses marital property for the sole benefit of himself for a purpose unrelated to the marriage.

Answer 90

court ordered award for division of property DOES NOT terminate upon the death of the obligor spouse. Such obligations may be enforced against the deceased spouse’s estate.

Answer 91

A property division award CANNOT be modified, unless exceptional circumstances exist

Answer 92

Upon divorce, one spouse may be court ordered to provide spousal support (also referred to as maintenance or alimony) to maintain the former spouse’s standard of living and limit any unfair economic effects of a divorce.

Answer 93

the court may order maintenance (spousal support) for either spouse only if it finds that the spouse seeking maintenance: (1) lacks sufficient property to provide for her/ his reasonable needs; AND (2) is either unable to support herself/himself through employment or is the custodian of a child whose condition or circumstances make it so that the custodian cannot seek employment.

Answer 94

Most courts will NOT reinstate prior alimony awards that were terminated by an annulled marriage under the “no-revival” approach, especially if the person seeking reinstatement was the one who obtained the annulment.

Answer 95

biological parent is legally responsible for a child whether or not the child was intended or wanted by the parent. Federal law requires that states provide child support guidelines that: (1) take into consideration all earnings and income of the non-custodial parent; AND (2) are based on specific descriptive and numeric criteria to compute the support obligation

Answer 96

Some states require support for continuing education. In such states, a child may lose the right to payments if the child DOES NOT follow the obligor parent’s reasonable instructions

Answer 97

In most states, a child or spousal support order CAN ONLY be modified when there is a substantial change in circumstances of either the payor or payee spouse making the prior order unreasonable Uniform Marriage and Divorce Act (UMDA), modification of child/spousal support orders is more stringent, and is allowed only upon a showing of changed circumstances so substantial and continuing as to make the terms unconscionable. Uniform Interstate Family Support Act (UIFSA), states must give full faith and credit to child/spousal support orders of other states.

Answer 98

Courts determine child custody under the Best Interests of the Child Standard. This is a broad standard that gives great discretion to the court.

Answer 99

When determining child custody between a parent and a third-party, it is presumed that custody with the parent is in the best interests of the child. Some states permit this presumption to be rebutted by showing that custody with the parent would be detrimental to the child. Since parental rights are constitutionally protected, courts MUST give great weight to a parent’s determination of what is best for the child.

Answer 100

Joint custody is usually an option only for parents who can cooperate, since it could be harmful to the child if the parents are hostile.

Answer 101

Parents (biological or legal) are presumed that they are fit to care for their children. However, this presumption may be rebutted by clear and convincing evidence of conduct endangering the child

Answer 102

parent not granted custody of the child is ENTITLED to reasonable visitation rights. The court cannot prevent or reduce visitation UNLESS the court finds (after a hearing) that visitation would seriously endanger the child’s physical, mental, moral, or emotional health

Answer 103

Parental rights are constitutionally protected. Thus, courts MUST give great weight to a parent’s determination of what is best for the child. some states permit third-party visitation with those who have a substantial relationship with the child (i.e. a de facto parent) when it’s in the best interests of the child. HOWEVER, a third-party must: (1) overcome the presumption that the parent is acting in the best interests of the child; AND (2) show that denial of visitation poses a risk of harm to the child.

Answer 104

court will permit a custodial parent to relocate with the child if the relocation is: (1) made in good faith; AND (2) is in the best interests of the child.

Answer 105

A child custody determination may be modified only if there is a substantial change in circumstances. Some states prevent modification within a certain time of the initial determination. In other states, a non-marital cohabitant is a change sufficient for a modification. It is important to note that custody determinations CANNOT be retroactively modified

Answer 106

The party who has title to the property retains sole ownership of the property UNLESS the other party claims ownership under a contract theory or equitable remedy theory (resulting trust, constructive trust, quantum meruit). A resulting trust is available if property is titled in one party’s name, but another party gave money to acquire the property with the intent to have ownership of it. A constructive trust is available if one party obtained title to property through wrongful conduct. Quantum meruit is available if one party was unjustly enriched by the services provided by another.

Answer 107

An agreement for the division of property between unmarried cohabitants may be express or implied. An express agreement (oral or written) between unmarried cohabitants is enforceable as long as it was not based on sexual relations. An implied agreement is also enforceable, but is generally more difficult to prove. A court may find an implied-in-fact contract regarding the division of property if the parties comingled funds during the relationship

Answer 108

protects the financial and property interests of a person who (1) entered into a void or voidable marriage, (2) believing in good faith that the marriage was valid the putative spouse is entitled to the same marital property rights as a legal spouse

Answer 109

In most jurisdictions, there is a presumption that a child born during marriage is considered a marital child and is the child of the husband. This presumption can be rebutted by proof of the husband’s infertility or his lack of access to his wife.

Answer 110

if a man who is not the biological father has (1) held himself out as the father, and (2) paid support, then he will be estopped from denying paternity.

Answer 111

An unmarried biological father’s right to a relationship with his child is protected under the Due Process Clause only if the father: (1) has assumed parental responsibilities; AND (2) has established a substantial parental-child relationship (the stronger the relationship, the stronger the constitutional protections).

Answer 112

A parent’s right to control their child’s upbringing and education is a fundamental right and courts will NOT interfere with the exercise of this right (especially if both parents live together), UNLESS the well-being of the child is endangered.

Answer 113

today most states have abolished intra-family immunity, and permit lawsuits between spouses and between a parent and child.

Answer 114

A claim for loss of consortium is generally only available to married couples, and is intended to compensate a spouse for loss of the other spouse’s companionship, sexual relations, and affection.

Answer 115

In most states, biological parents lose the right to visit their child after adoption. Some states do not terminate a child’s inheritance rights if the child was adopted by a blood relative. Generally, the consent of BOTH parents is required to place a child up for adoption. However, where the child is nonmarital, consent of the biological father is only required when he has assumed parental responsibility.

Answer 116

Most states will NOT allow visitation for biological parents because it would interfere with the adoptive parents’ rights and conflict with the purpose of adoption

Answer 117

Artificial Insemination is the introduction of sperm into a female’s uterus for the purpose of achieving a pregnancy by means other than sexual intercourse. In Vitro Fertilization is the process of fertilization by combining an egg and sperm in a laboratory, and transferring it to the female’s uterus.

