Wills and Trust Flashcards

Question

5 Possible Issues in Testamentary Capacity

Answer 1

5 possible issues in testamentary capacity: a) General capacity b) Undue influence c) Insane delusion d) Fraud e) Mistake

Answer 2

Capacity to make a will is a low bar requiring the testator understand the nature of her act, the nature and extent of her assets/property, and the natural objects of her bounty. While a testator under a conservatorship or guardianship is presumed to lack capacity, that presumption can be overcome by proof of these elements. *---* 2. Three requirements: a) Testator must understand the nature of the act (of making a will) b) Testator must understand the nature and extent of their property/assets c) Testator must understand the natural objects of their bounty (close family)

Answer 3

A will is invalid if obtained through undue influence – mental or physical coercion that deprives the testator of her free will and substitutes her desires with another. There are three types of undue influence analysis: a) a presumption of undue influence (common law presumption); b) standard undue influence; and c) statutory undue influence (where a fiduciary, such as an attorney or caregiver, drafts or prepares the instrument and benefits from it). ## Footnote Tip: You **may** need to discuss all three on an essay.

Answer 4

The common law of undue influence arises that, if not rebutted, would invalidate the gift when: the beneficiary is in a confidential relationship with the testator, participates in some way in procuring the gift, and the gift is an unnatural bequest that favors the beneficiary. *---* When (1) a beneficiary is in a confidential relationship to a testator, (2) participates in some way in “procuring” a gift, and (3) the gift is an “unnatural” bequest that favors the beneficiary (it is to someone other than the natural objects of the testator’s bounty), a presumption of undue influence arises which, if not rebutted, invalidates the gift.

Answer 5

When the beneficiary is an attorney, caregiver, drafter of the instrument or a person who has a fiduciary relationship with the testator and transcribes the instrument, it is presumed procured through undue influence. If the gift is to the drafter or their relative, the presumption is conclusive. But when the caregiver beneficiary has a personal relationship with the testator and provided the caregiving service without pay, they are not deemed a caregiver for the purpose of undue influence and thus there is no presumption of undue influence. *---* When the beneficiary is an attorney or caregiver, or is the person who drafts the instrument, or is in a fiduciary relationship with the testator and transcribes the instrument, it is **presumed procured through undue influence**. Indeed, if the gift is to the drafter of the instrument or their relative, the **presumption is conclusive**. However, if the caregiver beneficiary had a personal relationship (i.e., is a relative of the testator or trustor) and provided caregiving services without pay, they are **not deemed a caregiver for purposes of undue influence**, and thus there is **no presumption of undue influence**. ## Footnote caretaker, attorney, drafter or fiduciary

Answer 6

In the absence of the common law presumption, the challenger to the will must show that: (1) **the influence was exerted on the testator**; (2) the **influence's effect** was to **overpower the testator’s free will and mind**; and (3) **but for** the **influence**, the **will would not have been executed**. Challenger has a burden of proof. Factors indicate undue influence includes: (1) the **testator** was **vulnerable** to undue influence; (2) the beneficiary’s relationship with the testator gave the **beneficiary** the **opportunity** to exercise undue influence; (3) the beneficiary had the **disposition** to **influence** the testator, [and utilized actions and tactics designed to exert influence]; (4) the **gift to the beneficiary was inequitable**; (5) the will provisions seem unnatural.

Answer 7

Insane delusions that actually cause the bequest. The test is whether, “but for” the insane delusion, the specific bequest would not have been made. *---* It is not general insanity, which does not invalidate a will. It is hallucination or psychological phenomenon i.e., the delusion tells you how to divide the property

Answer 8

Fraud in the execution occurs where a testator is misled into executing the instrument by false representations concerning the character or content of an instrument—they are led to believe it is something other than a will.

Answer 9

Fraud in the inducement occurs where a testator is misled into executing the instrument or a particular gift by false representations concerning **facts that influence his motivation**. If the court determines that someone fraudulently represented the facts to the testator, any gift caused by the fraud will be denied probate.

Answer 10

Mistake in the execution occurs when the maker thinks it is something other than a will. Since there is no intent to make a will, it cannot be probated. *--* Where there is a mistake in the execution—as to the character of the document (e.g., where the maker thinks it is something other than a will), it cannot be probated, since there is no intent to make a will. ## Footnote if mistake doctrine arise, rise up DRR rule too

Answer 11

Mistake in the inducement occurs on the mistaken belief in untrue facts. Historically, there has been no relief unless both the fact of the mistake and the disposition the testator would have made but for the mistake appears on the face of the instrument. But California Supreme Court held that the unambiguous will could be reformed if clear and convincing extrinsic evidence establishes that the will contains a mistake in the testator’s actual specific intent at the time that the will was drafted. *--* Where there is a mistake in the inducement (based on a mistaken belief in untrue facts), historically, there has been no relief available unless both the fact of the mistake and the disposition the testator would have made but for the mistake appears on the face of the instrument. However, the California Supreme Court has held that an otherwise unambiguous will could be reformed if clear and convincing extrinsic evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted. ## Footnote if mistake doctrine arise, rise up DRR rule too

Answer 12

A pour over will and trust means the assets of the estate are, upon death, transferred by gift to a revocable and amendable trust, provided the trust instrument was executed at the time of the will or before, and is adequately identified in the will. If the trust is executed after the will, it is only effective under UTATA but not incorporation by reference.

