Wills and Trust Flashcards
Wills & Trust
Approach
- Whether the essay involves just Wills, just Trusts, or both, remember to treat each instrument or document separately, and in chronological order—just like you would on a Contracts or Property exam.
- Then, within an instrument, treat each item or bequest separately, and try to discern a logical flow.
a) The most basic flow, particularly in a Wills question, is to aim toward the disposition of the residue,
(1) because if a gift or bequest in an instrument otherwise fails,
(2) because of lapse or the failure of an express trust
(3) e.g., it will end up in the residuary clause of a Will. - If there is no Will, or no residuary clause in the Will, or the residuary clause itself fails, the property is distributed through intestate succession.
Wills v. Trust
Tips
- Wills is California-specific.
- Trusts” generally is not a California-specific subject, except for certain construction and interpretation issues that are applied the same to Wills and to Trusts.
Trust is Valid
Tip
- If not told it is a valid trust, discuss all 7 elements of a valid trust.
- Discuss each act of the trustee separately and THEN discuss which duties apply
Terms in Wills
- Testator
- Testator’s Attestation
- Dispositive Provision
- Signing the instrument
- Witness’ Attestation Clause
- Executor and successors
- Residue
- Probate
Testator
Definition
the person making the will
Testator’s Attestation
Definition
A clause of a will that identifies the testator and indicates they are competent to make a will
Dispositive Provisions
Definition
- The provisions set out how the property is to be distributed.
- The provisions include specific gifts to specific people, and then the rest is distributed through the residue or residuary clause.
Signing the instrument
Definition
The testator signs and dates the will, and then there is an attestation clause signed by the witnesses.
Witness’ Attestation Clause
Definition
Attesting to the testator’s competence to make a will.
Executor and successors
Definition
A person appointed to be responsible for the legal distribution of the estate after the testator’s death by offering the will for probate
Dispositive Provisions
Definition
- provision that set out how the property is to be distributed
- The provisions include specific gifts to specific people
Residue
Definition
- The rest is distributed through the residue or residuary clause
- What are not the specific gifts to specific people under dispositive provisions
Probate
Definition
Probate is the court process of confirming the validity of a will and accounting for all the assets, and obtaining of the approval for all acts of the executor or administrator of the estate, along with final distribution by the court of the assets of decedent’s estate.
Wills Mental Checklist
Checklist
Approach –
1. Use a mental checklist to treat Wills as if it flows chronologically.
Steps
1. Validity – Execution and Capacity;
2. Revocation;
3. Components of a Will;
4. Construction and Interpretation;
5. Intestate succession;
6. Rights of surviving spouse and children; and
7. Bars to succession
Valid Will
Tip
- If the exam states that the testator executed a valid will (using the word “valid”), there is no need to discuss either execution of the will or the capacity of the testator, since both of those issues go to the issue of validity.
- Or, if the essay gives absolutely no details about the will execution, but is largely about formation of a testamentary trust, and acts of the trustee under the trust, just focus on the trust.
Validity of Wills
Approach
(1) First analyze whether the formalities of execution have been met.
(2) If they have not been met –> if the problem involves how the witnesses signed and whether they were present at the same time to witness the testator’s signing or acknowledgment, then discuss the rule of clear and convincing evidence and apply it to the facts before deciding whether to validate or invalidate the will.
(3) Check if Testator died after January 1, 2009
(a) On past bar exams, if death occurred before January 1, 2009, just invalidate the will for lack of due execution
(b) If after January 1, 2009, Will can be executed by clear and convincing evidence to overcome “present at same time” witnessing requirement.
Note: The requirements of executing a statutory Will are precise, and variance will ordinarily invalidate the Will. The main issues you face in will execution are the validity of the testator’s signature, the order and validity of the witness’ signatures, and the effect of interested witnesses.
Foreign Wills
Foreign will is valid in California if it is executed in accordance with:
(1) California law;
(2) The law of the state where it is executed; or
(3) The law of the place of domicile or abode or where testator is a national at the time of execution or death.
Validity of Testator’s Signature
Will Execution
A will may be signed either by the testator or on the testator’s behalf by someone in his direction.
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By testator “or at his direction”
Validity of Witnesses’ signatures
Will Execution
Under the statute, the witnesses, being present at the same time, must witness either the testator’s signature, or the testator’s acknowledgment. That means the witnesses must be together when witnessing the signature or acknowledgment.
A valid acknowledgment is the testator saying to both of the witnesses, “This is my will,” or something similar.
Wills that failed to comply with witnessing requirement Deaths after January 1, 2009
Regardless of when the will was executed, if it is not executed in strict compliance with this witnessing requirement, a will may still be admitted to probate if the proponent establishes by clear and convincing evidence that at the time the testator signed the will, the testator intended the instrument to constitute his will.
