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Trusts, Wills, Estates Flashcards

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1
Q

What are the requirements for a valid trust?

A

SIT PA: Settlor/grantor/trustor, Intent to create a trust, Trustee, Property, Ascertainable Benefits

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2
Q

What are the considerations - both mandatory and optional - raised when creating an express trust?

A
  1. Subject to SOF?
    a. Testamentary?
    b. The property is real estate?
    c. By its terms set to last more than 1 year?
  2. Created by a trust agreement/instrument
  3. Trustee given specific, binding directions
  4. Optional:
    a. Distinguish between initial income and remainder
    i. Then if trustee fucks it up, may be liable to the beneficiary entitled to more
    b. Wide can be given to the trustee in how to/whether to make a distribution to beneficiary
    i. Trustee can also “sprinkle” distributions to members of the beneficiary class
    ii. Just requires good faith/reasonableness
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3
Q

What are the two main reasons a court would imply a trust?

A

(1) a good faith effort is made to create an express trust that fails, (2) constructive trust is implied by the court to prevent unjust enrichment/inequity

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4
Q

How might a constructive (implied) trust be created?

A

a. Court implies a trust to mitigate inequity/avoid unjust enrichment
i. Trustee orally promised to hold property for beneficiary and then failed to do so – again, court may imply a trust to protect the harmed party
ii. Legal interest is obtained in property via theft, fraud, duress, breach of fiduciary duty… wrongdoer is legally considered a trustee for the properly-intended beneficiary

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5
Q

When does an inter vivos trust take effect? And is it revocable at death?

A
  1. Takes effect immediately upon funding
  2. Irrevocable upon the grantor’s death
  3. Provisions actually trump a will designation to the contrary!
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6
Q

What are the laws governing the revocation of a trust?

A
  1. Common law: requires express reservation by grantor of the power to revoke
  2. UTC: trust is revocable (default) unless express provision otherwise
  3. Can be terminated by mutual agreement if
    a. Donor/grantor and all beneficiaries agree AND
    b. Would not defeat a material purpose of the trust
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7
Q

Why are trusts useful? What’s the utility behind creating one?

A
  1. Reduce estate taxes – appreciation of a trust’s assets is not taxed at death
  2. Living trust – transfers assets when donor dies w/o a will (wills can be contested)
  3. Protects assets: out of the reach of creditors or Uncle Sam
    a. “Spendthrift” provision = extra protection!
  4. Avoid probate – more privacy and quicker way to devise property
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8
Q

What is the Uniform Trust Code?

A

i. The Uniform Trust Code (2005)
1. Attempt to update/standardize common law of trusts
2. Not binding, but influential

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9
Q

What are the key elements of the Uniform Transfers to Minors Act?

A

a. Irrevocable custodian trusts for the benefit of minors
b. Ownership vested w/minor but controlled by custodian/trustee
c. Minor’s creditors can access
d. Custodian/trustee not liable to 3rd parties in contract unless custodial relationship concealed

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10
Q

How would the court treat provisions of a trust that violate the Rule Against Perpetuities?

A
  1. If RAP violation exists, courts will strike the portion that offends the rule:
    a. So, if conveyance’s conditional wording is “but if” (e.g. ‘but if liquor ever sold’), then the original person gets fee simple absolute
    b. If the wording was “so long as” (e.g. “so long as operated as a school”) then the previous interest gets a fee simple determinable, grantor gets possibility of reverter
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11
Q

What is the trustee’s role?

A

Trustee is a fiduciary of any assets in the trust and is directed by the trust instrument’s directions and descriptions. Notice to beneficiaries is often key. PIN CALL = basic duties

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12
Q

What are the PIN CALL basic duties of a trustee?

A

ii. PIN CALL = basic duties
1. Properly administer
a. Prudent business person investment standard – how would such a person safeguard her own investments
b. Preserve the principal
c. Attempt to maximize productivity of assets
2. Inform beneficiaries
a. When transaction involving more than 25% of assets – require notice to settlor AND beneficiaries
3. Not delegate decisions
a. Can’t delegate decisions pertaining to judgment/discretion
b. CAN delegate basic admin/ministerial work with supervision
4. Commingling of assets not allowed
a. Of separate trusts
b. OR of the trustee’s personal assets with the trust
5. Account to beneficiaries
a. Annual written statement to all adult beneficiaries
i. Including trustee’s compensation
b. Beneficiaries can request additional info and trustee has to get it too
6. Litigate on behalf of trust
a. May sue on behalf of the trust
b. Must defend the trust
7. Loyalty to the trust
a. Fiduciary duty is KEY
i. Breach = SOB
1. Self-dealing
2. Opportunity of trust
3. Borrowing from trust

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13
Q

On what grounds can a trustee be held liable by the beneficiaries of a trust?