Answer 118

Surrogacy is when a woman agrees to carry a pregnancy for another person or couple, who will become the newborn child’s parent(s) after birth. * In the states that allow surrogacy agreements, a court will only enforce the agreement under certain conditions, such as prior approval by the court. In some states, surrogacy contracts are not permitted, as against public policy.

Answer 119

Article 9 of the Uniform Commercial Code (UCC) governs any transaction regardless of its form that creates a security interest, including security interests in personal property, consignments, a sale of accounts, chattel paper, and promissory notes.

Answer 120

Article 9 of the Uniform Commercial Code (UCC) governs any transaction regardless of its form that creates a security interest. Substance over form controls, and how the parties classify the transaction is immaterial Lease vs. Security Interest: A transaction labeled as a “lease” may be deemed a security interest. Courts will consider the economic realities of the transaction, NOT the intent of the parties.

Answer 121

An “account” is a right to payment of a monetary obligation (whether or not earned by performance) for any of the following: (1) property that has been or is to be sold, leased, or otherwise disposed of; (2) services rendered; (3) a policy of insurance issued; (4) a secondary obligation incurred; (5) energy provided; (6) the use or hire of a vessel under a charter or other contract; (7) a debt arising out of the use of a credit card; OR (8) winnings in a lottery or other game of chance sponsored by a State

Answer 122

A “deposit account” is a demand, time, savings, or similar account maintained with a bank. This DOES NOT include investment property or accounts evidenced by an instrument. A deposit account can only be perfected by control.

Answer 123

"Inventory” means goods that: (a) are leased by a person as lessor; (b) are held by a person for sale/lease or to be given under a contract of service; (c) are given by a person under a contract of service; OR (d) consist of raw materials, work in process, or materials used or consumed in a business. Inventory DOES NOT include farm products or goods that are only being held for repair.

Answer 124

“Equipment” consists of goods other than inventory, farm products, or consumer goods. “Goods” means all things that are movable when a security interest attaches, including fixtures, timber, the unborn young of animals, crops, and manufactured homes.

Answer 125

“Consumer goods” are those used or purchased primarily for personal, family, or household purposes

Answer 126

“Proceeds” refer to the following property: (1) anything acquired upon the sale, lease, or other disposition of collateral; (2) anything collected/distributed on account of collateral; (3) rights arising out of collateral; (4) claims arising out of the loss, nonconformity, defect, or interference with the use of collateral (but only to the extent of the value of collateral); OR (5) insurance payable by reason of the loss/nonconformity, defects, or damage to the collateral (but only to the extent of the value of collateral and to the extent payable to the debtor or the secured party).

Answer 127

Chattel paper is a record (or records) that evidences both: (1) a monetary obligation; AND (2) either (a) a security interest in specific goods, (b) a lease of specific goods, or (c) a security interest in specific goods with software or a software license used in the goods. * A monetary obligation is an obligation to pay money that is (a) secured by the goods, or (b) owed under a lease of the goods

Answer 128

Under Article 9 of the UCC, a creditor may properly obtain a security interest in collateral as a means to secure a loan given to a debtor. To obtain a valid security interest in collateral, the creditor MUST: (1) attach the collateral; AND (2) perfect its interest. Attachment secures the creditor’s rights in the debtor’s collateral, while perfection gives notice of the creditor’s rights in the collateral to other parties who may have claims to the same. A security interest CANNOT be perfected, unless it has first attached.

Answer 129

(1) that the creditor extend value to the debtor; (2) the debtor must have rights in the collateral; AND (3) one of the following: o (a) an authenticated record/security agreement memorializing the security interest;  The record/security agreement must (i) be authenticated by the debtor and (ii) reasonably identify the collateral. A supergeneric description of the collateral (i.e. “all the debtor’s assets” or “all the debtor’s personal property”) is not sufficient. o (b) the collateral is in the secured party’s possession pursuant to a security agreement; o (c) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party pursuant to a security agreement; OR o (d) the secured party has control of certain types of collateral (deposit accounts, electronic chattel paper, investment property, or letter-of-credit rights) pursuant to a security agreement.

Answer 130

by the creditor filing a financing statement with the Secretary of State that identifies the collateral and his security interest in it. Perfection may also be obtained by taking possession or control of the collateral that is providing the security interest. Consumer “purchase money security interests” are automatically perfected (filing a financing statement is not required).

Answer 131

An effective financing statement must: (1) provide the name of the debtor and secured party; (2) indicate the collateral covered by the financing statement; AND (3) be filed by a person authorized by the debtor in an authenticated record, security agreement, or upon acquisition of the collateral

Answer 132

A debtor that has sold an account, chattel paper, payment intangible, or promissory note DOES NOT retain an interest in the collateral sold. HOWEVER, when determining the rights of creditors or purchasers of an account or chattel paper sold by a debtor, the debtor is deemed to have rights in such collateral while the buyer’s security interest is unperfected.

Answer 133

When a creditor extends value to the debtor for the purpose of enabling the debtor to acquire rights in the collateral, a purchase money security interest (PMSI) arises. * PMSI’s in consumer goods enjoy automatic perfection under Article 9 of the UCC, and the creditor need not file a financing statement to perfect his PMSI with respect to the debtor. The UCC gives special protection to PMSI holders in an effort to encourage lending to consumers.

Answer 134

Under Article 9 of the UCC, a security interest is automatically perfected upon attachment of an assignment of accounts if it does not transfer a significant part of the outstanding accounts of the assignor

Answer 135

Generally, a security interest will continue despite any sale, lease, or other disposition of the collateral, UNLESS the secured party authorizes the disposition free of the security interest. * A perfected security interest will attach to any identifiable proceeds from the disposition of collateral.

Answer 136

Under UCC Article 9, a consignment is a transaction in which: (1) a person delivers goods to a merchant for the purpose of sale; (2) the merchant deals in goods of that kind, is not an auctioneer, and is generally not known by his creditors to be substantially engaged in selling the goods of others; (3) the aggregate value of the goods is $1,000 or more at the time of each delivery; (4) the goods are not consumer goods immediately before delivery; AND (5) the transaction does not create a security interest.