Answer 13

“Substituted judgment” is a conservator may make a will or trust, or revoke or modify a trust, on behalf of the testator who is their conservatee. Under the doctrine of substituted judgment, the probate court is empowered to make orders authorizing or requiring the conservator to take a variety of actions with respect to a conservatee's estate plan. The court can only approve such substituted judgment after a noticed hearing, and only if the conservatee does not oppose the proposed act or lacks legal capacity, and the conservatee will be adequately provided for notwithstanding the act. The court has discretion and flexibility in applying the doctrine of substituted judgment under the circumstances of the case, including the nature and extent of the estate, tax implications, and previous estate plans. Conservator can make a will or trust, or revoke or modify a trust for a conservatee. *---* Requires: 1. Noticed hearing 2. Conservatee does not oppose the proposed act or lacks legal capacity 3. Conservatee will be adequately provided for notwithstanding the act Factors considered by court: 1. Nature and extent of the estate 2. Tax implications 3. Previous estate plans 4. Other relevant factors

Answer 14

A. Revocation B. Revival C. Dependent Relative Revocation (DRR)

Answer 15

There are three methods of revoking an instrument or a gift in an instrument: 1. By subsequent Will; 2. By physical act (cancellation tearing, blotting out, etc.), or 3. By operation of law (in CA divorce or termination of a domestic partnership revokes a will). A will still in physical existence may be revived through publication of a subsequent codicil, but a will revoked by physical destruction cannot be so revived. ## Footnote Note: 1. While a strike-out of all of a bequest is an effective revocation by cancellation, **adding in a new bequest is not effective because it would not comply with the required execution formalities** (unless it is all part of a holographic instrument). 2. But a **strike-out of one numeral to decrease the gift** (striking out a 0 from $1000 to reduce the gift to $100) is **permitted**. 3. One of the **hardest areas**, and **most confusing**, is **when the testator seeks to rescind the revocation itself**, and** whether and when to use Revival** or **Dependent Relative Revocation** to bring back the **revoked provisions**.

Answer 16

Revival only applies to when (1) Will 2 revokes Will 1, and then (2) Will 2 itself is revoked by physical act. Then, Will 1 is **only revived** if either from the circumstances of the **revocation** or from the **testator’s contemporaneous or subsequent declarations** it is **evident** that the **testator intended Will 1 to be revived by revoking Will 2.** ## Footnote Only ONE Fact Pattern

Answer 17

When a testator revokes part or all of a will on the **mistaken belief** that the new disposition, made concurrently, **is valid**, the **court will give effect to the revoked portion** ***if*** it is **consistent** with what the **court determines was testator’s intent**. ## Footnote * DRR only applies in the case of a mistake. It does not apply in the case of fraud or any other flaw. It also does not apply to invalid execution of the revoking instrument, even if the testator mistakenly believed the revoking instrument was validly executed, since there is no need for DRR in that case because the revoking instrument was never valid and thus never revoked the original instrument. * The application of DRR requires that the new disposition is ineffective—invalid—due to a mistake. If the revocation is by physical act, the mistake may be shown by extrinsic evidence, but if the revocation is by subsequent instrument, the mistake must appear on the face of the will. Extrinsic evidence is not permitted. The revocation and the making of the new disposition must be simultaneous.

Answer 18

Issue: Where the exam mentions papers in addition to the will, one issue is whether they are part of the will. When such additional papers are mentioned in the essay, consider and perhaps discuss four possible theories for what these papers might be: 1. a codicil; 2. integration; 3. incorporation by reference; and 4. acts of independent significance.

Answer 19

A codicil modifies, amends, or revokes a prior will and must be executed with the same formalities as a will. Holographic codicils is valid if the signature and material provisions (i.e., gifts made and name of beneficiaries) are in the testator’s handwriting. *---* A codicil amends a prior will and requires the same formalities as a will. It is admissible to probate by itself. To the extent the will is not changed by the codicil, it is deemed to speak as of the date of the codicil, so the unaltered remainder of the will is republished by the codicil. Elements: 1. A codicil requires the same formalities as a will 2. It is admissible to probate by itself 3. To the extent the will is not changed by the codicil, it is deemed to speak as of the date of the codicil, so the unaltered part of the will is republished by the codicil.