A
  1. Liability:
    a. Trustee can be sued by the beneficiaries for breach of duties (financial liability)
    b. Also liable for failing to pursue a negligent prior trustee
    c. Improper delegation of duties or failure to supervise a negligent agent
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14
Q

On what grounds can a trustee be removed from her role?

A

a. A beneficiary-approved trustee? Court doesn’t favor removal
b. Cause for removal anyway:
i. Unfitness
ii. Unwillingness to serve
iii. Violation of duties (PINCALL)

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15
Q

What defenses might a trustee assert if being sued by beneficiaries?

A

a. Instrument contains exculpatory clause
i. Courts don’t like these clauses
ii. BUT if one is on the books – trustee may be shielded from liability for negligence (but not if bad faith, intent, gross negligence)
b. Consent by beneficiary
i. Beneficiary who consents may be estopped from complaining
c. Statute of limitations has run

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16
Q

What are a beneficiary’s ownership rights in a trust?

A
  1. Absolute ownership rights to the trust unless the instrument expressly says otherwise
  2. Transfer rights: can devise or transfer their interest/income
    a. Instrument could create a restraint on alienation (transfer) but not enforceable if against public policy
    b. And usually only valid to restrict inter vivos transfers
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17
Q

What is it called when a creditor of a trust’s beneficiary asks for income distributions from a trust?

A

A “charging order” which the creditor delivers to the trustee.

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18
Q

How does a spendthrift trust protect beneficiaries?

A
  1. Spendthrift trust
    a. Beneficiary is not allowed to assign future income distributions to creditors (charging order is useless)
    b. Exceptions: provide for necessities, family support, to pay the beneficiary’s taxes, cannot be used to defraud creditors, not permitted if the settler is also the beneficiary (the you’re just trying to avoid creditors)
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19
Q

What is a support trust?

A

A support trust is set up to provide for the needs of a beneficiary. The trustee is obligated to pay for the support of the beneficiary out of trust funds. These needs must be limited to providing for food, clothing, shelter, medical expenses

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20
Q

What is a discretionary trust and how does it protect its beneficiaries from creditors?

A

a. Trustee is given sole discretion to make or withhold distribution
b. Protects from creditors because the beneficiary’s interest in an income distribution is not vested (totes at the trustee’s mercy)
c. Exceptions: provide for necessities, family support, to pay the beneficiary’s taxes

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21
Q

What are the basics of a charitable trust?

A

i. Must be registered with a state agency
ii. Exempt from the RAP
iii. Cy Pres doctrine:
1. If named charity taker no longer exists?
2. Court can substitute a similarly-purposed charity to effectuate the grantor’s intent
3. Court has to examine intent
4. If grantor only wanted to help a specifically-named charity, then the gift goes into the grantor’s residuary estate (and would pass via will or intestacy)

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22
Q

How could a lawsuit arise between a 3rd party and a trust?

A
  1. Contracts
    a. 3rd party who contracts with the trust can sue the trust
    b. Remember trustee has a duty to defend/litigate
    c. Judgment for 3rd party? Can go after the trust’s assets
  2. Torts
    a. 3rd party who is damages by a tort of the trust (usually meaning the trustee) can sue
    b. Remember trustee has a duty to defend/litigate
    c. Judgment for 3rd party? Can go after the trust’s assets
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23
Q

How could a lawsuit arise between a 3rd party and a trustee?

A
  1. Contracts
    a. Typically, trustee acts as agent for the trust so would not be personally liable for contract
    b. If outside valid scope and liable, the trust could still indemnify the trustee
  2. Torts
    a. Trustee is personally liable for her own torts
    b. Liable for subordinates’ torts if failure to supervise
    c. Failure to obtain insurance on trust property may be a breach of duty
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24
Q

How could a 3rd party seek to hold a trust’s beneficiaries legally liable for contract or tort?