Answer 137

deposit account can only be perfected by control. A secured party has “control” of a deposit account if: (a) the secured party is the bank where the deposit account is maintained; (b) the debtor, secured party, and bank have agreed in an authenticated record that the bank will comply with the secured party’s instructions for deposits without further consent by the debtor; OR (c) the secured party becomes the bank’s customer with respect to the deposit account.

Answer 138

A security agreement may provide that the collateral secures future advances (or that accounts are sold in connection with), whether or not the advances are mandatory.

Answer 139

A buyer receives ALL of the rights the seller had upon transfer of the goods, including all ownership or enforcement rights (except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased). * Thus, a seller who did not have title to goods, cannot transfer title to the buyer (unless an exception applies, such as a buyer in the ordinary course of business). * Under the Shelter Principle, if a buyer acquires property free of a security interest, then any subsequent transfer by the buyer to someone else is also free of the security interest.

Answer 140

Buyers in the ordinary course of business take free of a security interest created by the seller buyer in ordinary course of business is a person that: (1) buys goods in good faith; (2) without knowledge that the sale violates the rights of another person in the goods; AND (3) in the ordinary course from a merchant (a person in the business of selling goods of that kind).

Answer 141

buyers of consumer goods take free of a security interest if the goods are bought: (1) without knowledge of the security interest; (2) for value; (3) from a consumer who purchased the goods primarily for personal, family, or household purposes; AND (4) before the filing of a financing statement covering the goods.

Answer 142

security interest has priority over a conflicting unperfected security interest in the same collateral. * Unperfected Interest vs. Unperfected Interest: When there are two competing unperfected security interests, the first to attach will prevail. * Perfected Interest vs. Perfected Interest: The rule of “first in time, first in right” controls, which means that the first creditor to perfect by filing has priority. Under Article 9 of the UCC, a creditor generally achieves priority by perfecting his security interest before another party. Perfection involves: (1) giving value; AND (2) recording or putting other creditors on notice of the security interest by filing. Therefore, filing is a key element to perfecting the security interest. * PMSI vs. Perfected/Unperfected Interest: A purchase money security interest (PMSI) in consumer goods enjoys automatic perfection under Article 9 of the UCC (the creditor doesn’t need to file a financing statement to perfect the interest). As such, a PMSI in consumer goods takes priority over another perfected or unperfected interest.

Answer 143

possessory lien on goods has priority over a security interest in the goods UNLESS the lien is created by a statute that expressly provides otherwise. A possessory lien is an interest (other than a security interest) that: (1) secures payment or performance of an obligation for services or materials furnished by a person in the ordinary course of the person’s business; (2) is created by statute or rule of law in favor of the person; AND (3) whose effectiveness depends on the person’s possession of the goods.

Answer 144

Judgment lien creditors have priority over conflicting security interests if the person became a lien creditor before the conflicting security interest was perfected

Answer 145

An ownership interest in real property has priority over conflicting security interests in fixtures. Exception # 1: A perfected purchase money security interest Exception # 2: A fixture filing

Answer 146

Accessions are goods that are physically united with other goods, but continue to retain their separate identity. Generally, the security interest in the separate goods continues in the accession collateral. Commingling: When an accession is the result of two goods that are subject to different security interests, the general rules of priority determine which interest will continue in the accession. An exception applies for security interests perfected by compliance with the requirements of a certificate-of-title statute

Answer 147

After default, a secured party may: (1) take possession of the collateral; AND (2) without removal, render equipment unusable and dispose of collateral on a debtor’s premises. * The secured party may proceed either pursuant to: (a) judicial process; OR (b) without judicial process (if it proceeds without a breach of the peace). To determine whether repossession was peaceful courts examine: (i) where the repossession took place; (ii) who was present; and (iii) whether any protests were made.

Answer 148

After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or in any commercially reasonable manner. A debtor is liable to the extent that the proceeds from the disposition are not sufficient to satisfy the debt owed. * Notice: A secured party that disposes of collateral MUST send an authenticated notification of the disposition to the debtor and any secondary obligor. Disposition at Foreclosure Sale: The disposition of collateral at a foreclosure sale: (1) transfers all of the debtor’s rights in the collateral to a transferee for value; (2) discharges the security interest; AND (3) discharges any subordinate security interests Commercially Reasonable Sale: Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms MUST be commercially reasonable Secured Party’s Purchase of Collateral: Unless agreed otherwise, a secured party may purchase the collateral at: (a) a public sale; OR (b) a private sale only if the collateral is (i) of a kind that is customarily sold on a recognized market, or (ii) the subject of widely distributed standard price quotations.

Answer 149

A secured party has the right to collect a debt directly from an account debtor (which is a person obligated on an account, chattel paper, or general intangible).

Answer 150

A secured party is liable for the debtor’s actual damages for the amount of any loss caused by their failure to comply with applicable rules concerning secured transactions. In addition, irrespective of actual damages, a debtor may recover $500 in statutory damages civil penalty is applied if the collateral is consumer goods

Answer 151

debtor has the right to repay obligations and reclaim property held by the secured party (known as redemption). To redeem collateral, a debtor must: (1) fulfill all obligations secured by the collateral; AND (2) pay reasonable expenses and attorney’s fees.

Answer 152

Under Article 9 of the UCC, the impact of non-compliance with Article 9 on recovery of a deficiency in a consumer goods transaction is left to the court to determine For non-consumer transactions, Article 9 of the UCC provides that (1) if a debtor places a secured party’s compliance in issue, AND (2) a secured party fails to prove that the disposition was proper, then the amount recoverable in deficiency is limited to an amount by which the total debt exceeds the greater of: (a) the proceeds of the disposition; OR (b) the amount that would have been realized if the secured party complied with the applicable provisions. The amount of proceeds that would have been realized is equal

Answer 153

valid express trust requires: (1) a definitive beneficiary (the beneficiary can be ascertained now or in the future); (2) a settlor with capacity; (3) an intent to create a trust; (4) a trustee; (5) a valid trust purpose; (6) trust property (the res); AND (7) compliance with any State formalities (i.e. signed in front of notary).