Answer 20

The will **consists of all papers or writings** actually **present at the time of execution** that **the testator intended to physically constitute her will**. **Intent and presence are presumed** when the **papers are physically connected** or **there is an internal sense of connectedness** shown by the **provisions running** from **one page to the next**. [These elements may be shown by **extrinsic evidence**.] *---* Element: 1. The will consists of all papers or writings actually (physically) present at the time of execution and that the testator intended to constitute her Will. 2. Intent and presence is presumed when the papers are physically connected or there is an internal sense of connectedness shown by the provisions running from one page to the next. 3. These elements ma be shown by extrinsic evidence.

Answer 21

Incorporation by reference requires that (1) the incorporated writing be in **existence** as of the date of execution of the will, (2) the will shows the **testator’s intent to incorporate the writing**, and (3) the writing be **sufficiently** described in the will. *---* Three requirements: 1. The incorporated writing be in existence as of the date of execution of the will, 2. The will shows the testator’s intent to incorporate the writing, and 3. The writing be sufficiently described in the Will.

Answer 22

This doctrine permits a court to **resolve ambiguities in a will** by referring to **certain documents or acts effectuated during the testator’s lifetime**, which documents or acts were created or done for primarily **non-testamentary motives**. [The act or event must have a sufficient significance apart from its impact on the will or the estate.]

Answer 23

Note: 1. Non-testamentary requires additional evidence. 2. Non-testamentary is not related at the time of person’s death *---* * “All my paintings to the employee in my employ at the time of my death,” * “To John Smith, all the furniture in my home at the time of my death.” * Such provisions are ambiguous on the face of the will and thus need a resort to reference outside the will to identify the precise employee or the precise furniture.

Answer 24

A. Extrinsic evidence B. Specific vs. General legacies C. Increase / accretion D. Ademption E. Lapse

Answer 25

Extrinsic evidence is admissible to explain an ambiguity in a will—**latent** (ambiguity is not on the face of the will) or **patent** (ambiguity is on the face of the will). It is not admissible to show a will provision has a meaning to which it is not reasonably susceptible. *---* 1. latent is an ambiguity is not on the face of the will 2. patent is an ambiguity is on the face of the will General: 1. you must first specifically identify the ambiguity and explain alternative reasonable meanings to show why the will is ambiguous. 2. then you can state that extrinsic evidence will be admissible to resolve something, Exception: the California Supreme Court seems to have departed from this rule to at least allow extrinsic evidence to reform a facially unambiguous will. ## Footnote * Admissible to explain any ambiguity in a will – latent or patent * Not admissible to show a Will provision has a meaning to which it is not reasonably susceptible.

Answer 26

A specific legacy is a gift of a **particular item** of property distinct from all other objects in the testator’s estate. *---* With a specific legacy, consider: 1. Increase/accretion 2. Ademption 3. Lapse and anti-lapse ## Footnote The issue is whether the testator intended the donee to have that thing only, or something similar.

Answer 27

A general legacy is a gift of **general economic benefit** (such as cash), payable out of the general assets of the estate.

Answer 28

Whether a gift of stock is general or specific depends on the language and circumstances. In most cases, it is a general legacy, unless the will refers to “my” shares of a particular corporation’s stock, or unless the stock is in a small, closely held corporation not traded on a stock exchange. In those cases, the stock would be a specific legacy. If a gift is a specific legacy, consider issues of increase or accretion, ademption, and lapse and anti-lapse. ## Footnote e.g., bills of cash in suitcase or 2018 Audi K08 to Alex e.g., gift of money - give Alex $10,000 e.g., bishop want to give 2018 Audi K08 to Alex b/c Bishop want Alex to have a car. 40 years later, Bishop died and car is useless Argue the following: 1. want the actual description of the car 2. want the FMV of the car 3. want just a car

Answer 29

This applies when a specific gift increases in number or amount. The majority rule, and the rule in California, is that the increase in a specific gift goes to the beneficiary. *---* Majority rule: increase goes to beneficiary of specific gift *---* E.g.: stock split; stock dividend So if the gift is of “My 200 shares of GM stock,” which is a specific legacy, and the stock splits 2 for 1, or there is a stock dividend issued  the increased amount also goes to the named beneficiary of the stock.

Answer 30

This occurs when the specific gift identified in the will is no longer there when the testator dies. There are two kinds: Ademption by extinction and ademption by satisfaction. Ademption by extinction occurs when the specific gift is no longer owned by the testator at the time of his death. Ademption by satisfaction occurs when the testator gives the beneficiary a substitute gift during the testator’s lifetime. In either case, the beneficiary is not entitled to the specific gift upon the testator’s death. In California, however, the court will admit extrinsic evidence to determine if the testator intended to adeem the gift, [so discuss that intent.]

Answer 31

Ademption by extinction occurs when the specific gift is no longer owned by the testator at the time of his death.

Answer 32

Ademption by satisfaction occurs when the testator gives the beneficiary a substitute gift during the testator’s lifetime.