A

Good fuckin’ luck! No rights against the beneficiaries

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25
Q

Can a trust sue a 3rd party?

A

Totally! If 3rd party screws over the trust, can be liable to the trust and its beneficiaries for money damages. Remember that the trustee has the option to sue on behalf of the trust, but the duty to defend the trust in litigation.

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26
Q

What are the ways in which trust could be terminated?

A

Consolidation&merger; term expiration; merger; purpose accomplished, illegal, or impossible; income interest terminates (pay out to the sole survivor); donor termination; court petition (rare)

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27
Q

How would a court petition to terminate a trust look?

A
  1. Law disfavors trust termination
  2. BUT possible if
    a. All income/remainder beneficiaries petition the court
    b. Moving party can show termination would not defeat a material purpose for which the trust was created
    i. Almost impossible standard to meet
    c. During the court petition:
    i. Minors should be appointed guardian ad litem
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28
Q

What are the essential elements of a valid will?

A

i. Comply with the laws where testator domiciled at the time of death? (think conflicts of laws)
ii. Contains all the SIT MA requirements?
1. Signed in front of two witnesses (or direct someone to sign for you/acknowledge a previous signature)
2. Intent
3. Testamentary age: gotta be 18+
4. Mental capacity
a. Upon execution, must remember & understand:
i. Property nature/extent
ii. Objects of her bounty (in other words, kiddos)
iii. Testamentary effect of the devise
5. Attested two by 2 competent witnesses
a. Common law: witness cannot be interested party
b. Modern rule: okay if witness is interested party so long as no evidence of undue influence

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29
Q

How will courts interpret a will?

A

i. Intent of the grantor – however imperfect – should control
ii. Even if a small error in will but clear intent by grantor? Court will likely honor grantor’s intent rather than sending to probate
iii. Extrinsic evidence is generally admissible to glean intent (not strict application of P.E.R. here)
iv. Will ID beneficiaries with certainty
v. After-acquired property gets thrown in
vi. Doctrine of worthier title (common law)
vii. Rule in Shelleys’ Case
viii. Cy Pres doctrine (charitable gifts)

30
Q

How can a grantor make sure subsequent folks know they have the entire will?

A

i. Integration: have the testator initial each page and refer to the total # of pages at the end
ii. Incorporation by reference – a separate writing can lay out the pieces of property, etc. and be incorporated if
1. The writing is already in existence when will is executed AND
2. The will sufficiently describes/identifies this separate writing
3. If inconsistencies between the two? The will controls.

31
Q

How does disinheritance work?

A
  1. Evidence of intent to disinherit existing spouse/kiddos must be clear & convincing
  2. Heirs of the disinherited person can still take (unless specifically also disinherited)
32
Q

How do adopted or half children get treated as takers?

A

Same as natural born kiddos. Once you are adopted, you forfeit intestacy rights from natural parents.

33
Q

How does the law handle omitted surviving children born after a will was drawn up?

A
  1. E.g. you were born after the will was executed
  2. Qualify for a forced share same as under intestacy
  3. BUT if grantor had kids when will was drawn up and didn’t provide from them, they don’t get anything from the testamentary estate
34
Q

How are children born out of wedlock handled in intestacy?

A
  1. Child born out of wedlock gets full share if paternity was established (intestacy only)
    a. Paternity can be established in DNA suit or father acknowledges in writing
35
Q

How might a will be changed after divorce/annulment of marriage?

A
  1. Upon divorce, all provisions in a will favoring an ex-spouse are automatically revoked
  2. BUT former spouses designated in an insurance policy or federal employment-benefit plans still take unless the policy/plan is changed
36
Q

What does a spouse get who marries someone after the will was created?

A

Gets half the community/joint property or intestate share, whichever is higher

37
Q

What is a lapsed device and how does it work?

A
  1. E.g. device is conditioned on the beneficiary outliving the testator and they don’t (e.g. clear language saying non-survivors get nada)– then it “lapses” meaning property goes to the residue of grantor’s estate
  2. BUT if not conditioned on survival, the beneficiary’s descendants will usually take (most states have an anti-lapse statute)
38
Q

What is a beneficiary disclaimer?

A
  1. Named beneficiary may refuse to accept a devise (disclaim it).
  2. Unless an alternative taker is identified, goes to residue of grantor’s estate
39
Q

How would devising property “per stirpes” work?