Answer 154

Precatory language are words in a will or trust (such as “hope” or “request”) that merely express a settlor’s desire regarding the disposition of his property. Such words DO NOT create a legal obligation to act in accordance with that desire, and will not create a valid trust.

Answer 155

The trust instrument may state whether the trust is irrevocable or revocable by the settlor. If no designation is set forth, then state law will govern whether the trust is revocable or irrevocable by default. * The majority view is that trusts are irrevocable by default UNLESS expressly stated otherwise. minority view and the Uniform Trust Code (UTC) provides that a trust is revocable by default

Answer 156

Testamentary Trust may be created through the provisions of a settlor’s will, and the trust does not take effect until the settlor’s death.

Answer 157

pour-over provision in a will gifts property to a previously established trust. The property is distributed according to the terms of the trust. A pour-over will provision is distinguished from a testamentary trust because it does not create a trust. Instead, the pour-over will transfers property to a trust already in existence. As such, a pour-over will must be connected to an inter vivos trust

Answer 158

A Charitable Trust is one created by a settlor to confer a substantial benefit to society. The beneficiary may be indefinite or contain a class of persons described by the trust.

Answer 159

When the settlor retains significant control over the trust property indicating a lack of intent to create a trust (i.e. when a settlor retains a right of withdrawal or names himself as sole trustee), the trust will be deemed illusory and invalid.

Answer 160

If a trust fails for lack of a beneficiary, a Resulting Trust is implied by law, and all trust property returns to the settlor or the settlor’s estate

Answer 161

A Discretionary Trust occurs when a trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries of the trust. The trustee’s exercise of discretion MUST be in good faith

Answer 162

support trust is a trust that contains a provision directing the trustee to pay the beneficiary as much income and principal as is necessary for the beneficiary’s support. Support trusts may be pure (when the trustee has no discretion) or discretionary. * If a discretionary support trust provision contains an ascertainable standard, a beneficiary may compel a trustee to make payments in accordance with that standard.

Answer 163

Trust assets pass according to the terms of the trust. When a testamentary trust or distribution fails, the trust property passes: (a) under the residuary clause in a will; OR (b) to the settlor’s heirs by intestacy

Answer 164

Cy pres is an equitable doctrine that applies to charitable bequests and charitable trusts. Courts will apply cy pres to modify a charitable trust to be consistent with and “as near as possible” with the settlor’s or testator’s intent, if the purpose of the trust or bequest is frustrated (the trust becomes unlawful, impracticable, impossible, or wasteful). The cy pres doctrine only applies if the testator had a general charitable intent.

Answer 165

spendthrift provision in a trust (one preventing the transfer of a beneficiary’s interest) is valid only if it restrains both voluntary AND involuntary transfers. * A spendthrift interest means that the interest CANNOT be sold or assigned by the income beneficiary, nor may any creditors reach it (but the creditor may attempt to collect directly from the beneficiary after a payment is made from the trust).

Answer 166

If a beneficiary’s interest is not subject to a spendthrift provision, then the court may authorize a creditor to reach the beneficiary’s interest by attachment of present or future distributions to the beneficiary. If a beneficiary’s interest is subject to a spendthrift provision, a creditor is generally prohibited from attaching that interest, and may only attempt to collect directly from the beneficiary after a payment is made. If the debtor is a remainder beneficiary, the creditor will need to wait until the trust terminates to receive the trust property. Discretionary Trusts: Whether or not a trust contains a spendthrift provision, a creditor cannot compel a distribution to a beneficiary that is subject to the trustee’s discretion, even if: (a) the discretion is expressed in the form of a standard of distribution; OR (b) the trustee has abused their discretion. * Discretionary Trusts & Spousal and Child Support: If a judgment or order exists against the beneficiary for unpaid spousal or child support, the court may order a distribution to satisfy the judgment and direct the trustee to pay the child, spouse, or former spouse an equitable amount of the judgment/order.

Answer 167

Invasion of Trust Principal: If a beneficiary will eventually receive trust principal, a court may permit invasion UNLESS the invasion would: (a) be contrary to the settlor’s intent; OR (b) adversely affect other beneficiaries. * Express and Implied Powers of Invasion: A trustee CANNOT use trust property to pay income beneficiaries when trust income is insufficient, UNLESS there is an express or implied (through settlor’s words or conduct) power of invasion

Answer 168

Under the majority view, a trust may only be modified by a settlor: (a) who expressly reserved the power to modify the trust; OR (b) who has the power to revoke the trust (a power of revocation includes the power to amend). Under the minority view, a settlor is free to amend or revoke a trust without the express authority to do so (unless the trust states otherwise). Amendments must be made in writing and signed by the settlor Under the Uniform Trust Code (UTC), a trust may be modified in the following instances: (1) by the settlor while alive, by a later will/codicil, or any other method manifesting clear and convincing evidence of the settlor’s intent (unless the trust instrument provides otherwise); (2) with the settlor and the beneficiaries consent (even if the modification is inconsistent with the trust purpose); (3) with the beneficiaries consent and the court determines that the modification is not inconsistent with the trust purpose; (4) modification will further the purposes of the trust because of circumstances not anticipated by the settlor; (5) the cy pres doctrine applies; (6) the court determines that the value of the trust property is insufficient to justify the cost of administration, and provides notice to all beneficiaries; and (7) it is necessary to conform to the settlor’s intent or tax objectives

Answer 169

If continuing a trust on its existing terms would be impracticable or wasteful, courts may apply the Equitable Deviation Doctrine to modify the terms of the trust. The doctrine permits the court to modify the administrative provisions or procedures of a trust if modification would further the trust purpose because of circumstances not anticipated by the settlor. Under the common law, the equitable deviation doctrine only applied to modification of administrative provisions of a trust. However, under the Uniform Trust Code (UTC), dispositive provisions in a trust may be modified if modification will further the purposes of the trust when circumstances arise that were not anticipated by the settlor

Answer 170

When the settlor anticipates changing trust assets, an additions clause should be added to the trust instrument. A trustee retains the specific power to accept or reject additions to the trust property from a settlor or any other person

Answer 171

Under the Uniform Trust Code (UTC), a trust may be terminated in the following instances: (1) it is revoked or expires pursuant to its terms (including the settlor revoking a revocable trust); (2) the material purpose of the trust has been achieved (a material purpose is a particular concern or objective of the settlor); (3) the trust has become unlawful, contrary to public policy, or impossible to achieve; (4) the settlor and all beneficiaries consent (even if termination is inconsistent with purpose of the trust); (5) all beneficiaries consent and the court decides that continuance is not necessary to achieve any purpose of the trust; (6) termination will further the purpose of the trust because of circumstances not anticipated by the settlor; (7) the court applies the cy pres doctrine to terminate the trust; or (8) the court or trustee determines that the value of the trust property is insufficient to justify the cost of administration.