Answer 33

Under the Uniform Simultaneous Death Act, beneficiaries are deemed to predecease the testator if they die simultaneously if beneficiary die within 3 days before testator die or it cannot be determined which one died first. *---* If the testator and beneficiary die simultaneously, or it cannot be determined which one died first: 1. Beneficiary is deemed to predecease testator; 2. If all beneficiaries predecease, each deemed to survive the other so estate is split among their lines; 3. If spouses die simultaneously, ½ to each person’s estate; 4. If joint tenants die simultaneously, pro rata share to each joint tenant’s estate.

Answer 34

When a gift in a will or a trust would otherwise lapse because of beneficiary’s death, an anti-lapse statute will give the gift to the issue of the predeceased beneficiary if the predeceased beneficiary is testator's kindred or of the testator’s/trustor’s surviving, ex- or deceased spouse. *---* In California, the anti-lapse statute provides: where (1) the predeceased beneficiary is kindred of the testator/trustor or of the testator's/trustor's surviving, ex- or deceased spouse or domestic partner; and (2) the predeceased beneficiary left issue surviving them, then the gift in that case goes to the surviving issue of the predeased beneficiary.

Answer 35

Kindred means blood relative within the fourth degree.

Answer 36

1. analyze whether there has been a lapse a) If the **will evidences a contrary intention**, such as a requirement that the beneficiary survives the testator by 30 days, then the anti-lapse statute will not successfully apply, and you must discuss what happens to the gift due to lapse. b) If **anti-lapse does not apply**, then the gift fails and goes to the **residue**. c) when the lapsed gift is the residue, **by intestate succession**. d) If there is more than one surviving issue, divide the gift per capita by right of representation. 2. apply the California anti-lapse statute where: a) the predeceased beneficiary is kindred of the testator/trustor or of the testator’s/trustor’s surviving, ex- or deceased spouse or domestic partner; and b) the predeceased beneficiary left issue surviving them, then the gift in that case goes to the surviving issue of the predeceased beneficiary

Answer 37

Property passing by joint tenancy survivorship is not part of a probate estate.

Answer 38

A spouse can only bequeath their share of the community property and their separate property.

Answer 39

The gift to [beneficiary] is the residuary clause of the will. Property falling to this clause includes any failed gifts, [beneficiary's] share of the community property not already gifted, and [beneficiary's] separate property not already gifted.

Answer 40

Any part of a decedent’s estate not properly disposed of by will passes to the decedent’s intestate heirs by statute.

Answer 41

In case of intestacy, if the **decedent leaves no issue, parent, sibling, or issue of a deceased sibling, the surviving spouse**, if any, **gets the decedent’s share of the community property, and all of the separate property**. Community property is treated differently from separate property under the statute. *---* Note: 1. Always consider the possibility that the **instrument**, or the **residue**, **fails** for various reasons ---> may then be **intestacy**. 2. **California** uses a **per capita by right **of **representation formula**, also known as **modern per stirpes**.

Answer 42

If a decedent leaves a surviving spouse, in determining what happens to the separate property, follow the intestacy statutes as to fractions that the spouse receives. 1. No children (or parent, sibling, issue of deceased sibling) -Spouse receives 100% of separate property. 2. One child, parent, sibling, or issue of deceased sibling - Spouse receives 1/2 3. More than one child or issue of deceased children - Spouse receives 1/3

Answer 43

Lineal descendants take per capita by right of representation. *---* 1. The portion passing to each issue (lineal descendants) depends on how many issue there are in particular degrees. 2. If the issue are **all of equal degree of kinship to the decedent** (they are all of the same generation), then they **take equally (per capita)**. 3. If the **issue are of unequal degrees of kinship **to the **decedent**, the **estate** is **divided per capita by right of representation**. ## Footnote For the purposes of California law, the estate is divided into shares based on the nearest generation in which there are living descendants of the testator: (1) one share for every living member of that generation, and (2) one share for each deceased member of that generation, with their share being taken by their issue by right of representation.

Answer 44

A spouse may dispose of their half of the community property by will to whomever they wish. However, a spouse omitted from a premarital will receives her intestate share of testator’s estate unless the omission was intentional as shown in the will (“I intentionally omit any spouse I may have at the time of my death”), the spouse is provided for in transfers outside the will (such as a prenuptial agreement), or the spouse made a valid agreement waiving her interest in decedent’s estate. *---* Element?: intestate share of separate property unless: a) Omission intentional b) Provided for the by other gifts/transfers outside of will c) Premarital agreement

Answer 45

A parent can fail or refuse to leave anything to their child or children. However, a child omitted from a pre-birth will—that is, the child is born after the will—receives her intestate share unless either: (1) the omission was intentional as shown in the will, (2) the child is provided for in transfers outside the will, or (3) the testator had other children and left their estate to the parent of the omitted child. **A testator can intentionally disinherit her children.** *---* This principle applies as well if the testator fails to provide for a child solely because the testator believes the child is dead or is unaware of the birth of the child—a fact pattern that appeared recently. Element?: a) The omission was intentional as shown in the will, b) The child is provided for in transfers outside the will, or c) The testator had other children and left their estate to the parent of the omitted child. | barbri

Answer 46

California has a statute to protect children from being unintentionally omitted from their parent’s will. In California, if a decedent fails to provide for a child born or adopted after the execution of the decedent’s testamentary instrument (a will and/or revocable trust), the child receives his intestate share of the decedent’s property. This rule has been extended to cover a child who was alive when the testamentary instruments were executed but the testator either believed the child was dead or was unaware of his birth.