Interested Witnesses
An interested witness is one who receives something under the will more than they would otherwise receive in intestacy. To the extent a witness receives something under the will more than they would otherwise receive in intestacy, there is a presumption of undue influence as to the excess. If the proponent of the will does not overcome the presumption, the witness’ disposition lapses. However, mere appointment of the witness as a trustee or executor does not make the witness an interested witness.
Holographic Will
Holographic will requires the testator’s signature and all material provisions be in the testator’s handwriting.
Valid Holographic Will
For a holographic instrument – whether it is a will or codicil – to be valid, it requires the testator’s signature and all material terms be in the testator’s writing, but there is no requirement of witnesses. The material provisions include the gift made; the naming of beneficiaries, executors, and trustees; the signature; the declaration that the instrument is will; and similar provisions. A date is not a required material provision, but if the instrument lacks a date and there is another dated will, the holographic will is deemed invalid.
Holographic Will Lacking Date
If the instrument lacks a date, and there is another, dated will, the holographic will is deemed invalid.
5 Possible Issues in Testamentary Capacity
5 possible issues in testamentary capacity:
a) General capacity
b) Undue influence
c) Insane delusion
d) Fraud
e) Mistake
General Capacity to Make a Will
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.
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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)
Undue Influence
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).
Tip: You may need to discuss all three on an essay.
Common law presumption**
Undue Influence
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.
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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.
Statutory Undue Influence
Undue Influence
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.
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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.
caretaker, attorney, drafter or fiduciary
Standard Undue Influence**
Undue Influence
Think of Bison’s Magician grab on opponent to exert his will, effect on the fighter and the will (damage) would not happened but for influence
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.
Insane Delusion
Insane delusions that actually cause the bequest. The test is whether, “but for” the insane delusion, the specific bequest would not have been made.
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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
Fraud in execution
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.
Fraud in inducement**
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.
Mistake in execution
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.
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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.
if mistake doctrine arise, rise up DRR rule too
Mistake in inducement
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.
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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.
if mistake doctrine arise, rise up DRR rule too
Pour Over Trust
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.
Substituted Judgment -
Court-approved Execution of Will or Trust by Conservator
“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.
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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
Which Instrument Applies?
A. Revocation
B. Revival
C. Dependent Relative Revocation (DRR)
Revocation
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.
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.
Revival
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.
Only ONE Fact Pattern
Dependent Relative Revocation (DRR)
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.
- 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.
Components of a Will
Tip
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.
Codicils
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.
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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.
Integration
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.]
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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.
Incorporation by Reference**
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.
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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.
Acts of Independent Significance
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.]
Non-testamentary acts used to resolve ambiguity on face of the will.
examples
Note:
1. Non-testamentary requires additional evidence.
2. Non-testamentary is not related at the time of person’s death
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* “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.
Interpretation of Wills
List
A. Extrinsic evidence
B. Specific vs. General legacies
C. Increase / accretion
D. Ademption
E. Lapse
Extrinsic Evidence
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.
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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.
- 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.
Specific Legacies
A specific legacy is a gift of a particular item of property distinct from all other objects in the testator’s estate.
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With a specific legacy, consider:
1. Increase/accretion
2. Ademption
3. Lapse and anti-lapse
The issue is whether the testator intended the donee to have that thing only, or something similar.
General Legacies
A general legacy is a gift of general economic benefit (such as cash), payable out of the general assets of the estate.
General v. Specific
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.
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
Increase / accretion
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.
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Majority rule: increase goes to beneficiary of specific gift
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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.
Ademption
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.]
Ademption by extinction
Ademption by extinction occurs when the specific gift is no longer owned by the testator at the time of his death.
Ademption by satisfaction
Ademption by satisfaction occurs when the testator gives the beneficiary a substitute gift during the testator’s lifetime.
Simultaneous death
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.
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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.
Anti-lapse Statute**
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.
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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.
Kindred
subrule for anti-lapse
Kindred means blood relative within the fourth degree.
Lapse and Anti-Lapse
Approach
- 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.
- 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
Probate and Joint tenancy survivorship**
Rule - Rights to Will/Trust
Property passing by joint tenancy survivorship is not part of a probate estate.
Spouse’s bequeath
Rule - Rights to Will/Trust
A spouse can only bequeath their share of the community property and their separate property.
Beneficiary Right to Residuary Clause
Rule - Rights to Will/Trust
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.
Intestate Succession
General Rule
Any part of a decedent’s estate not properly disposed of by will passes to the decedent’s intestate heirs by statute.