Answer 172

Upon the occurrence of an event terminating or partially terminating a trust, the trustee shall proceed expeditiously to distribute the trust property to those entitled to it. The trustee may retain a reasonable reserve for the payment of debts, expenses, and taxes.

Answer 173

condition on a gift in a will/trust that prohibits a first marriage or requires divorce are void as against public policy, and will be treated as though the restriction had not been imposed.

Answer 174

Under the common law, the trustee owed beneficiaries the duty to act with care, skill, and prudence. * Under the Uniform Trust Code, a trustee MUST administer the trust: (1) in good faith; (2) in accordance with the trust purpose and terms; AND (3) in the interests of the trust beneficiaries

Answer 175

Duty of Prudent Administration: A trustee must administer the trust as a prudent person would, by considering the purposes, terms, distributional requirements, and other circumstances of the trust. In order to satisfy this duty, a trustee must exercise reasonable care, skill, and caution. * Duty to Take Control & Protect Trust Property: A trustee must also take reasonable steps to take control of AND protect the trust property.

Answer 176

transaction will be presumed to be affected by a conflict of interest if it is entered into by the trustee with: (a) the trustee’s spouse; (b) the trustee’s descendants, siblings, parents, or their spouses; (c) an agent or attorney of the trustee; OR (d) a corporation or other person or enterprise in which the trustee has an interest that might affect the trustee’s best judgment. * Under the No Further Inquiry Rule, a transaction involving trust property entered into by the trustee for the trustee’s own benefit is automatically presumed to be a conflict of interest, and is voidable without further inquiry into the fairness of transaction or possible intent/motivation for selfdealing.

Answer 177

A trustee must administer the trust solely in the interest of the beneficiaries and CANNOT engage in self-dealing. A transaction involving trust property that is entered into by the trustee for the trustee’s own benefit or that is affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction. Alternatively, a beneficiary can seek a damages award for the trustee’s self-dealing.

Answer 178

If a trust has two or more beneficiaries, the trustee MUST act impartially in investing, managing, and distributing the trust property – giving due regard to the beneficiaries’ respective interests.

Answer 179

The Prudent Investor Rule requires that a trustee exercise the degree of care, skill, and prudence of a reasonable investor investing his own property. o This includes diversifying trust assets, avoiding risky investments, and the duty to monitor investments and sell and reinvest investments as necessary to keep the trust assets productive.

Answer 180

A trustee may delegate duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances. If the trustee delegates a duty, the trustee MUST exercise reasonable care, skill, and caution in: (1) selecting an agent; (2) establishing the scope and terms of the delegation; AND (3) periodically reviewing the agent’s actions in order to monitor the agent’s performance and compliance with the terms of the delegation.

Answer 181

If a trust is revocable, a trustee owes duties only to the settlor (during the settlor’s lifetime). Therefore, a trustee is NOT liable for breach of the trust if the trustee acted in accordance with the settlor’s wishes (even if to the exclusion of the other beneficiaries). * If a trust is irrevocable, the trustee owes duties to settlor and the beneficiaries, and cannot be relieved from liability for acting in accordance with the settlor’s wishes

Answer 182

Trust receipts and disbursements are allocated according to State law either to income or principal. * The following items MUST be allocated to income: (1) receipt of rental payments from real or personal property; (2) money received from an entity (i.e. cash dividends, interest on investments); and (3) ordinary expenses and repairs. * The following items MUST be allocated to principal: (1) proceeds from the sale of a principal asset; (2) all other property received (other than money received from an entity); and (3) extraordinary expenses and repairs – expenses/ repairs due to an unusual or unforeseen occurrence that is beyond the usual, customary, or regular kind.

Answer 183

A trustee who wrongfully invades trust assets is liable to the beneficiaries affected for the greater of: (a) the amount required to restore the value of the trust property and distributions (to what it would have been if the breach did not occur); OR (b) any profit made by the trustee from the breach.

Answer 184

Remainder beneficiaries (also known as remaindermen) are NOT entitled to receive trust property UNTIL the termination of the trust.

Answer 185

minor, incapacitated, or unborn individual MAY be represented by and bound by a person with a substantially identical interest concerning a particular issue, UNLESS: (a) the person is already represented; OR (b) a conflict of interest exists between the representative and the person

Answer 186

substitute gift is created in the deceased beneficiary’s surviving descendants if: (1) the beneficiary of a future interest does not survive the distribution date; AND (2) a state’s anti-lapse law applies to trusts. However, most states’ anti-lapse statutes DO NOT apply to trusts.

Answer 187

vested remainder is an interest where there are no contingencies or conditions on survivorship. Vested remainders are devisable and will pass to that person’s heirs if they die before the interest becomes possessory.

Answer 188

Under the common law, a condition of survivorship on future interests in a trust is NOT implied. However, under the Uniform Probate Code (UPC), such condition is implied.

Answer 189

person’s future remainder interest may be accelerated (allowing the person to take possession immediately) if the present holder: (a) loses his legal right to the property; OR (b) disclaims his present interest in the property.

Answer 190

A special power of appointment is one in which the donee (the holder of the power) may only appoint property to a limited class of persons authorized by the donor.

Answer 191

When a testator/settlor (the donor) gives another person the power to decide where and to whom the testator’s property will go, that person (the donee) has a power of appointment. A general power of appointment is granted when the testator DOES NOT leave any conditions or restrictions as to the appointment of the property. Thus, the donee is permitted to appoint the power to anyone, including himself. A testamentary power of appointment can only be exercised by the donee’s will and according to the donor’s conditions.