Answer 47

Under the intestacy statute, if there is no surviving spouse, a decedent’s intestate estate passes to her issue. Issue of the same generation take equally. *--* Under the California intestacy statute, if there is no surviving spouse, the entire estate passes to the decedent’s surviving issue. Descendants of a living descendant excluded. If the eligible surviving issue are all of the same generation, they take equally.

Answer 48

A beneficiary is barred from receiving his or her share if they feloniously and intentionally kill the decedent, commit elder abuse (physical or financial) of the decedent, or unsuccessfully brings a will contest if there is a no contest clause in the will. *---* Elements?: 1. Beneficiary intentionally kills T; 2. Elder abuse of T; or 3. Unsuccessful will contest (where the will has such as in terrorem clause)

Answer 49

A. Formation and validity; B. Fiduciary duties of trustees; C. Remedies for breach of fiduciary duty

Answer 50

There are seven elements of a valid trust: 1. settlor or trustor who creates the trust; 2. a trustee whose duty is to manage the trust; 3. a definite or charitable beneficiaries; 4. a manifestation of intent to create the trust; 5. trust property; 6. delivery of the trust property to the trustee; and, 7. a valid trust purpose. Estate planning is a valid trust purpose. *---* There are seven (7) elements of a valid trust: 1. A **settlor or trustor** who creates the trust; 2. A **trustee**, whose duty is so manage the trust; 3. **Intent** to create a trust; 4. **Trust property** (res); 5. **Delivery** of the trust property to the trustee; 6. **Beneficiaries**; and, 7. A **valid trust purpose**. ## Footnote 1. Even if the trust is in a will, the essential terms must still be present. 2. But absence of a trustee will not prevent validity of a trust since a court can appoint a trustee.

Answer 51

The trustee is absent at the time the will was form but it will not prevent a validity of a trust, since the court can appoint one. But a failure to name a trustee may cause an intervivos trust to fail because there can be no delivery of the trust property. Where there is a declaration of trust, no delivery is required because the settlor is the trustee.

Answer 52

The trust property must be an existing interest in existing property (of any type) that the settlor has the power to convey.

Answer 53

A definite beneficiary is necessary to validate every trust except charitable trusts.

Answer 54

1. Estate planning 2. Lifetime support of trustor and family 3. Charitable giving A valid trust prupose is estate planning, lifetime support of trustor and family, and charitable giving. A trust may be created for any purpose that is not illegal, does not involve a criminal or toritious act, or is not contrary to public policy. A trust that violates the Rules of Against perpetuities does not have a valid trust purpose except for charitable trusts.

Answer 55

a) **If the facts state that the trustor executed a valid trust, do not discuss these elements—assume they exist and move on**. b) If the facts merely state that **the trustor executed a trust**, and **don’t use the word “valid,”** discuss the **existence** of **each of these elements separately and in order**. (1) It is not uncommon for an essay to provide that the testator executed a valid will, which then contains a testamentary trust. c) If the facts **do not state that the trust contained within the valid will** is also **valid**, you **must still discuss the elements of a valid trust**.

Answer 56

Secret trust is when a will makes a gift that is **absolute on its face** to a **named beneficiary** (so there is **no mention of a trust, trustee**, or that the **gift was for the benefit of someone else**), but the **gift** was **made in reliance** on the **beneficiary’s oral or written promise** to in fact **hold the gift property in trust for another.** To prevent **unjust enrichment of the named beneficiary**, courts will allow the intended trust beneficiary to present extrinsic evidence of the agreement. If the agreement can be proved by clear and convincing evidence, the court will **impose a constructive trust** on the **beneficiary/secret trustee**, and **compel** the beneficiary/secret trustee to **comply with the terms of the secret trust**.

Answer 57

The beneficiary whom the gift was made in reliance on the beneficiary’s oral or written promise to in fact hold the gift property in trust for another

Answer 58

The **Statute of Frauds** is **not a bar**, because the action is **not to enforce the original secret trust**, but to **impose a constructive trust** on the beneficiary/secret trustee to avoid unjust enrichment.

Answer 59

The **Statute of Wills** (requiring compliance with the statutory formalities of a will) is not a bar, since the constructive trust **does not operate to modify the will**: the **beneficiary/secret trustee still receives the property**, but the **constructive trust operates solely on the trust property itself.** ## Footnote Rule?: Secret Trust requires: 1. Gift is absolute on face of will 2. Secret agreement to hold gift in trust for benefit of another 3. MUST PROVE BY CLEAR & CONVINCING EVIDENCE

Answer 60

The will makes a gift that is explicitly in trust but fails to name either the actual beneficiary or trust’s purpose, or both. *---* Definition: Gift in Will to T “in trust,” but terms of trust are not apparent – separate agreement.