Intestate Succession - surviving spouse getting decendent’s share of the community property and separate property
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.
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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.
Intestate Succession - surviving spouse
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.
- No children (or parent, sibling, issue of deceased sibling) -Spouse receives 100% of separate property.
- One child, parent, sibling, or issue of deceased sibling - Spouse receives 1/2
- More than one child or issue of deceased children - Spouse receives 1/3
Modern Per Stirpes
Lineal descendants take per capita by right of representation.
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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.
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.
Pretermitted Spouse
Married after execution of will
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.
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Element?: intestate share of separate property unless:
a) Omission intentional
b) Provided for the by other gifts/transfers outside of will
c) Premarital agreement
Pretermitted Child
born after execution of will
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.
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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
Children Unintentionally Ommitted
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.
Child’s Interest If No Surviving Spouse
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.
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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.
Bars to Succession
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.
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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)
Major Issues of Trust
List
A. Formation and validity;
B. Fiduciary duties of trustees;
C. Remedies for breach of fiduciary duty
Trust Formation and Validity
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.
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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.
- Even if the trust is in a will, the essential terms must still be present.
- But absence of a trustee will not prevent validity of a trust since a court can appoint a trustee.
Absentee Trustee
subrule - absent trustee
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.
Trust Property
The trust property must be an existing interest in existing property (of any type) that the settlor has the power to convey.
Beneficiary
A definite beneficiary is necessary to validate every trust except charitable trusts.
Valid Trust Purpose
subrule
- Estate planning
- Lifetime support of trustor and family
- 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.
When to do it or skip -
Trust Formation and Validity
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.
Secret Trusts
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.
Secret Trustee
Secret Trusts
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
Imposing Constructive Trust Can’t be Bar by SOF
Secret Trusts
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.
Imposing Constructive Trust Can’t be Bar by SOW
Secret Trusts
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.
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
Semi-Secret Trusts
The will makes a gift that is explicitly in trust but fails to name either the actual beneficiary or trust’s purpose, or both.
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Definition: Gift in Will to T “in trust,” but terms of trust are not apparent – separate agreement.
Trust fails by violating Statute of Frauds
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
Trust fails by violating Statute of Wills
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
Charitable Trusts
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.
Rule Against perpetuities
Charitable Trusts
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.
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=> No violation if via a shifting executory interest, the asset are transferred to another charity
Cy Pres (comme possible) [“as close as possible”]**
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.
Spendthrift Trusts
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.
beneficiary can’t spend money for others
Spendthrift Trusts
Approach
- 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)
Discretionary Trusts
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.
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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
within trustee discretion
Support Trusts
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.
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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
money for beneficiary necessities
Termination of trust
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.
Termination of Trusts
By settlor / trustor
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.
Termination of Trusts
By trustees
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.
Termination of Trusts
By beneficiaries
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.
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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
Trust Material purpose
subrule - terminate trust by beneficiary
In determining whether termination would impair a material trust purpose, the whole instrument and surrounding circumstances will be considered.
Failure of an Express Trust –> goes back to the settlor
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.
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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.
Fiduciary Duties of a Trustee
List
- Delegation
- Duty to Earmark
- Duty of Care
- Duty of prudence/to diversify
- Duty to make property productive
- Duty of loyalty
- Duty to act impartially
- Principal and income allocation
Trustee’s fiduciary duty to beneficiary.
Rule
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.]
Fiduciary Duties of a Trustee
Approach
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.
Delegation
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.
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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).
Duty to Earmarking
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.
Duty of Care**
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.
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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.
Care
subrule for Duty of care
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.
Caution
subrule for duty of care
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.
Duty of Prudence/To Diversify**
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.
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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.
Duty to Make Property Productive
The trustee has a duty to make property productive and not simply exist without earning anything.
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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.
Duty of loyalty**
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.]
Duty to Act Impartially**
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.
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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
Also applies when trustee violates duty to allocate principal and income properly
Duty to Administer Trust According to Terms
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.
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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.]
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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.
Duty to Allocate Income
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.
Generally, allocation follows these rules
- money is allocated to income unless it is capital gain or in distribution of liquidation of an entity;
- insurance proceeds are allocated to principal, except for business income loss, which is allocated to income;
- 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
Duty to Allocate Expenses
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.
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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
Trustee’s Defense to Breach Fidicuary Duty
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.
List of Defenses
not rule but to be discuss
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.
Remedies for Breach of Fiduciary Duty
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.
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Summary
1. Surcharged for losses
2. Cannot offset losses with gains
3. Trustee may be removed
- Only discuss this issue where the call of the question specifically asks for remedies.
- Even if trustee profits from risky investment, losses for breach of duties is not offset by the profit of investment