Answer 192

Appointments made to those NOT authorized by the donor are ineffective. If more than one appointment is made at a time, an appointment that is ineffective will not affect an appointment that is valid. If the donee of a general power of appointment makes an ineffective appointment, the property passes to the taker-in-default designated by the donor of the power.

Answer 193

For an interest to be valid under the common law Rule Against Perpetuities (RAP), it must vest within a life in being at the time of the grant plus 21 years. This rule invalidates any interest that will not vest during the time period AND those that hypothetically may not vest within the time period. Some states have modified the common law rule, and provide that a non-vested property interest is invalid ONLY IF it actually does not vest within 21 years after the death of a life in being at the time the interest was created. Rather than invalidate interests on the possibility that they will not vest, this approach waits to see if the interest will actually not vest.

Answer 194

Under the common law, the words of a testator/settlor were given their legal meaning. However, modern courts are more likely to consider the testator/settlor’s intent. The terms “children” and “issue” are interpreted in accordance with intestate succession rules Class gifts generally close at the death of the testator/ settlor. Under the Rule of Convenience the class is closed when any member of the class is entitled to possession of the gift.

Answer 195

Any property not passing by a valid will or by operation of law will be governed by a state’s applicable intestacy statute.

Answer 196

Under the common law, a will is invalid if it does not meet all the requirements of the state’s law. Some states will find a will valid if the decedent substantially complied with the state’s requirements. * Under the Uniform Probate Code’s harmless error rule, an improperly executed will still be valid if the party seeking to have it validated proves (1) by clear and convincing evidence, (2) that the decedent intended the writing to be his will.

Answer 197

Most states require a will to be in a writing signed by the testator and witnessed by at least two individuals. Under the Uniform Probate Code (UPC), a will must be: (1) in writing; (2) signed by the testator (or by some other individual in the testator’s conscious presence and by the testator’s direction); AND (3) either (a) signed by at least two individuals within a reasonable time after witnessing the signing of the will or (b) notarized.

Answer 198

Under the Doctrine of Integration, a document will be integrated into a will if the testator: (1) intended it to be part of the will; AND (2) the document was physically present at the will’s execution

Answer 199

Under the common law, the signing of the will must be witnessed by two disinterested witnesses (individuals who are not receiving a benefit under the will). * However, most states provide for two exceptions in which the will remains valid despite being witnessed by an interested witness: (a) if the interested witness is an heir (any gift to that witness is reduced to their intestate share); OR (b) if another disinterested witness was present so that there were still a total two disinterested witnesses.

Answer 200

A codicil is an instrument made after a will is executed that modifies, amends, or revokes a will. A codicil MUST satisfy the same formalities as a will to be valid. Execution of a codicil republishes the will, meaning courts will consider the original will to have been executed on the same date as the codicil. Most courts hold that a codicil CANNOT republish an invalid will

Answer 201

holographic will (or a written alteration to a will) is a handwritten will that is NOT witnessed. Not all states recognize holographic wills. In the states that do, some require that the writing also be signed by the testator. * In the states that recognize holographic wills, a valid holographic codicil revokes any earlier valid will to the extent it conflicts with the codicil.

Answer 202

bequest through an unattested document is valid if it meets the requirements to be incorporated into a will by reference. * In most states, a document or writing may be incorporated into a will by reference if: (1) it was in existence at the time the will was executed; (2) it is sufficiently described in the will; AND (3) the testator intended to incorporate it into the will. * The Uniform Probate Code (UPC) permits a document or writing bequeathing tangible personal property (other than money) to be incorporated into the will if it: (1) was signed by the testator; AND (2) describes with reasonable certainty the items and the devisees.

Answer 203

court may use an act of independent significance to fill in any gaps of a will. Acts of independent significance are those with significance outside of the will-making process.

Answer 204

A will is revoked by physical act if: (1) the testator intended to revoke the will; AND (2) the will is burned, torn, destroyed, or cancelled by the testator (or someone at his direction and in his presence). * Under the common law, words of cancellation are valid only if they come in physical contact with words of the will (i.e. written over). Under the Uniform Probate Code, words of cancellation are valid even if they did not physically contact the words of the will.

Answer 205

testator may revoke a will by executing a subsequent valid will or codicil. Execution of a new will revokes a previous will only to the extent that the previous will conflicts with the new will UNLESS the new will expressly revokes the previous will in its entirety.

Answer 206

The Dependent Relevant Revocation Doctrine (DRR) cancels a previous revocation that was made under a mistaken belief of law or fact by the testator. The doctrine applies when the testator would not have revoked his original will but for the mistaken belief that another will he prepared would be valid.

Answer 207

Under the common law, an earlier will was automatically revived if a subsequent will was revoked. * Under the modern view, most states permit revival of revoked wills only under certain circumstances: (a) a will revoked by physical act will be revived if a testator shows intent for its revival; OR (b) a will revoked by subsequent instrument can be revived if the testator republishes the will by a subsequent will or codicil that complies with the will execution formalities. * Under the Uniform Probate Code, if a will was only partially revoked by a subsequent instrument, the revoked provisions will automatically be revived UNLESS the testator did not intend their revival.

Answer 208

In most states, contracts to execute mutual wills are enforceable. To be enforceable, the agreement MUST expressly state that the parties intend their wills to be a binding contract between them. There must be a specific reference to the contract upon which the joint wills are based and there must be specific, express intent that the parties desire the contract.

Answer 209

When assets are distributed by Per Capita at Each Generation, the estate is divided into as many equal shares as (1) surviving descendants in the generation nearest to the decedent, and (2) deceased descendants in that same generation who left surviving descendants (if any). Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, are combined, and then divided in the same manner among the surviving descendants of the deceased descendants.

Answer 210

Under Modern Per Stirpes (also known as per capita by representation), the estate is divided into as many equal shares as there are (1) surviving descendants in the generation nearest to the decedent, and (2) deceased descendants in that same generation who left surviving descendants (if any). Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, drop down and are divided in the same manner among the then living issue of the deceased descendants.