A

a. Per stirpes:
i. Property is divided equally at level of decedent’s children.
ii. Then, if child predeceased grantor, the kids (“issue”) of that kid share equally in the amount their parent would have taken.
iii. In the graph on the cheat sheet, for example, the decedent has 3 kids, each who would get 1/3. But Kids 1 and 2 are dead so their kids evenly split whatever 1/3 their parents would have gotten. It’s way better for Grandkid C!

40
Q

How does devising property “per capita” work?

A

i. Division by total head count is made at the level of first generation live takers
ii. The first level where there is a live taker (usually decedent’s kiddos but could be grandkiddos) is the first distribution
1. Per capita w/representation: all the survivors (B, C, D, E, F) get equal shares
2. Per capita at each generation: the first level’s interest gets split (e.g. 1 of 3 kids survives, that kid gets a 1/3 interest), and then the remaining 2/3 split amongst the next generation

41
Q

What is ademption?

A
  1. Will specifies property passage but the property was destroyed/transferred
  2. Taker gets nothing!
  3. Replacement property doctrine: beneficiary DOES get anything that replaced the originally-owned devised property, or proceeds from relevant insurance
42
Q

What is an accession/accretion

A
  1. Devised property increases in value between will creation date and death
  2. Beneficiary gets the increase!
43
Q

What is an exoneration?

A
  1. Particular asset devised is subject to a liability
  2. Devisee gets the assets subject to the liability unless will expressly says otherwise
  3. Rare to require the residue to take on the liability instead of the beneficiary
44
Q

What does satisfaction mean regarding testamentary devises?

A
  1. E.g. Dad devises son $50K but gave son $20K during life
  2. Common law: this is treated as partial satisfaction of the $50K gift
  3. UPC: don’t treat them as satisfied unless donor says so in writing
45
Q

What is a codicil?

A
  1. Supplementation or modification of an existing will

2. Can include crossing out a line to nix a beneficiary/devisee

46
Q

How might a codicil impact the earlier will?

A

a. Creates new testamentary scheme – must have all the formal will requirements
i. (sometimes crossing off the name of one of your kiddos is enough to be considered a new testamentary scheme)
b. References earlier will and therefore republishes it

47
Q

Talk to me about revocation of a will

A
  1. Possible by being: burnt, torn, canceled, destroyed w/ intent to revoke
    a. By the testator or someone acting at testator’s direction
    i. If at another’s direction – 2 witnesses required
  2. Does not revive an earlier will unless extrinsic evidence shows that was the testator’s intent
  3. Revocation also revokes codicils relating to it
  4. Partial revocation is fine so long as it increases residue value of estate
48
Q

What is a nuncupative will and is it valid?

A

Oral (“nuncupative”) wills are invalid in many states.

49
Q

What is a “holographic” will and is it valid?

A

Hand written (holographic) wills are typically valid but must still be witnessed, etc.

50
Q

What is a conditional will?

A
  1. E.g. “If I die on my trip,”
  2. Unless the wording is super clear that this is a condition precedent, survival of the testator from the trip is not a defense to ultimately enforcing it
51
Q

How do the courts handle promises to create a will in the future (e.g. “I will leave you my estate if you care for me for life”)?

A
  1. Usually unenforceable without VC

2. And, if VC is given, that contract would generally require a writing

52
Q

How do mutual/joint wills work?

A
  1. Two people promise to devise in the same manner to third parties
  2. Can be done separately or in a joint writing
  3. Rescission requires both testators to be alive – irrevocable after the first dies
53
Q

What superior rights does a surviving spouse have that may trump the terms of a will?

A
  1. Entitled to at least ½ of all community or jointly-owned property
  2. Minimum “forced share” available on motion which includes homestead interest in family home superior to all other interests save a recorded mortgage
54
Q

How do obligations from a divorce decree relate to devise under a will, if the will doesn’t mention those obligations?

A
  1. Support obligations cannot be avoided by re-marrying and naming the new spouse
  2. Divorce decree obligations trump the terms of the will
55
Q

What is the burden of proof (and on whom) in a will contest case?

A

Burden of proof is on the contestant to show “clear and convincing evidence” of the will’s faults.