Answer 61

Trust fails by violating Statute of Frauds 1. It would violate the Statute of Frauds to identify the beneficiary by parole evidence. 2. Unlike a secret trust, there is no concern about unjust enrichment, because it is clear that the “trustee” is not to take the property free and clear as her own. 3. Thus, the gift fails, the named trustee holds the property as a resulting trustee in favor of the testator’s heirs, and the property falls to a residuary, if any, and otherwise by intestate succession. 4. Resulting trust to residuary / intestacy

Answer 62

Statute of Wills Even if the testator communicated the identity of the beneficiary and the terms to the trustee, courts will not enforce the trust because of the Statute of Wills violated by identifying the beneficiary by parol evidence

Answer 63

The purpose of a charitable trust is one that is considered to benefit the public. This can include disseminating the views of a particular political movement, benefiting the community, and also includes situations where matching funds are required. The controlling factor is the effect of the gift, not the motive of the donor, so if the effect is charitable and benefiting the public, that is sufficient.

Answer 64

Rule against Perpetuities will only apply to invalidate a charitable gift **if it involves a shifting executory interest from a charity to a non-charitable purpose, or from a non-charitable purpose to a charity**, but **a shifting executory interest from one charity to another charity does not violate the Rule against Perpetuities**. *---* => No violation if via a shifting executory interest, the asset are transferred to another charity

Answer 65

Where the **trustor had a charitable intent**, but the **specified charitable use** is **no longer possible or practical** (such as when the specific charity named as a beneficiary no longer exists), the **court must decide whether the trustor had**: 1. a **specific charitable intent** and thus **would have intended the trust to fail** in the **absence** of the **named charity**, or 2. a **general charitable intent** and would have **wished the property devoted to a similar use** that is as **near as possible to the original use**. 3. Where the court decides that the trustor had **a specific intent to benefit a particular charity**, the **property passes as a resulting trust to the settlor’s successors in title**.

Answer 66

A spendthrift trust is one in which the beneficiary cannot alienate (transfer, hypothecate, or pledge) his interest in the trust. He cannot give away his future income or capital to creditors or anyone else, and the assignee cannot compel the trustee to pay him. But this restraint on alienation does not apply once the trust income has been paid out to the beneficiary. Spendthrift trusts also do not prevent alienation of the beneficiary’s interest to pay claims of dependents, the government, or suppliers of necessities such as food, medicine and shelter. ## Footnote beneficiary can’t spend money for others

Answer 67

* Beneficiary cannot alienate (transfer or hypothecate) interest in trust * Assignee / creditor cannot compel trustee to pay * DOES NOT APPLY once trustee pays / distributes assets to beneficiary, but creditor then has to catch beneficiary with assets * Exceptions - Creditors who can compel payment by trustee: 1. Claims of dependents (spousal / child support) 2. Government claims (taxes) 3. Suppliers of necessities (food / housing / medicine)

Answer 68

The trustee is given discretion whether to pay or withhold payments to a beneficiary. Before the trustee exercises discretion, creditors cannot reach the trust. If the trustee exercises his discretion and elects to make payments, and has notice of an assignment or attachment by creditors, the trustee must pay the creditors directly, absent a spendthrift restriction. Absent an abuse of discretion, a court will not interfere in the trustee’s exercise of discretion. *---* Elements: * Trustee has complete discretion WHETHER to pay or withhold payments to beneficiaries * Before trustee exercises discretion, creditors cannot reach trust * After trustee elects to exercise discretion, if trustee has notice of assignment or attachment, trustee must pay creditor * Unless – there are spendthrift provisions ## Footnote within trustee discretion

Answer 69

A support trust is one where the trustee is required to pay ONLY so much of the income or principal as is necessary for support of the beneficiary. This is different from a directive to pay all income to the beneficiary. A beneficiary’s interest in a support trust is non-assignable—creditors cannot reach it. *---* Elements: * Trustee is required to pay ONLY so much as is necessary for support of beneficiary * To be a support trust, the payout must be a limited amount * “All the income payable for support” is NOT a support trust, because it is not limited * Support trust non-assignable; trustee does not pay creditors, even with notice of assignment or attachment ## Footnote money for beneficiary necessities

Answer 70

In most states, a trust is presumed to be irrevocable unless there is an express reservation by the settlor of the right to revoke. Under the Uniform Trust Code (UTC) and by statute in several non-UTC states (including California), a trust is presumed revocable unless the trust instrument expressly provides that it is irrevocable.

Answer 71

A settlor or trustor can almost always terminate or revoke a trust if statutorily permitted. In California, the settlor’s or trustor’s power to revoke the trust is presumed.