Answer 211

Per stirpes means that each branch of the family is to receive an equal share of an estate. Under a per stirpes distribution, the assets should be divided at the first generation of which there are living takers. Each living and non-living person in that generation is entitled to one share. Those shares going to non-living persons drop down directly to their issue

Answer 212

The terms of a will determine how the testator’s assets are distributed. A will takes effect at the time of testator’s death, and the estate is comprised of the property owned by the testator at the time of death. For distribution purposes, a will is treated as if it was executed immediately before the testator’s death. A beneficiary listed in a person’s will DOES NOT have any interest in the estate property prior to that person’s death.

Answer 213

Generically described property gifted in a will applies to property owned at the time of the decedent’s death matching the description in the will (i.e. a gift of “my boat”).

Answer 214

At common law, gifts to heirs during a testator’s lifetime were considered advancements on the heir’s intestate share of the estate, and would be deducted from the heir’s share of the estate. * Under the modern view and Uniform Probate Code, gifts to heirs during a testator’s lifetime are NOT deemed advancements UNLESS: (a) the will provides for deduction of the gift; OR (b) it was indicated in writing that the property was in satisfaction of a devise or that its value will be deducted from the value of the devise.

Answer 215

The Revised Uniform Simultaneous Death Act (RUSDA) provides that if there is no proof by clear and convincing evidence that one person survived the other by 120 hours (5 days), then the property is distributed as if that person predeceased the other person.

Answer 216

At common law, there was no residue of a residue rule. Any residuary shares of a decedent’s estate that were invalid, passed to the testator’s heirs via intestate distribution. Under the modern view, if the residue is devised to two or more persons, any residuary beneficiary’s share that fails will pass to the other residuary beneficiaries

Answer 217

A condition on a gift in a will/trust that prohibits a first marriage or requires divorce are void as against public policy, and will be treated as though the restriction had not been imposed.

Answer 218

When a testator/grantor includes a provision to govern his property in the event he dies without issue, but fails to include a provision regarding his death in the event he dies with issue, some courts infer a gift to issue. However, other courts hold that the gift fails and passes to the testator/grantor’s estate.

Answer 219

Under the common law rule of lapse, all gifts in a will were conditioned on the beneficiary surviving the testator. Any gifts to beneficiaries who did not survive the testator failed and passed to the residuary estate or under intestacy. * However, a gift to a deceased beneficiary will NOT lapse if an anti-lapse statute applies. The anti-lapse statute provides that, where a beneficiary under a will predeceases the testator, the gift will vest in the issue of that predeceased beneficiary if: (1) the predeceased beneficiary is a specified descendant of the testator (specified by statute); AND (2) the beneficiary leaves issue who survive the testator

Answer 220

Under the common law identity theory, a specific gift is adeemed by extinction if it cannot be identified at the time of the testator’s death or the testator does not own it at the time of death. This can occur when the testator makes a specific gift, but the property is later destroyed or sold before their death. The testator’s intent is not relevant. In most jurisdictions today, a specific gift will adeem only if the testator intended the gift to fail. If the testator DID NOT intend for a specific gift to fail, the beneficiary is entitled to: (a) any real property or tangible personal property (owned by the testator at death) which the testator acquired as a replacement for the specific gift; OR (b) a monetary devise equal to the value of the specific gift.

Answer 221

A person who was gifted securities (shares of stock) in a will is entitled to additional shares owned by the testator that were acquired as the result of stock splits or stock dividends.

Answer 222

Under the common law, a specific devise of real property DID NOT pass subject to any mortgage, and the mortgage was paid from the estate. Under the modern view, a specific devisee of real property assumes the mortgage (unless explicitly stated otherwise), regardless of a general directive in the will to pay debts.

Answer 223

If there are more creditor’s claims against an estate than there are assets to cover all of the gifts made under the will, the gifts under the will abate (be reduced). Abatement is not giving effect to bequests in the will so that creditors’ claims against the estate can be satisfied. Creditors of the estate always have priority to assets of the estate over beneficiaries. Absent provisions in the will, the order in which a testator’s property abates is as follows: (1) property passing by intestacy; (2) residuary gifts; (3) general gifts; (4) specific gifts.

Answer 224

An individual who feloniously and intentionally kills the decedent forfeits all benefits and entitlements to the decedent’s estate. If the decedent dies intestate, the estate passes as if the killer disclaimed her intestate share. A conviction (after all appeals are exhausted) is conclusive of a felonious and intentional killing. Otherwise, it may be based on a preponderance of the evidence proved during a probate or related court proceeding.

Answer 225

A disclaimer is when a person renounces their legal right to inheritance. An effective disclaimer must: (1) be declared in writing; (2) describe the interest or power disclaimed; (3) be signed by the person making the disclaimer; AND (4) be delivered or filed. * Under common law, a disclaimer must be made within a reasonable time. Some states require a disclaimer to be made within 9 months of (a) the death of the decedent, or (b) the vesting of a future interest.

Answer 226

In all states, a final divorce decree revokes any disposition or appointment of property made to the former spouse in a prior made will. In some states, a bequest is revoked if divorce proceedings are pending. All provisions that are revoked are treated as if the former spouse had predeceased the testator

Answer 227

prenuptial agreement between spouses waiving rights to each other’s assets upon divorce DOES NOT apply to voluntary gifts or bequests.

Answer 228

A specific gift is one that is specifically identified (i.e. real property or personal property). * A general gift is nonspecific and can be satisfied from any of the funds remaining in a testator’s estate. If it’s unclear whether the gift is general or specific, the court must consider the intent of the testator. * A demonstrative gift is a hybrid and occurs when the testator makes a general gift, but also identifies a specific source that the gift should come from. Money from a specified bank account is an example of a demonstrative gift. * A gift of stock shares may be general or specific, depending on the language of the will and the intent of the testator

Answer 229

Generally, a child has NO rights to his or her parent’s estate if the parent chooses to leave him or her out of the will. The only time a child will have rights when omitted from a will, is if the child is a pretermitted child (which is a child born after the will was made). * A child that is intentionally omitted from a will is NOT entitled to a share of the decedent’s estate. However, if a portion of the will fails, then a child will be entitled to his intestate share UNLESS the will intentionally disinherits the child.