56
Q

What are the key grounds upon which to challenge the validity of a will?

A
  1. Failure to adhere to SIT MA requirements
  2. Fraud in the inducement (wrongful deceit, duress)
  3. Fraud in the execution (thought signing something else – classic)
  4. Undue influence
    a. Vulnerable testator’s decision-making overcome
    b. Undue influence requires high showing but considered satisfied if LOAF:
    i. Large devise (beneficiary got an unnaturally large devise)
    ii. Opportunity (had the opportunity to exert undue influence)
    iii. Active participation
    iv. Fiduciary or confidential relationship
57
Q

What is an “In Terrorem” clause?

A
  1. A clause that states any beneficiaries challenging the will forfeit their share of the state
  2. Such clauses are generally enforceable
58
Q

What is a Dead Man’s statute?

A
  1. Prohibits an interest party from testifying about the decedent’s statements regarding the subject
59
Q

If a will challenge is won and the will is overturned, then what?

A
  1. Previous will revived

2. No other will – presumed to have died intestate

60
Q

When does death occur for the purposes of the Uniform Simultaneous Death Act?

A

i. All brain function ceases

ii. Or circulatory/respiratory functions cease

61
Q

What is the Uniform Simultaneous Death Act?

A

i. Did two people with a relationship (e.g. spouses, folks who named each other in their wills) die simultaneously?
1. Simultaneous = within 120 hours
2. “Death” occurs when
a. All brain function ceases
b. Or circulatory/respiratory functions cease
3. Rather than saying the heirs of whoever happens to die first of the two gets everything, both are considered to have predeceased each other so that inheritance is divided to their closest living relatives

62
Q

How would intestate succession work if no surviving spouse or issue?

A

a. Surviving parents first
b. Then siblings
c. Then grandparents
d. Then aunts, uncles, first cousins
e. If there is NOBODY? Then the property escheats to the state

63
Q

How does power of attorney work?

A

a. Power of attorney: agency in the event that the principal is disabled or incapacitated
i. Requires writing, wording indicating the principal’s intent
ii. Can be limited in scope (e.g. when does it become effective)
iii. Presumption that it doesn’t include economic powers such as amending life insurance contracts

64
Q

How does medical power of attorney work?

A

Agent makes medical decisions for incapacitated principal (including whether or not to withhold life-extending procedures)

65
Q

What is a living will?

A

Directive to physicians/medical attendants to withhold life-sustaining treatment fi no hope of recovery (like a DNR)

66
Q

What is probate?

A

Probate is a court-supervised process which establishes the rights of beneficiaries, protects creditors, and distributes assets. Most states follow the Uniform Probate Code (UPC).

67
Q

What property is NOT subject to probate?

A

i. Insurance policies, pensions
ii. Joint tenancies w/right of survivorship
iii. Trust property
iv. Community property
v. Designated “pay on death” accounts

68
Q

What is the basic procedure of probate?

A
  1. Personal rep (PR) is designated or appointed
    a. If PR is a fiduciary, must be bonded
  2. Specify whether the decedent had a will
    a. And, if so, whether the will is being contested
    b. Lost/destroyed wills require additional evidence/proof
  3. Estimate the decedent’s property/assets
  4. Provide notice to interested persons/creditors
    a. Notice must be provided for 3 consecutive weeks in a newspaper
    b. Typically claims for less than $1,000 are booted
    c. PR who fails to provide notice to creditors becomes personally liable!
  5. Estates assets are distributed
69
Q

In what order are estate assets distributed?

A

a. Costs of administration (PR, accounting, legal expenses)
b. Funeral/last illness costs
c. Family maintenance (e.g. child support)
d. Taxes
e. Judgment debts
f. Unsecured debts
g. (if anything left) beneficiaries

70
Q

What is abatement?

A

Abatement of debts and legacies is a common law doctrine of wills that holds that when the equitable assets of a deceased person are not sufficient to satisfy fully all the creditors, their debts must abate proportionately, and they must accept a dividend.

In the case of legacies when the funds or assets out of which they are payable are not sufficient to pay them in full, the legacies abate in proportion, unless there is a priority given specially to any particular legacy. Annuities are also subject to the same rule as general legacies.

The order of abatement is usually:

i. Intestate property
ii. General residuary gifts
iii. General gifts of money
iv. General gifts of non-money assets

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