Answer 72

A trustee can never terminate a trust. A trust needs a trustee to hold legal title but a trust will never fail merely because trustee refuses to serve.

Answer 73

Beneficiaries can only revoke or modify a [irrevocable] trust if all the beneficiaries – including remote contingent beneficiaries, unborn and unascertained beneficiaries – consent, and the modification or termination will not interfere with a material trust purpose. *---* E.g., if the trust provides for delayed distribution of the corpus to the beneficiaries until each reaches the age of 50, it cannot be revoked until the youngest reaches age 50 because the spendthrift provisions are a material purpose of the trust. Revocable / modifiable if: a) All beneficiaries consent, and b) Will not interfere with material purpose of the trust

Answer 74

In determining whether termination would impair a material trust purpose, the whole instrument and surrounding circumstances will be considered.

Answer 75

When an express trust fails because the beneficiaries are dead, equity creates a resulting trust in the settlor or, if the settlor is dead, the settlor’s estate. *---* Definition: When an express trust fails because the beneficiary is dead, equity creates a resulting trust in the settlor (or, if the settlor is dead, the settlor’s estate), and the court then compels the resulting trustee to distribute the property to the settlor or the settlor’s estate.

Answer 76

1. Delegation 2. Duty to Earmark 3. Duty of Care 4. Duty of prudence/to diversify 5. Duty to make property productive 6. Duty of loyalty 7. Duty to act impartially 8. Principal and income allocation

Answer 77

Trustee has a fiduciary duty to beneficiary. When duties to the beneficiaries have been breached, any questions of liability are typically resolved against the trustee. [These duties include delegation, duty to earmark, duty of care, duty of prudence, duty to make property productive, duty of loyalty, duty to act impartially and make proper principal and income allocation, and duty to administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust.]

Answer 78

Discussing the duties of a trustee often includes familiarity with business, and a little bit of finance and accounting as well. This organizational structure is easier than organizing by duties first--particularly where a couple of the duties may have been breached in more than one way. Step: a) Each major heading should describe an action that the trustee took--in chronological order of occurrence in the essay if possible. b) Within each action, discuss which fiduciary duties the trustee may or may not have breached.

Answer 79

Trustee may delegate management functions that a prudent trustee would delegate, and must exercise reasonable care, skill, and caution in selecting an agent, establishing the scope and terms of the delegation, and periodically review the agent’s actions. Trustee can delegate. If trustee delegates, trustee is liable for all delegate’s wrongful action. *---* The trustee may delegate management functions that a prudent trustee would delegate, and must exercise reasonable care, skill, and caution in selecting an agent, establishing the scope and terms of the delegation, and periodically reviewing the agent’s actions. Thus, a trustee over property that includes several income-producing properties may hire a property manager, for example. Similarly, a trustee may hire an attorney or an accountant. Trustee may delegate. If trustee delegates, trustee is liable for wrongful acts of delegate, (including a co-Trustee).

Answer 80

This largely involves the issue of commingling into the same account—the trustee must keep trust assets and property separate from the trustee’s personal assets and property, and the assets must be titled in the name of the trustee as trustee. Commingling assets breaches the fiduciary duty to earmark.

Answer 81

The trustee must manage investments as a prudent investor would, and thus must exercise reasonable care, skill, and caution. [The standard is under the Uniform Prudent Investor Act (UPIA).] Care relates to the trustee’s diligence and efforts. Skill relates to the trustee’s capabilities. Caution is the element of conservatism in managing the trust. *---* The trustee must manage investments as a prudent investor would, and thus must exercise reasonable care, skill, and caution. 1. Care relates to the trustee’s diligence and efforts. 2. Skill relates to the trustee’s capabilities. 3. Caution is the element of conservatism in managing the trust.

Answer 82

The care element of duty of care includes the duty to investigate—to make a reasonable effort to research and verify information likely to affect the value of investment assets.

Answer 83

In discussing the caution element, evaluate each investment as part of an overall investment strategy that has risk and return objectives reasonably suited to the particular trust.

Answer 84

A trustee is required to make prudent investments/duty to diversify. Prudence requires diversification and placing trust assets into investments that will maximize the value of trust assets. *---* 1. a mutual fund may be better than investment in the stock of one company, and investment in several stocks, even if they are more conservative, may be more prudent than investment in one that promises fast growth but has no track record. 2. mortgage participations, where sums are advanced by multiple trusts to multiple mortgagors, may be preferable to pure investments (such as a deed of trust) in a parcel of land, particularly if the investment is in the form of a hard money loan—a second or lower deed of trust with a higher interest rate.

Answer 85

The trustee has a duty to make property productive and not simply exist without earning anything. *---* Element?: 1. Non-productive property (vacant land) 2. Trustee fails to collect claims/assets 3. Trustee fails to invest funds E.g., This will largely come up where there is property that is not producing income, such as vacant land, or where the trustee is not collecting assets or claims due the trust, or is not investing funds that earn interest.