Answer 230

At common law, only biological, full blooded, children born into wedlock were entitled to inherit. * Under the modern view, gifts to children include any child that is included in the legal definition of “children”, including biological children (marital and non-marital), half-bloods, and adopted children. An adopted child inherits the same as a natural child when the adopted child is not the relative of the adopting parent.

Answer 231

In some states, a child may be informally adopted through a person’s words or conduct. When a person takes in a child and assumes parental responsibilities (some states also require the decedent to have promised or agreed to adopt the child), equity holds the person as having formally adopted the child.

Answer 232

Many states have enacted statutes that give a surviving spouse the right to take a statutory share of the deceased spouse’s estate (instead of taking under that deceased spouse’s will). The amount of the elective share varies by state, and is typically one-third of the net probate estate (which is the gross-probate estate less creditor claims). The elective share is in addition to any statutory family exemptions (family residence, exempt personal property, and a family allowance). In some states, testamentary substitutes (i.e. lifetime transfers or certain non-probate assets) are brought back into the estate to calculate the net estate. Once the net estate is calculated, the surviving spouse is entitled to the statutory percentage (usually one-third), reduced by the value of the assets that would pass absolutely to the spouse under the decedent’s will.

Answer 233

pretermitted child is one who was unintentionally left out of a will. If the child was born or adopted after the execution of a will, the child is entitled to an intestate share of the decedent’s estate UNLESS the child was intentionally omitted from the will. If the child was living at the time of execution, the child is NOT entitled to a share of the decedent’s estate UNLESS the child was omitted from the will because the testator did not know of the child’s existence or believed the child to be dead.

Answer 234

To have the capacity to execute a will, a testator must be capable of knowing and understanding: (1) the nature and extent of his property; (2) the natural objects of his bounty (i.e. relatives and friends); AND (3) the disposition that he is making of that property. Appointment of a conservator or guardian, alone, does not automatically establish a lack of capacity.

Answer 235

A will is invalid to the extent it was executed under undue influence, and may be invalidated in full or in part. Undue influence occurs when a person exerts influence that overcomes a testator’s free will and judgment. * A prima facie case of undue influence is established if: (1) the testator had a weakness (physical, mental, or financial) that made him susceptible to influence; (2) the wrongdoer had access to the testator and an opportunity to exert influence; (3) the wrongdoer actively participated in drafting the will; AND (4) there is an unnatural (unexpected) result. * A common law presumption of undue influence is established if: (1) a confidential relationship existed between the testator and the wrongdoer; (2) the wrongdoer actively participated in the drafting of the will; AND (3) an unnatural result occurred.

Answer 236

will may be contested on the grounds of fraud when: (1) an individual knowingly makes a material misrepresentation of fact; (2) with the intent to induce reliance by the testator; AND (3) the misrepresentation actually induces reliance to the testator’s detriment. * Fraud may occur in the inducement or execution of a will. Under both, a will is invalid to the extent it was affected by fraud, and may be invalidated in full or in part. o Fraud in the inducement occurs when a person deceives a testator regarding facts related to the instrument (i.e. property or beneficiaries). o Fraud in the execution occurs when a person deceives a testator regarding the nature of the document being signed.

Answer 237

A person has standing to challenge a will if the person: (a) is a beneficiary of the will; (b) should be a beneficiary of the will; OR (c) would be financially benefited if the decedent died without a will

Answer 238

In most states, a provision (known as a no-contest clause) in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is valid. * However, most courts will NOT enforce a no-contest clause if probable cause exists for instituting proceedings to challenge a will. In addition, no-contest clauses generally DO NOT apply when: (a) the contestant is alleging fraud or that the will was revoked by another will, and there is a good basis for the claim; (b) the contest is on behalf of a minor or incompetent; (c) the contestant is alleging that the court does not have jurisdiction; OR (d) the contestant is merely asking the court to interpret/construe the will’s terms.

Answer 239

Most courts will permit modification of a will to conform to the testator’s intent if there is clear and convincing evidence of a mistake. Under the UPC (adopted by some states), a court may modify a will if there is clear and convincing evidence even if it’s an unambiguous provision

Answer 240

Joint tenants of a bank account have the right of survivorship, and will be entitled to the remaining funds upon the death of the other joint tenant. However, a contestant may overcome the presumption of the right of survivorship by showing that the account was set up merely for the convenience of the parties.

Answer 241

Totten Trust is created when the depositor opens up a bank account for himself as trustee for another. If a beneficiary to a Totten Trust survives the depositor, the trust shall terminate and title to the funds vest in the beneficiary free and clear of the trust. Totten trusts are revocable both by will and during the lifetime of the creator. In order to effectively revoke a totten trust during the creator’s lifetime, the creator must either: (a) withdraw all funds; OR (b) deliver a signed, written, and acknowledged revocation to the bank which names the financial institution and the new beneficiary.

Answer 242

A life insurance policyholder has the power to change beneficiaries during his lifetime. However, such a change is generally not permitted through a will, and must be changed on the policy directly.

Answer 243

An inter vivos gift is one made during the donor’s lifetime. Transfers of property made during the donor’s lifetime are NOT subject to intestacy rules or probate. A valid inter vivos gift occurs when (1) a donor with intent to make a gift, (2) delivers the gift, and (3) the donee accepts the gift. * Delivery of a gift may be constructive when the donor transfers a means of controlling or taking ownership of the property rather than the property itself (as through a letter or a token that represents the gift). Delivery of real property requires delivery of the deed.

Answer 244

If a decedent’s estate is inadequate to pay creditors, those who receive non-probate transfers may be liable to pay the decedent’s creditors up to the value of the transfer. Two or more transferees are severally liable. Generally, a creditor is NOT allowed to attach gifts given by a decedent prior to their death (an inter vivos gift).

Answer 245

Personal representatives (i.e. an executor) must handle all the matters associated with probate, including filing necessary paperwork, gathering the decedent’s property, and notifying creditors, heirs, or devisees. * If a decedent DOES NOT name a personal representative in his will, typically the court will appoint one

Answer 246

(also known as a living will) specifies the patient’s preferences for treatment or non-treatment should he become incapacitated.

Answer 247

gives a designated agent the power to make healthcare decisions for the principal in the event of the principal’s incapacity.

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