Answer 86

A trustee has a fiduciary duty of loyalty to the beneficiaries. A duty of loyalty prevents a trustee from purchasing trust property for the trustee’s own account or that of related persons. Before entering into such a “self-dealing” transaction, a trustee must obtain court approval. [Thus, the Trustee cannot buy or sell trust assets for himself or related persons, even at full value or a fair price, without court approval.]

Answer 87

A trustee has a duty to act impartially toward both the income and principal beneficiaries. A trustee cannot make only investments that increase income but damage the long-term value of the trust property. A trustee also has a duty to administer the trust solely in the beneficiaries’ interest. If there is more than one beneficiary, the trustee must act impartially and not favor one beneficiary over another. *---* E.g., investment in a second or lower deed of trust with a higher interest rate—may violate this duty because it favors the income beneficiary by securing a higher interest rate, but at a risk to the principal beneficiary should the borrower default on a senior loan, resulting in the investment being foreclosed out. E.g., the misallocation of money and in the decision to sell Hercules but buy Fabulon ## Footnote Also applies when trustee **violates duty to allocate principal and income properly**

Answer 88

This is a duty to administer the trust according to its terms in good faith and prudent manner. The trustee cannot resigned without first obtaining court permission. *---* This is a duty to administer the trust according to its terms. Specifically, the trustee must administer the trust by following the instructions of the trust in a good faith and prudent manner. The trustee cannot resigned without first obtaining court permission. [This is similar to agency law’s duty of an agent of obedience.] *---* In addition to breaching this duty by not following the instructions of the trust, a trustee in some essays has breached this duty by resigning as trustee without first obtaining court permission.

Answer 89

A trustee must follow the Uniform Principal and Income Allocation Act (UPIA), which sets out how to allocate various distributions to principal or income. {Thus, [asset for income] should be allocated to income, and [asset for principal] should be allocated to principal.} If a trustee determines that by following these rules, he is unable to treat all beneficiaries fairly, he can adjust between principal and income to the extent the trustee considers necessary. Usually, this only occurs when the only distributions are to income, but not principal.

Answer 90

1. money is **allocated to income** ***unless*** it is capital gain or in **distribution of liquidation of an entity**; 2. insurance proceeds are allocated to principal, except for business income loss, which is allocated to income; 3. proceeds from patents, copyrights, oil and gas royalties and lease payments, and similar payments are **allocated 10% to income** and **90% to principal** because **they represent depreciating assets**. Summary: 1. A trustee must follow the Uniform Principal and Income Act 2. Cash to income UNLESS a) Capital gain; b) Distribution in liquidation or corporation or partnership 3. Stock, capital gains to principal 4. Insurance proceeds to principal UNLESS a) Form loss of business income 5. Patents, copyrights, royalties and leases: a) 10% to income; b) 90% principal

Answer 91

Expenses are also allocated: 1. Half of the trustee’s compensation, investment, advisory, or custodial fees, expenses for accountings, judicial proceedings, and other expenses that affect both the income and remainder interests are allocated to income, and half to principal. 2. The entire cost of ordinary expenses (including interest, repairs, regularly recurring taxes and insurance premiums) are allocated against the income interest. 3. The entire cost of payments on the principal of a trust debt, estate taxes, and disbursements on environmental matters are allocated to principal. *----* Summary: 1. Ordinary expenses – all to income 2. Trustee/attorney/accountant and other compensation – ½ to each 3. Principal on debt, estate taxes, environmental cleanup – all to principal

Answer 92

Equity will not enforce a trust if the beneficiaries expressly or impliedly consented to the breach. The beneficiaries must sue within a reasonable time or they will be barred by laches or specific statutes of limitation for breach.

Answer 93

o Offset Profits: A trustee cannot offset a loss on one investment with a different investment to negate liability. o Exculpatory Clause: Relieves the trustee from liability. Clause will be honored to an extent (negligent conduct only), but will never relieve liability for intentional or reckless conduct. o Consent by a beneficiary will shield trustee from liability. o If the beneficiary is legally competent, knows all relevant information, and consents to the action, the trustee is shielded from liability. The trustee could still be liable to other beneficiaries. o Laches (equitable remedies)/Statute of limitations (legal remedies) o Dissenting Co-trustee: With the majority vote acting, a dissenting trustee will not be held liable as long as he or she expresses dissent IN WRITING to co-trustees.

Answer 94

The trustee is liable for all losses resulting from the breach and will be surcharged for the loss i.e., sue the trustee personally for the amount necessary to restore the trust property and distribution to what they would have been without breach. A loss from one breach cannot offset a gain from another breach – the trustee will still be liable for the entire amount of the loss. As an additional remedy, the trustee can also be removed as trustee. *---* Summary 1. Surcharged for losses 2. Cannot offset losses with gains 3. Trustee may be removed ## Footnote 1. Only discuss this issue where the call of the question specifically asks for remedies. 2. Even if trustee profits from risky investment, losses for breach of duties is not offset by the profit of investment